Distribution of dividends

Until now, the distribution of dividends depended on a general meeting without any limitation. Limitations apply to the reform of article 348 LSC. When is the obligation to distribute dividends? What happens if that obligation is breached?

The abstract right to distribute profits is specified in the right to the dividend. And it materializes because the board agrees. The distribution of dividends, in principle, is within the free business initiative and freedom of the enterprise

But conceptually, the distribution of dividends does not operate in the same way in a listed (open) company, as it does in a non-listed (closed) company. In the listed company, there is a permanent divestment market. In the unlisted, the partner has been held hostage by the majority.


Why has the minority been held hostage by the majority?

  • As we will see, the minority are the last to be paid in case of liquidation. They occupy the last place in the liquidation process.
  • In addition, there are serious difficulties in disinvesting in unlisted companies.
  • And finally, dividends depend on the decision of the majority.

For these three factors, it is appropriate to protect the minority partner from the abuse of the majority. For this reason the legislative change has taken place.



What happens if the obligation to distribute dividends is not met?

That “the member who has voted in favour of the distribution of social benefits shall have the right of separation in the event that the general meeting does not agree on the distribution as a dividend of at least one third of the benefits of the exploitation of the object social benefits obtained during the previous fiscal year, which are legally distributable”.

Additionally, the modification is established with absolute character; no real or imminent solvency problems can be claimed.



Does this lead to abuses of the minority over the majority?

It is possible, although it will be time and jurisprudence that will determine the answer.

Subjective scope of the application:

Excluded listed companies (different distribution policy). These are companies listed based on article 495 LSC, those corporations whose shares are admitted to trading on an official secondary securities market.

These include:

Limited or limited companies (closed companies)

MAB Companies (Alternative Stock Market). Due to the wording of the 495 LSC, they are not considered quoted, since the standard does not make a qualification. Therefore, in principle they would be included. We emphasize that in this area the greatest attention should be given.



Imperativeness of the precept

Article 348 bis is considered imperative, since it does not refer to the statutory forecast at any time.

Therefore, the renunciation of this right of separation would not be statutorily available.

However, one would think that an express waiver of this right would be admissible with unanimous acceptance of the partners.




Temporary requirement of five (5) years from the registration of the company in the commercial registry. These five years are undistributed results, with the decision being taken in the sixth year.

A repeated denial is not required. It is enough that in a single exercise it is not distributed so that this separation right can be generated.

No agreement of the general meeting of distribution of a third of the benefits as dividends. Here, we are facing a non-agreement, in which the general meeting does not support the distribution. We specify that it is a refusal to distribute the legally established third, not being applicable to other concepts, that are not dividends.

Legally distributable benefits. These must be distributable benefits, excluding legal reserves, loss compensation and any other concept that is not a dividend.

Voting in favour of the member of the dividend distribution (Judgment of the Provincial Court of Barcelona of March 26, 2015)



Basis of calculation of that percentage

Here, we are facing the benefits of the exploitation of the social object.

But to all the benefits? Or only to those of the social object? Or also the extraordinary or atypical ones?

In principle one would think that the atypical results would have to be eliminated. However, a non-peaceful issue will be outlined jurisprudentially.



Uncertainties associated with the right of separation

According to what is established in 348 bis, there is an obligation to distribute a third, which could lead to a decapitalization of the company. So could you choose a distribution method that is not in money (in kind)?



What happens if there is no agreement about the value of the shares?

You would have to go to an auditor and that would entail at least three harmful consequences for the society.

In the first place, there would be some costs (economic and human resources) associated with the audit.

Second, a contingency situation would affect financing, investment, disinvestment, merger, or any structural modifications.

The third option is a dangerous approach.


And what about the social creditors?

Let’s analyse this question “a la gallega”, that is, with four other questions.

First, what happens in a situation of future insolvency?

Second, has there been a prevalence of partners over creditors?

Third, Can the insolvency have been generated by having to facilitate the exit to the minority partner?

Fourth, to what extent is a treasury tension not imposed on the society to the detriment of creditors?

This modification is still very recent. It will be Jurisprudence that will help it mature.

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