Transferring shares or adding a shareholder in a limited company

Terms used

• Escritura — The escritura is a deed signed before a notary, the standard public document for company transactions.
• Póliza — The póliza is a private contract that a notary intervenes and records, used instead of an escritura.
• Libro registro de socios — The libro registro de socios is the company's own register of its partners and their shares.
• Registro Mercantil — The Registro Mercantil is the public commercial register where company changes and annual accounts are filed.
• IVA — IVA is Spain's value added tax.
• ITP — ITP is the transfer tax on certain property and asset transfers.
• AJD — AJD is stamp duty on certain legal documents.
• IRPF — IRPF is Spain's personal income tax for residents.

Key rules

• Outside buyers: Unless the bylaws say otherwise, selling to someone outside the family and group circle needs the general meeting's consent.
• Notary: A transfer is not valid against the company unless it is in an escritura or póliza before a notary.
• New partners: Existing partners get first right to subscribe to a capital increase, in proportion to their holdings.
• Tax: A sale of shares is normally exempt from IVA, ITP and AJD, but the seller pays tax on the gain.
• Beneficial owner: Anyone holding more than 25% of shares or votes must appear as a beneficial owner.

Start with the bylaws

Whether you can sell depends first on the company's bylaws. Read them before you agree a price with anyone.

By default in an SL, transfers are free to other partners, your spouse, ascendants, descendants and companies in the same group. A sale to anyone else needs the company's consent. The general meeting gives it, by the majority needed to change the bylaws. You must notify the company of the proposed sale.

If the meeting refuses, the company must either find you a buyer or buy the shares itself at fair value. This has a time limit of three months.

Bylaws can make transfers freer or stricter, but not practically impossible. Free transfers between partners cannot be banned. A ban on selling at all is valid only if you can leave the company at any time. A ban for a set period is valid only if you can leave, and the initial period is capped at five years. For transfers on death, the bylaws can only give the other partners a right to buy at fair value.

Formalise the transfer

The transfer must be in a public document. That is either an escritura signed before a notary, or a póliza that a notary intervenes. Without it, the transfer is not valid against the company. You pay the notary's fees.

Then:

• The buyer notifies the company.
• The company records the new owner in its libro registro de socios.
• The buyer checks that the sale followed the bylaws.

You normally do not have to tell the Registro Mercantil yourself. The exception is a company with a single owner, or a transfer that makes it one. The administrators file the updated list of partners with the annual accounts when needed.

Beneficial owner and tax census

Anyone who holds more than 25% of the shares or votes, or controls the company in another way, must be recorded as a beneficial owner. The notary reports this when shares change hands. The company must keep the data current and refresh it with the annual accounts. Missing details can bring fines, and the Registro Mercantil can refuse to take the accounts.

Modelo 036 or 037 is only needed if the administrators change. It is not for every change of partner.

Adding a partner by capital increase

A new partner can join by buying newly issued shares. Do it in this order:

1. The general meeting passes the increase by the majority needed to change the bylaws. The resolution sets the amount, the nominal value or premium, and the deadline to subscribe.
2. Existing partners can subscribe first, in proportion to their holdings, for at least one month.
3. The meeting can exclude that right only if the company's interest requires it. This needs a report from the administrators and an auditor's report on fair value and issue price.
4. The new partner subscribes and pays in cash or in kind. Keep a bank certificate or other proof of payment.
5. Sign the increase in an escritura before a notary and file it with the Registro Mercantil within the deadlines. Then update the register of partners.

The increase itself is exempt from the corporate transactions tax.

Tax on the transfer

A sale of SL shares is exempt from IVA, ITP and AJD. The exception is a company that mainly holds real estate, where buying a controlling stake can trigger transfer tax.

The seller pays tax on the gain:

• An individual pays IRPF, as savings income at progressive rates, in the annual return.
• A non-resident pays IRNR.
• A company pays Corporate Tax, with a participation exemption in some cases.

