Reductions of share capital
Commercial and corporate procedures are common activities in our Notary Office in Barcelona, with capital reductions being among the specialties of our notarial services for companies in Barcelona. Therefore, we want to introduce you to what capital reductions are, how to process them step by step, and other related matters.
What is a capital reduction?
To understand what capital reduction means, we must first understand what the share capital of a company is. This refers to the figure written in the company’s articles of association, which corresponds to a set of tangible assets or money contributed by the different partners of a company. You should know that the share capital figure is the amount for which the company is liable in all cases, so in the event of the company’s insolvency, the partners will only be liable for the company’s debts up to the amount of the share capital contributed.
When a company wishes to reduce its share capital, it can process a commercial operation in which it reduces its capital by decreasing the nominal value or by reducing, through redemption, the number of shares or participations of the partners.
We must understand share capital as the sum of the nominal value of the securities (called shares in public limited companies or participations in limited companies) issued by the company and subscribed by the partners. Thus, to decrease the share capital, we must reduce the number of securities or their nominal value.
In summary, to make reductions of share capital, it will be possible to:
- Reduce the nominal value of shares or participations: in this case, the value of the shares or participations decreases, but the quantity remains the same.
- Redeem shares or participations: the number of securities is reduced until the desired capital figure is obtained.
- Consolidate shares or participations for subsequent exchange or redemption.
Capital reductions in Spain are governed by the Capital Companies Act.
When is capital reduction carried out in Spain?
There are different situations in which a company may incur a reduction of capital. This can occur, for example, in cases of overcapitalisation (the company does not need such a high capital for the development of its activities), in case of losses, or when the partners wish to recover part of what they have invested, returning the contributions made.
Advantages of capital reduction
Companies that carry out this procedure obtain benefits such as reducing their liabilities and investing liquidity in other operations. Sometimes, this commercial operation is also used to reorganise business operations, making them more efficient. It is also often used by companies seeking to obtain interesting investments.
Types of share capital reductions
There are 4 types of capital reduction, according to the purpose pursued by the capital reduction, as indicated in article 317 of the Revised Text of the Companies Act.
- Those stipulated to generate balance between capital and net equity, which has decreased as a consequence of losses.
- The reduction for the constitution of legal reserves or their increase, or of voluntary reserves.
- When the partners wish to recover the value of their contributions, due to the exercise of the right of withdrawal or the exclusion of one of the partners.
- Those of public limited companies in which it is intended to enforce the fulfilment of pending contributions.
The company may also be obliged to reduce capital in certain cases for holding own shares or participations in treasury stock, that is, when the company owns its own shares or participations.
Depending on the type of capital reduction, in addition to complying with the general requirements for amending the company bylaws, some specific requirements of the type of reduction to be carried out must be met, under the terms established by law.
How to make a reduction of share capital?
The reduction of share capital must be agreed upon at the General Meeting of the companies where it is intended to be carried out.
Thus, depending on the type of company, we find:
- SL (Limited Companies): an agreement must be reached by more than half of the votes corresponding to the shares into which the share capital is divided. There is no quorum requirement for the constitution of the Meeting.
- SA (Public Limited Companies) and Limited Partnerships: on first call, the presence of shareholders representing 50% of the capital with voting rights is required, and adoption by an absolute majority of the capital. On second call, with a quorum between 25% and 50% of the capital, a favourable vote of two-thirds of the capital present or represented is required.
- For all types of companies, it is prohibited to reduce the share capital below the legal minimum, unless it is a consequence of compliance with a law or capital is simultaneously increased, through the so-called accordion operation.
The resolution reached at the Meeting must state the amount of the reduction, its purpose as such, how it will be processed and for how long, as well as the sum to be paid to the shareholders in the event that it occurs.
To carry out this procedure, you must go to a specialised notary who will draft the document for the reduction of share capital and will elevate it to a public deed. Make an appointment and get advice, as our Notaries in Barcelona can advise you from the creation of the corporate agreement to the notarial document of capital reduction.
Also remember that to proceed with this type of document, you must carry out a modification of the company’s bylaws, creating a new public deed that updates them and where the new capital is stated. Subsequently, the corresponding registration will be carried out.
The role of the Notary in capital reductions
The Notary is a legal professional with extensive training and considerable experience. Among their functions is to advise and counsel impartially and free of charge.
Applying total impartiality, the Notary's mission is to inform all parties involved equally, providing greater assistance to the party that needs it most. Whatever the procedure or notarial act being considered, it is advisable that the interested party, if any doubts arise, does not hesitate to make the necessary enquiries, both on the day of signing and in the days prior.
