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Company and Commercial Law
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4Main Characteristics of Corporations and Limited Liability Companies

4.4 Types of shares

4.4.1 Types of shares at a corporation

A distinction can be made between the following share categories:

Registered vs. bearer sharesThe shares of an S.A. can be registered shares (the holder is the person designated in the certificate) or bearer shares (the holder is the bearer of the certificate). However, the shares must be registered in the following cases:

  • If they are not fully paid in.
  • If their transferability is subject to restrictions.
  • If they are subject to ancillary obligations (see below).
  • When so required by special regulations (e.g. shares of banks and insurance companies).
Common vs. preferred stockPreferred stock may be created as a separate class or classes pursuant to the same procedural formalities applicable to bylaw amendments (i.e. quorum and voting requirements and method of calling the shareholders’ meeting), and may include shares entitled to a preferential dividend.

In any event, issues of shares will not be valid in the following cases:

  • Shares remunerated in the form of interest.
  • Shares which directly or indirectly alter the proportionality between their par value and voting rights or the existing shareholders’ preferential right to subscribe new shares in capital increases.6

    Specific regulations on the issuance of preferred stock differ according to whether or not a company is listed on a stock exchange.

    In the case of listed companies, the following obligations are established:
    • Where the privilege consists of the right to obtain a preferential dividend, when distributable profits exist, the company is obliged to distribute such preferential dividend.
    • The company bylaws must establish the consequences of any failure to pay some or all of the preferential dividend, whether or not it is cumulative as regards unpaid dividends, and the possible rights of holders of privileged shares in connection with any dividends to which the ordinary shares may be entitled.
    • Higher ranking is provided for shareholders owning privileged shares, since collection of dividends by ordinary shares against the profits of one fiscal year is strictly prohibited until the preferential dividend for the same fiscal year has been paid.

    In the case of non-listed companies, a more flexible system is in place, since there are no mandatory statutory rules making specific regulations in the bylaws obligatory. Nevertheless, the company is obliged to declare a dividend whenever distributable profits exist, unless otherwise provided for in its bylaws.
Shares issued with a premiumShares may be issued with a premium payable to the company above their par value. In such cases the premium must be fully paid in upon subscription of the shares.
Non-voting stockNon-voting stock may be issued for a total par value that does not exceed one-half of the total paid-in capital.

The special rights attached to non-voting stock are as follows:

  • Minimum annual dividend.
    The minimum annual dividend shall be set by the bylaws as a percentage of the paid-in capital corresponding to each non-voting share. The minimum annual dividend and ordinary dividends are cumulative for a period of five years in the case of non-listed companies. In the case of listed companies this period will be indefinite. Accordingly, non-voting shares also participate in company profits proportionately with the other shares if an ordinary dividend is distributed.
  • Preferential rights in liquidation.
    In the event of liquidation of the company, non-voting shareholders rank above common shareholders with respect to their right to obtain reimbursement of the paid-in portion of their shares.
  • Capital reduction.
    If capital is reduced to offset losses, the reduction must first be applied against all other classes of stock before it can affect non-voting stock.
  • Shareholder rights.
    Non-voting stock has the same basic rights as common stock except for the right to vote at shareholders’ meetings (see description of basic shareholder rights below).

However, under certain exceptional circumstances, holders of non-voting shares may acquire a transitional right to vote at shareholders’ meetings. Two examples follow:

  • Non-voting shareholders acquire the right to vote if the minimum annual dividend is not distributed.
  • If, due to a capital reduction, all common shares are redeemed, then non-voting stock becomes voting stock until such time as equilibrium is restored between voting and non-voting stock (i.e. new common shares are issued in sufficient number so that the total par value of non-voting stock does not exceed one-half of the total paid-in capital). If equilibrium is not restored within two years, the company is subject to mandatory dissolution.
Redeemable sharesRedeemable shares are a type of preferred shares at listed companies, subject at all times to various terms and conditions.

Redeemable shares are those whose redemption or full or partial purchase by the issuer or by third parties is fixed in time or released at the discretion of the shareholder, according to the conditions of the issue; or those whose redemption or full or partial purchase by the issuer or by third parties is undertaken in any other manner, excluding that detailed above.
Shares with ancillary obligationsAn ancillary obligation is an obligation to perform or refrain from performing certain acts. Ancillary obligations do not form part of the capital stock of the company.

The shares of an S.A. can only be paid for with money or assets and not with work or services. The ancillary obligation is a device whereby the work, services or other obligations of individual shareholders can be tied to the corporation.

4.4.2 Share certificates

In general, shares of an S.A. may either be issued physically as certificates or recorded by a book-entry system. The conditions for recording shares under a book-entry system and the regulations governing this system are set out in the Revised Securities Market Law (Legislative Royal Decree 4/2015, of October 23, approving the Revised Securities Market Law), and its various legislative amendments.

6The issuance of loyalty shares is permitted at corporations precisely because they do not alter this proportionality.