Law 25/2011 of 1 August, Partially Amending the Capital Companies Law and Incorporating Directive 2007/36/EC on Shareholder Rights

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87462 I. GENERAL PROVISIONS HEAD OF STATE 13240 Law 25/2011, of 1 August, Partially Amending the Capital Companies Law and Incorporating Directive 2007/36/EC of the European Parliament and of the Council, of 11 July, on the exercise of certain rights of shareholders in listed companies. JUAN CARLOS I KING OF SPAIN To all who shall see and understand this. Know ye: That the General Courts have approved and I hereby sanction the following law. Preamble I This Law has as its primary object the reduction of the organization and functioning costs of capital companies, the introduction of certain modernization norms for the law of this type of company, persistently demanded by practice, as well as the suppression of some of the most unjustified differences between the regime of public limited companies and that of limited liability companies. Secondly, this Law aims to transpose into internal legislation Directive 2007/36/EC of the European Parliament and of the Council, of 11 July, on the exercise of certain rights of shareholders in listed companies. From the first perspective, it can be qualified as a law of partial reform, while from the second it belongs to the category of incorporation laws. II The reduction of costs, in line with that already embodied in Royal Decree-Law 13/2010, of 3 December, on actions in the fiscal, labor, and liberalizing fields to promote investment and job creation, is achieved through the elimination of certain publicity requirements in the press, official or private, which, although justified in past eras, have lost significance in the present era. Among the most significant measures is the one regarding the form of convocation of the general meeting of partners, generalizing for public limited companies the regime currently in force for limited liability companies. Thus, the mandatory nature of publishing the convocation in the "Official Bulletin of the Mercantile Register" and in a newspaper of the widest circulation in the province where the registered office is located is abolished, with the only two exceptions being that the issued shares are bearer shares or that it is a listed company. Likewise, the legal requirement that certain agreements modifying the articles of association must be announced in newspapers as a necessary requirement for the registration of that modification in the Mercantile Register is repealed. The requirement that the dissolution of the public limited company be published in one of the newspapers of the widest circulation in the place of the registered office is also abolished. Finally, the obligation to publish in the "Official Bulletin of the Mercantile Register" during the liquidation period of the public limited company, the so-called annual accounts statement, is eliminated. cve: BOE-A-2011-13240

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87463 In this line of action, it is equally important the admission that the articles of association of public limited companies, instead of a rigid structure of the governing body, may establish two or more modes of organization, thus facilitating that, without the need to modify these articles, the general meeting of shareholders may successively opt for that which it considers preferable, which represents a cost saving from which until now only limited liability companies benefited. In the matter of annual accounts, two measures come to reduce the cost of their deposit, facilitating the degree of compliance with this obligation. On the one hand, the elimination of the regulatory requirement that the signature of the administrators must be legalized. And, on the other hand, the suppression of the publication in the "Official Bulletin of the Mercantile Register" of the announcement of societies that had complied with that deposit obligation, of little utility since the entry into force of Law 19/1989, of 25 July, partially reforming and adapting commercial legislation to the Directives of the European Economic Community (EEC) in the matter of companies. The current possibilities of telematic access to the Mercantile Register make up for the functions that years ago could be fulfilled by the publication of lists of societies that had deposited the annual accounts. And with regard to liquidation, the requirement that, in the liquidation of public limited companies, real estate had to be sold at public auction is ended. Although doctrine and jurisprudence have tried to restrict the scope of this requirement, there are no longer arguments to maintain it any longer. Of the modernization norms of the law of capital companies that the Law introduces –coming from the Proposal for a Code of Commercial Companies, of 2002, drafted by the Section of Commercial Law of the General Codification Commission–, two stand out that refer to the board of directors: one regulates, for the first time in a norm with the rank of law, the legal regime of the administrator being a legal person, collecting a specific reference to the joint and several liability of the represented legal person and the representative; and the other regulates the power of convocation of the board of directors by the administrators who represent, at least, one third of the members of the body, when the president, despite having been requested to do so, had not convened it. III As for the elimination of differences in regime between public limited companies and limited companies arising from legislative policy decisions adopted at different times and in different laws, it is necessary to mention the unification of the content of certain provisions. Thus it is done in relation to the convocation of general meetings –in the line anticipated by Royal Decree-Law 13/2010, of 3 December, on actions in the fiscal, labor, and liberalizing fields to promote investment and job creation–; with the admissibility also for public limited companies of the possibility of introducing in the articles causes for the exclusion of shareholders; with the unification of the legal causes of dissolution applying to all capital companies the one regarding their inactivity; with the generalization of the supplementary rule on the automatic conversion into liquidators of the administrators of the company; and with the unification of the legal regime of liquidators of cancelled companies. These differences could not be overcome in the drafting of the consolidated text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of 2 July, as they exceeded the limits of the authorization granted by the General Courts, as the Council of State had the opportunity to expressly recognize. They are now overcome with the purpose of perfecting the legal regime of the legal forms predominant in the Spanish economic reality. cve: BOE-A-2011-13240

