What rights do the stockholders or participants of a capital company have?

We thoroughly explain the regulations regarding stockholders' rights

Joint stock and limited liability companies are the most common and widely used types of legal format used to support business activities. With the exception of single stockholder companies, it is essential that partners have a good relationship. So, what rights do stockholders or investors in a company have?

Such rights are governed by Article 93 et seq. of the Corporate Enterprises Act.

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Under the terms of this law, and except for the cases provided for therein, stockholders shall have the following rights as a minimum requirement:

  • The right to participate in the distribution of corporate income and equity resulting from liquidation.
  • Preemptive rights in connection with the creation of new investments or right of first refusal on the issue of new stock or bonds that can be converted into stock.
  • The right to attend and vote at general meetings and the right to challenge corporate resolutions.
  • The right to information.

These rights can be divided into two major groups as follows: those of a political nature or that are linked to the management of the company, and those of an economic nature that enable holders to receive a share of the company's profits, mainly through dividends.

These rights are not absolute and can be affected by the company's statutes or the specific type of stock or investment held.

Rights offered by stocks in limited liability companies may differ from those provided by other types of stock. Stocks that offer the same rights are considered as being from the same class. When there are several tranches of stock within the same class, those pertaining to the same tranche must have the same nominal value.

When preferred limited liability company stocks and other stocks are issued, the formalities that correspond to each specific case must be observed.

Political rights

Political rights enable the holder to participate in the management of the company. Some types of political rights are as follows:

  • Right to attend, speak and vote at General Meetings: a minimum requirement may be established for this right and it may not be available for certain types of rights (in exchange for the allocation of financial privileges, i.e. non-voting stock). In principle, decisions are taken based on a majority vote and the capital represented by the securities held by each investor. However, a qualified majority may be needed or, depending on legislation, certain types of assets will take preference.
  • Right to information: this is a natural precursor to the above as, in order to exercise a right, the party at issue must be aware of the company's performance. Stockholders must have access to the company's annual accounts, management report and, in general, any document to be approved at the Meeting. This includes petitions for clarification at the Meeting itself. This is an issue that often causes friction and discussions about whose turn it is to speak and about the replies offered.
  • Right to challenge corporate resolutions: Stockholders and investors may legally challenge any resolutions passed at Meetings that infringe either the law or the company's bylaws or that are detrimental to the company's interests. In this way, the above parties seek to protect both themselves and the company.
  • Right to derivative action: over and above the decisions adopted at Meetings, in order to manage the company's daily affairs, stockholders may exercise their right to derivative action if they consider that those responsible for managing the company have violated its interests.
  • Right to call a Meeting: Stockholders representing 5% of the company may ask directors to call a Meeting. If they fail to do so, said stockholders may raise the matter in court.
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Economic rights

Economic rights enable stockholders or investors to participate in the distribution of corporate earnings (if there are any). Economic rights include the following:

  • Right to a dividend: Stockholders and investors have the right to the profits the company distributes among its members (dividend) based on the amount of capital invested (subject to certain requirements). In order to clarify, the General Meeting decides whether or not to distribute profits. If there are no profits, there will be no dividend. However, if profits have been generated, the company is under no obligation to distribute them.
  • Right of first refusal: Current stockholders have the right to subscribe to capital increases or convertible bond issues in order to prevent their holdings from being diluted. Said right is valued financially and may be transferred by stockholders.
  • Right to transfer stocks or investments: stockholders have the right to dispose of stocks or investments. This right may be materially restricted by law or under the company's bylaws, as is often done by limited liability companies and many joint stock companies to prevent unwanted entities from investing in the company.
  • Right to liquidation proceeds: if the company is dissolved, stockholders have the right to receive liquidation proceeds proportional to their investment.
  • Right to proportional representation at the Board of Directors for Joint Stock Companies.
  • Right of withdrawal: under certain circumstances (change of corporate purpose, transfer of the registered office abroad, conversion to a limited partnership or general partnership and, of note, failure to distribute profits for more than five years for non-listed companies), stockholders that have not approved said resolutions may demand that the company pay the value of their stockholdings so that they may leave the company.
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