Right of separation of the partner
Concept of the Right of Separation
Every partner in a commercial company< /strong>, you can dispose of your share or participation, agreeing a sale with another partner or with a third party, in exchange for the perception of an economic amount equivalent to the value of the share that is transferred.
Apart from this assumption, the Capital Companies Law provides for the possibility for the partner to request the return of his share or participation to the corresponding corporation or limited company. In other words, it is the company itself that acquires that share and delivers its economic value to the partner.
This right is known as “separation right< /em>” of the partner, and is regulated in article 346 et seq. of the Capital Companies Law. As we will see, this right operates only in certain circumstances expressly assessed in the applicable regulation and which we will now develop.
Legal causes that allow the Right of Separation (art. 346 LSC)
managers have adopted a decision that significantly affects the future of their activity.
The regulation requires partners, before exercising the Right of Separation , that their position was consistent with their vote. They will only be able to exercise this Right, those who have not facilitated with their vote the decision that gives rise to the possibility of separating from the company.
Therefore, the partners who have not voted in favor of the corresponding agreement, will have the right to separate from the capital company in the following cases:
- Substitution or substantial modification of the corporate purpose.
- Extension of the company.
- Reactivation of the company.
- Creation, modification or early termination of the obligation to perform ancillary benefits , unless otherwise provided in the bylaws.
The four aforementioned cases operate in general both in stock companies and limited liability companies. To which should be added the following exceptions, also set out in the aforementioned article 346 of the Capital Companies Act:
- In limited liability companies, The partner will also have the Right of Separation when an agreement has been adopted to modify the system of transfer of shares.
- This Right may be exercised in the event of transformation of the company.
In these cases, it is also provided that the partners will be automatically separated from the company if as a consequence of the transformation they have to assume personal responsibility for the company debts, and had not adhered to the agreement within a month of the adoption of the agreement (art. 15.2 of the Law on Structural Modifications of Capital Companies).
- In case of transfer of address abroad (art. 99 of the Law on Structural Modifications of Capital Companies).
Statutory causes that allow the Right of Separation (art. 347 LSC)
By unanimous agreement, or with the consent of all partners, the bylaws may include causes of separation other than those already provided for in the Law. However, the causes listed in the previous section and which by law must operate in any case cannot be suppressed.
When the statutes introduce new causes, their requirements must be agreed in advance, as well as any circumstance that has any implication on the cause of separation, the way to exercise the Law and the terms that affect the partner.
Separation right in case of non-distribution of dividends (art. 348 bis LSC)
Special mention should be made of the Separation Right for lack of distribution of dividends, regulated in article 348 bis LSC and introduced by Law 25/2011. The application of the provisions of this article was suspended until December 31, 2016, so it will be applicable as of the 2017 financial year.
In accordance with In accordance with the aforementioned precept, the partner shall have the right to request separation from the company when it has not distributed at least one third of the profits obtained from the exploitation of the corporate purpose, which can be distributed in accordance with the Law .
For the partner to be able to exercise the Right of Separation, as in the rest of the cases, there must be voted in favor of profit sharing. And in addition, a minimum of four years must have elapsed since the registration of the company in the Registry.
In the article Solutions for partner conflicts: the right of separation we explain a specific case in which one of our clients exercised the right of separation of the partner with a positive result.
Valuation of the amount to be received by the partner
The valuation of the shares or shares of the partner requesting the separation is commonly raised as a problem. Legal doctrine speaks of quantifying the “real or reasonable value” as the fair price of said shares.
The ideal option is the consensus between the partner and the mercantile. The parties are free to agree on a price that satisfies the claims of both. However, in practice this solution is not always possible.
The statutes offer in some cases a valuation rule that resolves the controversy . The jurisprudential doctrine allows the company to regulate in this way its own valuation of the shares for the purposes of the Right of Separation, based on the principle of freedom of agreement of art. 1,255 of the Civil Code.
In the absence of an agreement, and the bylaws not providing a specific answer, the “reasonable value” must be subject to estimation by an independent expert appointed by the Mercantile Registry, as established by law.
They are known in legal practice multiple methods of making the aforementioned assessment. Some of the best known are the following:
- Nominal value of the shares or participations. This is the simplest criterion, but also one of the least used.
- Net book value. It is obtained by the difference between assets and liabilities. Despite being one of the most common valuation methods, it has major shortcomings, as it does not consider essential data such as the real value of the company’s assets, which often differ from the value reflected in the accounting.
- Substantial value. It consists of the sum of the value of the assets necessary to maintain productive capacity.
- Comparative methods. Appraisal of the value of the company by comparing the price of other companies with similar conditions, whose shares have been sold or valued in the market.
- Liquidation value. Emulating the liquidation of the company, we would find the value of the company considering the sale value of the assets, the payment of its debts, and deducting the liquidation expenses.
The convenience of one method or another will depend on the specific case. If the separation of the partner implies the dissolution of the company (a question that could arise in professional companies, for example), it seems reasonable to use the liquidation value. Otherwise, if the continuation of the activity of the company after the separation of the partner is feasible, the “fair value” may result from the application of any of the other methods.
Both the partner and the company can challenge in court the valuation made by the independent expert appointed by the Mercantile Registry, if they understand that the criteria used differs from the “real or reasonable value” .
José Luis Casajuana Ortiz
Partner at J. L. Casajuana and head of the international area
01/25/2017