Documentation for making a capital reduction before a Notary
- Valid original ID card of the administrator or representative of the company. If foreign, a valid Passport and NIE must be provided.
- Certification of the agreement approved by the sole partner or the General Meeting of the company, by which this action is carried out. It must also include the amount to be reduced and the process to be followed. At JLA Notarios we can assist you in drafting this certificate.
- Documentation of the company in question and of the administrator: the deed of incorporation of the company or possible amendments to the company bylaws must be provided. This can be replaced by commercial information obtained from the notary.
- Real ownership certificate stating the partners holding 25% of the share capital at that time. Sometimes, capital reductions in companies involve the creation of a new real ownership certificate if the partners' percentages change.
- Balance sheet and audit report not older than six months.
- Additionally, if it is a public limited company, justification of the proposal to amend the bylaws and a copy of the Capital Reduction Agreement published in the Official Gazette of the Commercial Registry, on the company's official website or in the newspaper of the capital where the company's registered office is located must be provided.
Process a capital reduction at a notary's office
How much does a capital reduction cost?
The drafting of the notarial document for the reduction of share capital is subject to the notarial fees that regulate the fees of Notaries (regulatory framework of the NOTARIAL FEE (RD 1426/1989, of 17 November, regulating the Notaries’ Fee).
The exact price of a notarial document cannot be calculated until its specific content is known, that is, until it is signed, as there are many circumstances that can cause it to vary. The amount of capital to be reduced, the number of copies requested of a document, the pages it contains, as well as possible changes or additions, can slightly alter the final price.
If you wish to receive a detailed quote, we invite you to contact us directly through the channel that is most convenient for you. You can do so via the contact form on the main page of this website, through the contact section found in the footer of the website, by using the direct WhatsApp access at the bottom right of this page, by sending an email to bcn@jlanotarios.com, or by calling us on 93 159 17 62.
As a guideline, we can inform you that, according to the current regulatory framework, the usual price for formalising a CAPITAL REDUCTION for an amount of €100,000 is between 450 and 850 euros including VAT. A deed reducing capital from 20,000 euros to 3,000 euros has an approximate cost of between 300 and 500 euros.
This variation in prices is due to the fact that the possible types of reduction differ in their content and the procedures they require, so it is best to request a specific quote for your particular case.
Is it possible to process a capital reduction online?
If you wish, JLA Notarios, as an online notary, can process a capital reduction electronically from 9 November 2023, the date on which the provisions of Law 11/2023, of 8 May for the digitalisation of notarial and registry actions come into effect. The application of this law allows this commercial act to be managed by videoconference and thus obtain the necessary notarial authorisation.
With our digital notary you will gain benefits such as avoiding travel, speeding up procedures, and greater convenience in your dealings. Furthermore, this procedure allows you to choose your Notary freely and regardless of where you live.
Likewise, if you need commercial services, with JLA Notarios you can manage online the deed of incorporation of a company, the appointment and dismissal of an administrator, and the amendment of company bylaws or elevation to public deed of corporate resolutions.
We answer frequently asked questions about capital reduction
Where should capital reductions be reflected at the accounting level? Well, bear in mind that the deadline to register this document is before processing the annual accounts for the financial year in which the capital reduction took place. That is to say, the capital reduction must be recorded in the accounts in the year in which it was agreed as such at the General Meeting of the company.
Taxation depends on the type of capital reduction carried out. Roughly speaking, the following taxes should be considered according to the following cases:
If contributions must be returned to partners, the following will apply:
- Tax on property transfers and documented legal acts: a 1% payment must be made on the total amount received by the partner leaving the company, as payment of the tax under the category of Corporate Operations (OS).
- Personal Income Tax: in capital reductions, the Personal Income Tax must also be paid by individuals, for example, in the case of returning contributions due to profits achieved or gains obtained in the event of partners separating.
Corporate tax in the case that a company benefits from the capital reduction. Tax must be paid on the profit obtained, although there is a 95% exemption if the legal entity holds a 5% stake in the company before the capital reduction and that stake has been held continuously for one year.
The reduction of capital due to losses does not create an obligation to pay taxes, but it is mandatory in public limited companies when the losses have caused the net equity to fall two-thirds below the capital and a financial year has passed without recovery.
In cases where there is an obligation to pay the Transfer Tax and Stamp Duty in its Corporate Transactions modality, and in cases of exemption from this tax, where the deed must be declared even if no taxes are payable, at JLA Notarios we can declare these taxes on your behalf, if you wish. This is because, in the field of Commercial Law and Company Law, we offer a comprehensive service at JLA Notarios – Notaria Barcelona, so we can handle the processing of this tax for your capital reduction signed at our notary office.
