Carla Munt Feixas
RocaJunyent, Barcelona
c.munt@rocajunyent.com

Xavier Costa Arnau
RocaJunyent, Barcelona
x.costa@rocajunyent.com

Introduction

In Spain’s expanding markets, venture capital (VC) and private equity (PE) investments are pillars of innovation and economic growth. For foreign investors, the attraction of Spanish startups and established companies is strong, driven by the nation’s rich entrepreneurial spirit and supportive legal frameworks.

Within this environment conducive to investments, the rights of minority shareholders are central. These rights serve as essential guides for investors, navigating them through the complexities of corporate governance and safeguarding their interests in a framework that prioritises equitable participation.

This article intends to explore the critical rights afforded to minority shareholders in Spain, highlighting the dual framework of statutory protections and negotiated contractual rights within investment agreements.

Protecting minority shareholders

At the core of Spain’s legal framework for minority shareholders in limited liability companies (LLCs) are several key rights designed to safeguard investments and ensure equitable treatment. These rights bridge various interests, from profit sharing to decision-making influence, creating a protective net for minority stakeholders.

A principal right of all minority shareholders is the participation in profit distribution and asset allocation upon company liquidation. This guarantees that investors receive appropriate returns on their risk and investment, aligning their interests with the company’s success. Furthermore, shareholders have pre-emption rights in the context of share transfers and capital increases, allowing them to preserve or augment their company stake in fair conditions.

Minority shareholders also have significant governance rights. They can attend and vote in general meetings and contest decisions they perceive as harmful to their interests or the company’s welfare. This active engagement in decision-making processes is essential for promoting transparency and accountability. Moreover, holding at least five per cent equity will grant additional rights, including the power to call a general meeting, which is a critical mechanism for voicing concerns or proposing strategic directions. The presence of a notary can be requested to record the proceedings, adding an official layer to the documentation of these meetings.

Importantly, shareholders with at least a five per cent investment can initiate legal proceedings against company administrators for actions contrary to the company’s best interests and request an audit of the annual accounts.

While statutory rights provide the fundamental layer of protection for minority shareholders, the complex nature of VC and PE investments often necessitates extra safeguards. These are usually secured through investment agreements or shareholder agreements, customising terms to suit specific investment strategies and increasing the basic statutory protections. Breaches of statutory rights can nullify any infringing decisions. Conversely, when contractual rights are breached, investors have the right to seek financial compensation, which provides a clear and direct way for them to recover losses or damages resulting from the violations.

A crucial aspect of these contractual negotiations is the right to a minimum dividend and exit conditions for shareholders. Although these rights significantly affect an investment’s risk–reward profile, their enforceability might be subject to the company’s bylaws and the interpretative lens of the Spanish Commercial Registry.

Conclusion

In conclusion, Spain’s legal framework offers strong protection for investors, blending statutory safeguards with the flexibility of contract-based rights. Therefore, understanding both statutory and contractual rights is essential for foreign venture capital and private equity firms to protect their investments and maximise their impact on Spanish LLCs.