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87464 In this same sense, the contradiction between the period that must elapse between the publication of the convocation of the general meeting of shareholders and the period for the holding of the meeting at the request of the minority is corrected. Likewise, the scope of the sanctions for prohibited conduct in the chapter relating to transactions on own shares and company participations is expanded. IV Directive 2007/36/EC of the European Parliament and of the Council, of 11 July, on the exercise of certain rights of shareholders in listed companies, aims to facilitate and promote, within the European Union, the exercise of information and voting rights of shareholders of listed companies. Through the norms contained in this Directive, it is aspired to guarantee that general meetings are duly convened and that the documents that must be presented to them are available in time so that all shareholders, regardless of their place of residence, can adopt a reasoned decision at the time of casting their vote. Directive 2007/36/EC advocates for the suppression of obstacles that hinder the voting of shareholders and the removal of legal obstacles to electronic participation in meetings, with the exception of those necessary for the verification of the shareholder's identity and the security of electronic communications. Special emphasis is placed on allowing shareholders not resident in the Member State to exercise their rights with the same ease as residents, eliminating the obstacles that hinder their access to information and the exercise of voting without the need to physically attend the meeting. At the same time, other forms of shareholder participation in meetings are regulated, such as the introduction of new points in the agenda of the meeting, the presentation of proposals for agreements on points of the agenda or the exercise of the right to information on said points, and finally, the obstacles that hinder the exercise of voting by proxy for those shareholders who opt not to physically attend the meeting and who also do not participate by telematic means are suppressed. The incorporation of the content of this Directive is, as previously stated, another of the essential purposes of this Law. The regime of listed companies has already experienced notable modernization within the framework of Spanish corporate law. On the one hand, the modifications carried out through Law 26/2003, of 17 July, by which Law 24/1988, of 28 July, on the Securities Market, and the consolidated text of the Law on Public Limited Companies, approved by Royal Legislative Decree 1564/1989, of 22 December, are modified, must be highlighted, with the aim of strengthening the transparency of listed public limited companies, and of Law 19/2005, of 14 November, on the European public limited company domiciled in Spain. The first of these, which incorporated into the legal order pre-legislative norms coming from the aforementioned Proposal for a Code of Commercial Companies of 2002, has had a great impact, beyond listed companies, by having expanded the legal catalog of the duties of administrators of any type of public limited company. On the other hand, the promulgation of the Capital Companies Law has meant a systematic reorganization of the legal regime of listed companies and the almost complete unification, in a single legal text, of a discipline until then dispersed in the articles of the consolidated text of the Law on Public Limited Companies, approved by Royal Legislative Decree 1564/1989, of 22 December, and in Title XII of Law 24/1988, of 28 July, on the Securities Market. Some of the norms incorporated into Spanish law in recent years and some of those contained in the Directive coincide with the proposals made in recent years by those commissions appointed for the improvement of good governance of listed companies. cve: BOE-A-2011-13240