Regarding the Personal Income Tax (IRPF) and the Corporate Tax, these are not taxes currently processed by any notary office, so they must be declared in the annual income tax return or in the annual corporate tax return.
There are two mechanisms for the protection of creditors of a company that carries out a capital reduction. The first is the joint liability of the partners who have been reimbursed all or part of the value of their contributions. This liability has a statute of limitations of five years from the registration of the capital reduction in the Commercial Register and only applies up to the value of the contributions reimbursed.
The other protection mechanism in public limited companies is that creditors can oppose the reduction within one month of the publication of the announcement of this right. Creditors with sufficiently secured credits are excluded from this right, and this right does not apply if the reduction is made due to losses, to constitute or increase the legal reserve, or if the reduction is made charged to profits or free reserves or for the redemption of shares acquired by the company free of charge.
Yes, it is possible to simultaneously carry out a capital increase and reduction, in what is commonly known as a accordion operation. In these accordion operations, case law requires that the operation has a real purpose, such as financial restructuring or the reintegration of capital.
According to the law, it is only possible to reduce the capital to zero or below the legal minimum figure when the transformation of the company or the increase of the capital to an amount equal to or greater than the legal minimum is simultaneously agreed upon, and it is required that the reduction be registered simultaneously along with the transformation or increase.
Public Deed of Capital Reduction in Barcelona with JLA Notarios
The drafting of the capital reduction deed is one of the procedures in which we specialise in our notary office. Processing a reduction or capital increase requires a high level of specialisation to ensure it is completed in the most appropriate way and to avoid subsequent problems.
Thanks to the training and experience of the entire team, at JLA Notarios we provide the most suitable legal solutions in the different areas that affect the individual and their assets, with the aim of being able to advise you free of charge in your enquiries. With a close and cordial approach from the first contact, at JLA Notarios we work dynamically and empathetically, seeking maximum efficiency and the best profitability for each client, addressing the concerns of each person or company in a personalised manner for their full satisfaction. To this end, at JLA Notarios we apply new technologies in all procedures, minimising visits to the notary office and optimising processing times. For this reason, we have also transformed into an online notary office. If you need to process corporate acts, such as capital increases or reductions and amendments to company bylaws, remember that you will speed up your procedures by processing them with us.
So please contact us via our email or through the contact form on our website. You can also consult our wide range of Notarial Services for companies in Barcelona and we will assist you with whatever you need.
JLA Notarios-Notaría Barcelona is a notary office located in Barcelona, serving people throughout Barcelona and we are specialists in capital reductions and increases, as well as in drafting all kinds of commercial and corporate deeds. We will be delighted to assist you and help you with whatever you need. We hope this text has been helpful and valuable to you.
By your side in the moments that matter
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Individuals and companies often need money to fulfil their dreams or projects. This can be obtained by taking out a loan or credit facility with your bank. When you sign, it is essential to understand the details properly to avoid future surprises.
JLA Notarios can be your trusted notary office, giving you accurate advice on loan contracts, providing a very agile and specialised service for processing loan contracts.
Bear in mind that from 9 November 2023, you will be able to sign your loan contracts from anywhere in Spain electronically by videoconference with JLA Notarios, saving you time and money. Do not hesitate to contact us to find out more about the notary office’s services in order to sign a loan contract online or sign a credit facility online.
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Certifications and authentications
It is common knowledge that notaries attest. That important and simple action can guarantee things of vital importance, such as ensuring that the signature on a document is authentic or certifying that a copy of a document matches the original.
At JLA Notarios we will help you to certify a document or notarise a signature in accordance with the law and tailored to your specific needs.
In addition, these notarial procedures can be carried out conveniently through electronic means from 9 November 2023.
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JLA Notarios can obtain an apostille for all documents executed before us so they are valid and recognised abroad. We do this transparently and save you all the bureaucratic procedures involved.
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So JLA Notarios offers its clients the possibility of assessing and paying the many different taxes by the executing deeds and carrying out other procedures before the notary. We can also file them with the Land or Companies Registry so you do not have to concern yourself with it and can spend your time on the things that matter. We support you from start to finish.
Inheritance and wills
The moment of granting a will, making a declaration of heirs or formalising an inheritance are very important moments in people's lives.
At JLA Notarios we offer services related to succession law, both to arrange your succession and to distribute an inheritance, guaranteeing the best advice tailored to your particular needs and the study of the tax implications of each case. At no time do we neglect the human factor, even offering home notary services if necessary.
