Share Agreements in Spain

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There are two types of company acquisition models used in Spain – share acquisitions and asset and liability acquisitions. Share acquisitions are generally considered to be the more straightforward option as, unlike asset and liability acquisitions, no transfer rules apply.

However, the relative simplicity of share acquisitions does not necessarily mean they are more popular. The choice of acquisition depends upon the circumstances of the transaction taking place. Share transfers are required by law to be recorded in a public document. Articles of Association must be considered when shares in a Spanish public liability or limited liability company are transferred.

The process of acquisition usually begins with the negotiation and the signing of a letter of intent, the main value of which is as evidence and to provide certainty. However, if they are badly worded, letters of intent can have the opposite effect. The document should contain an identification of parties involved, a statement of intention to negotiate, a summary of steps carried out to date, their positioning, an explanation of the transaction or project, terms and conditions to be met, and objectives of the arrangement. It is also recommended that an explicit ‘non-binding’ clause is included. In some cases, exclusivity and confidentiality clauses may also be included and made binding if appropriate.

Confusion often occurs between a letter of intent which is declaratory and a pre-agreement which is definitive and has a binding nature. The importance of the distinction is the type of civil liability that parties may incur in the event of any breach of terms.

It is common practice to carry out a due diligence process before completing the purchase transaction. This enables the purchaser to identify potential risks, determine the value of the targeted acquisition and determine the transaction structure. Generally, the process is more in-depth for a share purchase than for an asset purchase.

When a share transfer is conducted, it is important to examine any change of control clauses as these allow the other party to terminate an agreement or amend its terms and conditions. Concentration control legislation governing transactions above a specified turnover or affecting national markets must also be considered. If the specified thresholds are met then there is an obligation to notify the Spanish National Markets and Antitrust Commission of the transaction for approval.

An acquisition agreement can then be drawn up and these usually contain a standard set of contents, including definitions of terms used, a subject matter clause that defines what is being transferred, and a price and method of payment clause.

A transaction closing clause may be included that establishes measures to be taken between the signing of the agreement and the transaction closing date. The interim period may be necessary for a variety of reasons, including obtaining consent or finance, finalising arrangements related to due diligence, and the transfer of unwanted assets.

In Spain, most acquisition agreements contain a list of representations and warranties made by the vendor. These have the aim of extending their liability to include any contingencies to be met after the sale that results from steps taken before the purchase.

Indemnification or security clauses state that content of the agreement is the basis for the transaction. It is usual practice for this clause to determine the notice procedure between the parties for losses and the limits of the vendor’s liability.

Company acquisition agreements often contain a non-compete clause in which the vendor gives an undertaking to relinquish any involvement with activities that compete with those of the company within a given period from the date of the agreement.

Finally, a governing law and dispute resolution clause is likely to be included to cover contentious matters that may arise over the performance, application and interpretation of the agreement. This will usually involve traditional methods of dispute resolution such as court procedures and arbitration.