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87465 Nevertheless, despite the normative changes indicated, there are aspects in need of improvement. In this sense, the Law makes use of the possibilities that the electronic media available to these companies allow, while attending to the necessary guarantee of shareholders' rights, especially in cross-border situations so common in contemporary reality. V The Law contains three articles, one repealing provision, and six final provisions. The first of these articles contains the modifications of the Capital Companies Law mentioned above and those others considered indispensable for adapting the legal regime to the provisions of Directive 2007/36/EC. These modifications refer to very concrete issues, provided respectively in paragraph 3 of article 177 and in article 197, such as the period to announce the second convocation of a general meeting that was not held in the first convocation and always provided that in the announcement of that first convocation the date of holding in the second convocation was not provided, and some clarifications in the right to information of shareholders in relation to general meetings. The most important part of the transposition is contained in the second article, which modifies Chapter VI and reorders the subsequent chapters of Title XIV of the Capital Companies Law, relating to the special features of the general meeting of shareholders of listed companies. This chapter is now articulated in two sections to collect the provisions of the aforementioned Directive. Within this Chapter, the main novelty is the new Section 2nd, dedicated to the functioning of the general meeting and which, in turn, is divided into three sub-sections. In the first sub-section, its general rules are established, which pass through consecrating equal treatment for all shareholders of the listed public limited company and the aspects relating to convocations, their publicity and content, as well as the right to information of shareholders. In the second sub-section, special rules are established for participation in general meetings of listed companies by means of a representative, among which stands out the specific regulation of the conflict of interest of the representative. In the third sub-section, some special features on voting in general meetings of listed companies are established. Linked to this matter, the seventh additional provision of the Capital Companies Law is adjusted in this Law, in which, to avoid an extensive interpretation of the competencies of the National Securities Market Commission, its sanctioning function does not extend to issues whose infringement corresponds to the judicial bodies. Finally, through a final provision, two new paragraphs are introduced in article 100 of Law 24/1988, of 28 July, on the Securities Market, with the aim of articulating a minimum disciplinary regime in this field. The infringing types are related: to the non-compliance with the publicity provisions of the convocation of general meetings of shareholders of listed companies, which are regulated in the new article 516 of the consolidated text of the Capital Companies Law, and to the obligation to publish the results of the votes on the matters treated in the general meeting of shareholders on the website within five days, in accordance with what is provided in article 525 of the aforementioned Law. Article one. Modification of the consolidated text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of 2 July. One. A new article 11 bis is introduced, with the following wording: "Article 11 bis. Electronic Headquarters.

1. The creation of a corporate website must be agreed upon by the general meeting of the company. The agreement to create must be registered in the Mercantile Register or notified to all partners. cve: BOE-A-2011-13240

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87466 The suppression and relocation of the company's website may be agreed upon by the governing body, unless otherwise provided in the articles. Said agreement must be registered in the Mercantile Register or notified to all partners and, in any case, it must be stated on the suppressed or relocated website itself, during the thirty days following the adoption of said agreement of relocation or suppression. 2. It shall be the responsibility of the administrators to prove the certainty of the fact of the insertion of content on the website and the date on which it was made. To prove the maintenance of said content during the validity period, the statement of the administrators shall be sufficient, which may be rebutted by the aggrieved party through any proof admissible in Law." Two. Letter e) of article 23 is worded as follows: "e) The mode or modes of organizing the administration of the company, the number of administrators or, at least, the maximum and minimum number, as well as the duration of the office and the system of remuneration, if any. In limited partnerships by shares, the identity of the general partners shall also be expressed." Three. Letter f) of paragraph 1 of article 56 is worded as follows: "f) By not expressing in the articles the amount of the social capital." Four. Paragraph 1 of article 72 is worded as follows: "1. The acquisitions of assets for valuable consideration made by a public limited company from the granting of the deed of constitution or transformation into this type of company and up to two years of its registration in the Mercantile Register must be approved by the general meeting of shareholders if the amount thereof was, at least, one tenth of the social capital." Five. Paragraph 2 of article 149 takes on the following wording: "2. The provisions in the previous paragraph shall not apply to operations carried out within the scope of the ordinary activities of banks and other credit entities. These operations, however, must comply with the requirement referred to in letter c) of the previous article." Six. Paragraph 1 of article 157 is worded as follows: "1. The non-compliance with the obligations or the violation of the prohibitions established in this chapter shall be considered an infringement." Seven. The second paragraph of article 168 is worded as follows: "In this case, the general meeting must be convened for its holding within the two months following the date on which the administrators were requested notarially to convene it, and the matters that had been the subject of the request must necessarily be included in the agenda." Eight. Article 173 is worded as follows: "1. Unless otherwise provided in the articles, the general meeting shall be convened by announcement published in the 'Official Bulletin of the Mercantile Register' and on the company's website. On a voluntary and additional basis to the latter or when the company does not have a website, the convocation shall be published in one of the newspapers of the widest circulation in the province where the registered office is located. cve: BOE-A-2011-13240