Contracts and property law
Over the course of our lives, we carry out important actions, such as buying a home, declaring a new-build, lifetime gifting to our children or ending partnerships, among many others.
At JLA Notarios we are experts in property and contract law and buying and selling property. We guide our clients, analysing each particular issue and always considering the tax burden of each transaction.
In addition, some of our notarial services can be performed online, so we can assist you from anywhere in Spain. Contact us to declare a new-build or a commonhold ownership structure online.
Mortgage
Taking out a mortgage is one of the biggest moments for anyone. Just think of the fees and interest you may have to pay for much of your life. So it is essential to have a trusted notary to help you understand what you are signing, explaining the tricky legal terms and their future consequences in simple words, to provide transparency and protect our clients.
At JLA Notarios we are aware of the importance of giving complete and understandable information to people about to sign a mortgage, novation or subrogation. We also advise and guide you on your future mortgage cancellation.
Loan agreements and credit facilities
Individuals and companies often need money to fulfil their dreams or projects. This can be obtained by taking out a loan or credit facility with your bank. When you sign, it is essential to understand the details properly to avoid future surprises.
JLA Notarios can be your trusted notary office, giving you accurate advice on loan contracts, providing a very agile and specialised service for processing loan contracts.
Bear in mind that from 9 November 2023, you will be able to sign your loan contracts from anywhere in Spain electronically by videoconference with JLA Notarios, saving you time and money. Do not hesitate to contact us to find out more about the notary office’s services in order to sign a loan contract online or sign a credit facility online.
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Without entrepreneurship there is no future, so it is of vital importance to support our businesspeople and entrepreneurs.
At JLA Notaries we are familiar with companies’ life cycle, which enables us to provide legal assistance for companies in their different stages, whether incorporation, modifications of their articles of association, changes of director, share sales and purchases, capital increases and reductions, dissolution and closure, and everything related to commercial matters.
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There are moments in life when a person needs to delegate. The law provides a tool for this: powers of attorney. Though a power of attorney, one person allows another person to act on their behalf.
At JLA Notarios we make sure that you understand the significance and risks of delegating or revoking powers of attorney, from a special power of attorney or power of attorney for lawsuits, to general powers of attorney or preventive powers of attorney for cases of incapacity.
We provide an agile service to sign powers of attorney. You can take your copy away immediately, saving you unnecessary trips, and from 9 November 2023 our clients will be able to sign all powers of attorney that are not general or preventive by videoconference through our digital notary office.
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A prosperous society is based on the family and its protection. Family Law provides you with the tools to protect your family and its members, so its foundations are solid and its purposes can be achieved.
At JLA Notarios we provide legal advice on marriage or civil partnerships; property aspects of the family through marriage contracts or civil partnership contracts; the moments when the family relationship is ended, in cases such as divorce or separation; and protection of vulnerable people, such as minors or people with modified capacity, through deeds of appointment of guardians or executors or creation of protected assets. We do all of this in a way that makes everyone involved feel equally supported and secure.
Certifications and authentications
It is common knowledge that notaries attest. That important and simple action can guarantee things of vital importance, such as ensuring that the signature on a document is authentic or certifying that a copy of a document matches the original.
At JLA Notarios we will help you to certify a document or notarise a signature in accordance with the law and tailored to your specific needs.
In addition, these notarial procedures can be carried out conveniently through electronic means from 9 November 2023.
Minutes
How many times have you wanted to leave a record of an event, of a statement, of the condition in which an object is found, or notify someone of any matter. To provide a solution to these issues, the Law provides us with notarial records.
At JLA Notarios we adapt to you, reflecting in the record what you require and carrying out the notifications and requests that you demand.
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Behind every nationality oath there is a story of overcoming, sacrifice and waiting.
At JLA Notarios we understand what this moment means and offer an empathetic, agile and quick service, advising beyond the oath itself, anticipating the future requirements that the new Spanish citizen will need.
We are your reference Notary to carry out the nationality oath before a Notary in Barcelona.
Apostille of the hague convention
Globalisation enables the free movement of people and documents of all kinds. How can you guarantee that a document has been officially issued? With an apostille of the Hague Convention.
JLA Notarios can obtain an apostille for all documents executed before us so they are valid and recognised abroad. We do this transparently and save you all the bureaucratic procedures involved.
Tax and registry procedures
Tax bureaucracy can cause a lot of headaches.
So JLA Notarios offers its clients the possibility of assessing and paying the many different taxes by the executing deeds and carrying out other procedures before the notary. We can also file them with the Land or Companies Registry so you do not have to concern yourself with it and can spend your time on the things that matter. We support you from start to finish.
