Buying and selling shares of a company

Buying and selling shares in a company, whether small or large, can be a complicated process.

Buying shares of a company in Spain is a strategic form of investment that requires attention to various legal and financial details. The following details how to carry out this operation, including the relevant laws and articles, along with some practical tips to ensure a successful transaction.

What is meant by the purchase and sale of shares and stocks?

The sale and purchase of shares is a transaction whereby a person (buyer) acquires a portion of the capital stock of a company from another person (seller). In limited liability companies (LLC), it is carried out through participations, and in corporations (SA), through shares.

Steps for the purchase of shares

Previous research

Before buying shares, it is essential to conduct a thorough research on the company. This analysis includes reviewing the financial statements and performing legal and tax due diligence to identify potential risks and ensure that the investment is sound.

  • Financial analysis: Reviews the company’s financial statements, such as the balance sheet, income statement and cash flows.
  • Due diligence: Performs a legal and tax audit to identify potential risks.

Initial negotiation

Once the investment has been decided, the next step is to contact the current partners who wish to sell their shares. It is crucial to negotiate the terms of the purchase and sale and to reach a preliminary agreement that is satisfactory to both parties before formalizing the transaction.

  • Contact with sellers: Initiates contact with partners who wish to sell their shares, either directly or through intermediaries.
  • Preliminary agreement: Negotiates the price and conditions of the sale and purchase, ensuring a preliminary agreement satisfactory to both parties.

Valuation of investments

Determining a fair price for the shares is essential for a successful sale and purchase. There are several valuation methods, such as book value, market value and profitability value, which make it possible to establish the appropriate price based on different financial criteria.

  • Book value: Based on the company’s assets and liabilities.
  • Market value: Compared to similar transactions in the market.
  • Profitability value: Based on expected future profits.

Right of first refusal

It is important to know the rights of the current partners in relation to the sale and purchase of shares. According to the Capital Companies Law, the shareholders have pre-emptive rights that allow them to acquire the shares for sale before a third party.

  • Right of first refusal: According to Article 107 of the Capital Companies Law (LSC), current shareholders have preference to acquire the shares.
  • Right of withdrawal: Allows the partners to acquire the shares after the sale to a third party under the same conditions.

Formalization of the contract

Once the price and conditions have been negotiated, it is necessary to formalize the sale and purchase by means of a detailed contract. In addition, the transfer of shares must be executed in a public deed before a notary to ensure its legal validity.

  • Purchase and sale contract: Draw up and sign a contract detailing the price, conditions and form of payment.
  • Public deed: According to article 106 of the LSC, the transfer must be formalized in a public deed before a notary public.

Registration in the Mercantile Registry

After formalizing the sale and purchase, it is mandatory to register the transfer of the shares in the Commercial Registry. This step includes updating the company’s membership ledger to reflect the new owner of the shares.

  • Updating of the shareholders’ ledger: The company must reflect the change of ownership in accordance with Article 104 of the LSC.

Tax considerations

The sale and purchase of shares has tax implications that must be considered. It is essential to know and comply with tax obligations, such as Transfer Tax (ITP), to avoid legal and financial problems.

  • Transfer Tax (ITP): The buyer must pay the ITP if applicable, according to article 314 of the LSC.

Additional tips for a successful transaction

To ensure a successful buy-sell transaction, it is important to carefully review the company’s bylaws and to have the support of legal and tax advisors. In addition, maintaining clear and transparent documentation will help prevent future conflicts and ensure compliance with all legal regulations.

  • Review of bylaws: Analyze the company’s bylaws to understand the restrictions and rights related to the sale and purchase of shares.
  • Professional advice: Having legal and tax advisors specialized in corporate transactions to avoid mistakes.
  • Transparency and documentation: Ensure that all information and documentation is clear and properly recorded.

Process for the sale of shares

When a partner wishes to sell his or her shares, he or she must notify the directors of the company in writing, indicating all the relevant details of the transaction. Subsequently, a general meeting must be called to obtain the consent of the shareholders and to comply with the preemptive rights and treasury stock rules, if applicable.

  • Communication to the administrators: The transferring shareholder must communicate in writing its intention to sell, detailing the number of shares, value and conditions.
  • Calling of a general meeting: The management body shall convene a general meeting to obtain the consent of the members.
  • Right of first refusal: If several partners are interested, shares will be distributed pro rata.
  • Treasury stock: If the company acquires the shares, it must not exceed 10% of the capital stock, in accordance with Articles 140 et seq. of the LSC.
  • Registration and formalization: The transfer must be made in a public document and formalized before a notary.

Company valuation approaches

The valuation of a company can be based on different approaches, such as dividends, future earnings and assets. Each method provides a different perspective on the value of the shares, allowing buyers and sellers to make informed decisions about the transaction.

  • On the basis of dividends: The main advantage of the share is the right to receive dividends.
  • On an earnings basis: Considers the company’s potential future profits.
  • Asset-based: Used in the liquidation of the company or when the value of assets exceeds the capitalized value of dividends and earnings.

Final recommendations

To ensure a successful share sale and purchase, it is essential to have the support of specialized legal and tax advisors, to review the company’s bylaws and to maintain clear and complete documentation. These steps will help avoid errors and ensure that the transaction is completed correctly and efficiently.

  • Professional advice: Ensure a correct transaction with the support of specialized advisors.
  • Review of bylaws: Includes all related restrictions and rights.
  • Transparency and documentation: Avoids future conflicts by ensuring clarity and proper record keeping.

Buying and selling shares in a company, whether small or large, can be a complicated process. To ensure that the transfer of the company’s shares is handled correctly and that you are adequately protected, you should talk to experienced commercial and professional lawyers.

Our team is aware that the success of share transfers often depends on the quality and speed of negotiations, the preparation of documents and their execution between the parties. Our team of experienced lawyers will quickly assess and resolve these issues to ensure that the sale and purchase is completed quickly and efficiently.

GM Tax Consultancy ‘s team of lawyers and consultants can recommend suitable advisors to ensure that each transaction is completed in a tax efficient and timely manner.

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