A free transfer, such as a gift or inheritance, pays donation tax or inheritance tax. Regions manage these, and allowances and rates differ widely. The normal filing time is 30 working days for a gift and 6 months for an inheritance, using the regional form.

The timeline, documents and checklist below walk you through the order of steps.

Timeline and deadlines

• Ask the meeting to consent to a sale to an outsider: before you sign the transfer

• If the meeting refuses, the company finds a buyer or buys the shares at fair value: within three months

• Hold the meeting that approves a capital increase, setting the amount, value or premium and the subscription deadline: before any new partner subscribes

• Let existing partners subscribe first in proportion to their holdings: for a period of at least one month

• Have the new partner pay in the shares, then sign the capital increase before a notary and file it with the Registro Mercantil: after the subscription period ends

• File donation tax for a free transfer of shares: within 30 working days

• File inheritance tax for shares received on a death: within 6 months

• Update the beneficial owner details whenever ownership changes, and again with the annual accounts: when ownership changes and when the annual accounts are filed

Documents you need

• Public document for a share transfer: either an escritura signed before a notary or a póliza (policy) that a notary intervenes. Without it the transfer is not valid against the company.

• Bank certificate or other proof that the new partner has paid in the contribution for a capital increase, whether in cash or in kind.

• Escritura of the capital increase, signed before a notary and then filed with the Registro Mercantil.

• Administrators' report and an auditor's report on fair value and issue price, only if the meeting excludes existing partners from subscribing first.

Checklist

• Read the bylaws for transfer restrictions and get the meeting's consent if the buyer is outside the free group.

• Sign the transfer in an escritura or póliza before a notary, and pay the notary's fees.

• Check that the beneficial owner entry shows anyone who now holds more than 25% of the shares or votes.

• Update the tax census (modelo 036 or 037) if the transfer also changes the administrators.

• Pass a meeting resolution for a capital increase by the majority needed to amend the bylaws.

• Offer existing partners the chance to subscribe in proportion to their holdings before admitting the new partner.

• Get the bank certificate or other proof of the new partner's payment, then update the register of partners after the notary signing.

• Declare the capital gain in your annual income tax return (modelo 100) if you are an individual seller.

• File donation or inheritance tax on the regional form if the shares pass without payment.

What to watch out for

• Transfer tax can apply to a real estate company: Share sales are normally exempt from VAT, transfer tax and stamp duty. But if the company mainly holds real estate and you acquire a controlling stake, transfer tax can still be charged. Ask a tax adviser before signing if the company owns mostly property.

• Gifts and inheritances are taxed by region: A free transfer of shares is subject to donation or inheritance tax, and allowances and rates differ greatly between regions. Missing the filing deadline can add cost. Check your region's allowance and form before you transfer, and file on time.

• Missing beneficial owner details brings fines: If the company's beneficial owners are not declared or kept up to date, it can face fines under the anti-money-laundering rules. The Registro Mercantil can also refuse to deposit the annual accounts. After every ownership change, ask the notary or the Registro Mercantil to confirm the declaration is current.

Frequently asked questions

Can I sell my shares to an outsider without the other partners' approval?

No, a sale to an outsider normally needs the shareholders' meeting's consent, unless the bylaws say otherwise. Sales to other partners, your spouse, parents, children or group companies are free by default.

Can the bylaws ban me from ever selling my shares?

No, the bylaws cannot make selling practically impossible, and a ban on sales only works if you can leave the company at any time. A ban for a set period is allowed only with a right to exit, and the initial period is at most five years. Sales between partners cannot be banned.

Can the meeting exclude existing partners from a capital increase?

Yes, the meeting can exclude their right to subscribe first, but only when the company's interest requires it.

Do I have to tell the Registro Mercantil after a share transfer?

Only if the company is a sole-owner company (sociedad unipersonal) or the transfer makes it one. Otherwise the change is shown in the company's own shareholder register, and the updated list of partners is filed with the annual accounts when needed.