The term “partnership” is defined as a contract between two or more persons who make measured contributions of money, labour, or other assets that can be valued in cash terms, for the purpose of sharing the benefits arising from their cooperation.

However, such partnership may be impaired or affected by the difference in shareholding between the majority and minority shareholders, due to possible abuse or monopolization of control in the company by the former.

The Capital Companies Act, approved by Royal Legislative Decree 1/2010, of July 2, 2010, recognizes a series of rights for the shareholders of a Limited Liability Company that can be exercised by the simple fact of being holders of a certain percentage of the capital stock, a percentage that varies depending on the right in question.

So, what are these rights and from what percentage of share capital can they be exercised? The most relevant of these rights are described below:

1. Right to dividends and liquidation share

Any shareholder is entitled to participate in the distribution of the profits and assets resulting from the liquidation of the Company, in proportion to his/her share in the capital stock.

Article 348 bis of the Capital Companies Act recognizes a right of separation for the shareholder in the event of non-distribution of dividends, if certain requirements are met.

This right of separation is recognized to any shareholder who has voted in favour of the distribution of corporate profits, regardless of his/her shareholding, when the Shareholders’ Meeting does not agree to pay a dividend of at least 25% of the legally distributable profits obtained during the previous year.

This right of separation can be excluded with the consent of all the partners.

2. Preferential subscription right (art. 304 Capital Companies Act)

All shareholders have a preferential right to subscribe the new shares issued in a capital increase, with a charge to cash contributions. This right may be excluded by resolution of the General Meeting if the corporate interest justifies this.

3. Right to attend and vote at General Meetings (art. 179 Capital Companies Act)

The shareholder has the right to attend and vote at General Meetings. The Bylaws cannot require the holding of a minimum number of shares in order to attend the General Meeting of a limited liability company.

4. Right to information (art. 196 of the Capital Companies Act)

Shareholders may request in writing prior to the Meeting, or verbally during the Meeting, reports or clarifications on the matters included in the Agenda.

The Directors may not refuse this information, even if it is considered that the information requested is detrimental to the company’s interests, when the request is supported by shareholders representing at least 25% of the share capital.

5. Right to request the calling of a General Meeting

Shareholders owning at least 5% of the capital stock may ask the administrative body to call a General Meeting, indicating the matters to be discussed in their request (art. 168 Capital Companies Act). If the meeting is not called by the administrative body, the shareholders who requested the meeting may ask the Court of First Instance or the Commercial Registrar in the place where the company has its registered office to call the meeting (art. 169 Capital Companies Act).

6. Right to challenge corporate resolutions

Pursuant to Article 206 of the Capital Companies Act, shareholders who individually or jointly represent at least 1% of the share capital have the right to challenge resolutions of the Shareholders’ Meetings that are contrary to the Law, contrary to the Bylaws, or harm the Company’s interests to the benefit of one or more shareholders or third parties. Any shareholder, regardless of his/her shareholding, shall be entitled to challenge resolutions that are contrary to public order.

However, only shareholders representing at least 5% of the share capital may request the suspension of the challenged resolution.

Shareholders representing at least 1% of the share capital may also challenge null and void resolutions of the Board of Directors (art. 251 Capital Companies Act).

7. Right to initiate legal action against the directors

Shareholders who, individually or jointly, represent at least 5% of the share capital, may request that a General Meeting be called to decide on the exercise of corporate action for liability against the Directors (art. 239 Capital Companies Act).

The General Meeting may not compromise or waive the exercise of a liability action that has already been initiated, if shareholders representing at least 5% of the share capital object (art. 238.2 Capital Companies Act).

The shareholders have the right to initiate an individual action for liability against the Directors for acts that directly harm the interests of the shareholders (art. 241 Capital Companies Act).

8. Right to request the appointment of an Auditor

Any shareholder may ask the Mercantile Registrar to appoint an Auditor in the event that the General Meeting has not appointed one and the Company is obliged to audit its accounts, or when the Auditor appointed by the General Meeting has not accepted his/her position or is unable to perform his/her duties (art. 265.1 Capital Companies Act).

Where companies are not obliged to submit their annual accounts for verification by an auditor, shareholders representing at least 5% of the capital stock may ask the Mercantile Registrar to appoint an auditor to verify the annual accounts for a given year, provided that three months have not elapsed since the closing date of said year (art. 265.2 Capital Companies Act).

9. Right of separation

Shareholders who have not voted in favour of a resolution to replace or substantially modify the corporate purpose, or to extend or reactivate the Company, or to transfer the registered office abroad, or to create or terminate ancillary services prematurely, or to modify the system for the transfer of shares, or to transform the Company into a general partnership or limited partnership, shall have the right to withdraw from the Company.

10. Notarial Minutes (art. 203Capital Companies Act)

Shareholders representing at least 5% of the share capital may request the presence of a Notary Public to draw up the minutes of the General Shareholders’ Meeting, provided that this is requested at least 5 days before the Meeting is held.

These rights that the Capital Companies Act recognizes in favour of the partners of a limited liability company help to promote the protection of minority partners against majority partners, in order to avoid abuses and guarantee the continuity of cooperation between partners within the corporate structure.