A commercial company is, in essence, a contract through which various individuals agree to combine their efforts for the purpose of carrying out a specific business. Should the company decide to carry out a business different from that initially agreed upon by its membership interest holders (hereinafter “partner” ), the justification for their being a partner of the company may be invalidated. For this reason, the Spanish Companies´ Act (La Ley de Sociedades de Capital – LSC) prescribes, under article 346.1.a), a mechanism permitting that, in the event of a company agreeing to substantially amend its corporate purpose, the partner who voted against the motion to approve said amendment in the corresponding General Meeting shall have the right to withdraw from the company. The problem here lies in determining exactly how the adjective ‘substantial’ should be understood, since this concept is not legally defined.
This was the issue analysed by the Resolution of 13 May 2024 of the Directorate General of Legal Security and Public Trust. This case revolved around deciding whether the essential nature of the corporate purpose of the company “Real Club Celta de Vigo, S.A.D.”, which limited the sporting activities which the company may undertake to exclusively football, was amended to the extent that article 346.1.a) of the LSC was triggered, thereby granting a right to those opposing partners to withdraw from the company.
In its appeal, the company cited case law of the Supreme Court, which established that the corporate purpose of a company is not deemed fundamentally amended when the amendment, be it an addition or deletion, is insignificant, nor when it is a case of mere concretisation or specification of the activities described in the company by-laws. By contrast, the corporate purpose shallbe deemed fundamentally amended where there has been a change to the objectively decisive preconditions on which the partner of the company joined it as a result of making a substantial change to the corporate purpose of a company to the extent that its legal or economic reality is altered. This shall take place, for example, upon the deletion of essential activities from the corporate object, whilst nevertheless maintaining secondary ones, or upon the addition of other activities which, on account of their economic importance, may result in a portion of the company capital being diverted to a cause different to that foreseen in the company by-laws.
The appellant held that the reality of the activity developed by the company did not change as a result of the modification to its by-laws, because ever since the date of its incorporation, the only sporting activity which the company has invariably undertaken to develop, is football. The amendment to its by-laws would not, in that regard, alter in any way the activity for which the company was incorporated, but rather simply concretise it. Likewise, nor would the amendment have resulted in a change to the objectively decisive preconditions on the basis of which the shareholders invested in the Company.
Furthermore, in this case, the concretisation of the corporate object was exclusively motivated by the alteration of the company by-laws for the purpose of complying with Law 39/2022 of 30 December on Sport, which obliges joint-stock companies in the business of sport to concretise the sporting discipline which they undertake to develop. The amendment was not lobbied by any partner, nor was it carried out with the aim of altering the activity which the company undertakes.
Notwithstanding the foregoing, the Directorate General ruled in favour of the Registrar, in consideration of the fact that, on applying the case law of the Supreme Court, in order to determine if the modification of the corporate purpose does or does not alter its essential nature, one must turn to the type of activity undertaken by the company. For this reason, the removal of activities included in the corporate purpose – that is, all those relating to sporting disciplines other than football – must be deemed a substantial amendment to the corporate purpose.
In summary, the Directorate General ruled that, regardless of the motives behind the company amending its corporate purpose, said amendment was of a substantial nature, and, therefore, constituted a legal cause of its partners withdrawing from the company.
Joan Lluís Rubio
Vilá Abogados
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6th of September 2024