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87467 2. The articles may establish that the convocation be made by announcement published on the company's website or by any procedure of individual and written communication that ensures its receipt by all partners at the address designated for that purpose or that appears in the company's documentation. In the case of partners residing abroad, the articles may provide that they will only be individually convened if they have designated a place in the national territory for notifications. On a voluntary and additional basis, the convocation may be published in one of the newspapers of the widest circulation in the province where the registered office is located. 3. By exception to the provisions of the previous paragraph, in the case of a public limited company with bearer shares, the convocation must be made, at least, by announcement in the 'Official Bulletin of the Mercantile Register'." Nine. Article 174 is worded as follows: "In any case, the convocation shall express the name of the company, the date and time of the meeting, the agenda, on which the matters to be treated will appear, and the position of the person or persons carrying out the convocation." Ten. Paragraph 3 of article 177 is worded as follows: "3. If the duly convened general meeting, whatever its class, could not be held in the first convocation nor was the date of the second provided for in the announcement, the holding of the latter must be announced, with the same agenda and the same publicity requirements as the first, within fifteen days following the date of the meeting not held and with at least ten days' advance notice of the date fixed for the meeting." Eleven. Paragraph 4 of article 197 is worded as follows: "4. The denial of information shall not proceed when the request is supported by shareholders representing, at least, twenty-five percent of the social capital. The articles may fix a lower percentage, provided it is higher than five percent of the social capital." Twelve. Article 212 bis is introduced, with the following wording: "Article 212 bis. Legal Person Administrator.

1. In the event that a legal person is appointed as an administrator, it shall be necessary for it to designate a single natural person for the permanent exercise of the functions proper to the office.
2. The revocation of its representative by the administrative legal person shall not produce effect until it designates the person who replaces it. This designation shall be registered in the Mercantile Register in the terms provided in article 215." Thirteen. Article 246 is worded as follows: "Article 246. Convocation of the Board of Directors.
3. The Board of Directors shall be convened by its president or the person acting in his stead.
4. The administrators who constitute at least one third of the members of the board may convene it, indicating the agenda, for its holding in the locality where the registered office is located, if, prior request to the president, he without justified cause had not made the convocation within a period of one month." cve: BOE-A-2011-13240

OFFICIAL STATE GAZETTE No. 184 Tuesday, 2 August 2011 Sec. I. Page 87468 Fourteen. The wording of paragraph 1 of article 264 becomes the following: "1. The person who must exercise the audit of accounts shall be appointed by the general meeting before the end of the fiscal year to be audited, for an initial period of time, which shall not be less than three years nor more than nine, counting from the date on which the first fiscal year to be audited begins, without prejudice to what is provided in the regulatory norm governing the activity of audit of accounts regarding the possibility of extension." Fifteen. Article 279 is worded as follows: "Article 279. Deposit of the accounts.

1. Within the month following the approval of the annual accounts, the administrators of the company shall present, for their deposit in the Mercantile Register of the registered office, a certification of the agreements of the partners' meeting approving said accounts, duly signed, and of the application of the result, as well as, if applicable, the consolidated accounts, to which a copy of each of them shall be attached. The administrators shall also present, if mandatory, the management report and the auditor's report, when the company is obliged to audit or if it had been agreed at the request of the minority.
2. If any"