Transformation of companies

By transformation of companies we understand the unique operation where the modification of the social type of a company or business is carried out without losing its legal personality or identity. Therefore, we affirm that in a company that changes from a limited company to a public limited company a social transformation has taken place. And, consequently, during this transformation, its internal social structure, the organisation of its powers and the regime of responsibilities are altered.

When creating a company there are two main social types: individual and collective. The latter is known as commercial companies and are distinguished into personal companies (general partnership and simple limited partnership), capitalist companies (public limited companies, limited companies and limited partnerships by shares) and social interest companies (cooperative society and labour society).

Focusing on the social type, we can affirm that a company will choose one or the other depending on the way it wishes to respond to social debts and this must be defined in its articles of association. Thus, the chosen social type will influence important aspects such as the way in which the capital contribution to the company is made and its internal organisation.

The change of social types is regulated in the Royal Decree-law 5/2023 of 28 June. 

The law stipulates the following cases:

• From commercial company to any other commercial company
• From commercial company or European economic interest grouping to economic interest grouping and vice versa
• From civil company to commercial companies
• From public limited company to European public limited company and vice versa
• From cooperative society to commercial company and vice versa
• From cooperative society to European cooperative society and the other way around

The change of social types in an entity can occur for various reasons. Among them, we find the need to adapt to changing environments, including social, political, and legal ones, or to obtain benefits related to legal regulations.

On other occasions, the reasons are aimed at improving efficiency, boosting productivity, or are linked to a change of activity, an increase in the size of the company, or modifications resulting from mergers.

We identify several steps for a change of company type to occur in a commercial company:

A report must be processed that provides information about the social change. To do this, information such as the company’s balance sheet for the last 6 months, a report created by the balance auditor, and proof that tax obligations are being met must be included.

A report will be prepared by the directors that will include economic aspects and justify the change of company type. Subsequently, the General Meeting will be convened for the approval of the operation.

In changes of company types of public limited companies and limited partnerships by shares, a report must be prepared by an independent expert who will assess the non-monetary contributions of said company. They will be appointed by the Mercantile Registrar.

Finally, the draft articles of association of the company, which will be a consequence of the social transformation, will be important.

In the General Meeting call, the resolution on the social transformation must be approved.

Its approval will depend on the type of company. For example, in limited liability companies it is established that it must be approved by a reinforced legal majority (with more than half of the votes corresponding to the shares into which the share capital is divided) whereas in public limited companies it will be reached by shareholders holding at least 50% of the subscribed capital with voting rights at the first call and 25% at the second call. It may be adopted by an absolute majority if the capital present or represented exceeds 50%. If at the second call the capital does not reach 50%, it may be adopted with the vote of two thirds of the capital present.

The full text of the resolution must be available to partners and shareholders.

After the social change resolution, 20 days are offered to dispose of shares or interests to partners and holders of shares or interests who do not have voting rights, with the entity having to compensate in cash within 2 months from the transformation.

Likewise, partners who had liability for company debts and have not voted in favour of the transformation will be separated from the company. They may rejoin if they adhere in a reliable manner within one month from the adoption of the resolution at the partners' meeting or from the communication of that resolution in the case that they did not attend the Meeting.

There are many other cases in company transformation operations in which the owners of shares and interests are affected during the process of changing the social types of an entity. Consult with us to avoid possible legal consequences.

The transformation of the company will be formalised by a public deed which must be registered in the Mercantile Registry.

In addition, it must be published in the BORME (Official Gazette of the Mercantile Registry) and in widely circulated newspapers in the province where the company's registered office is located.

The deed signed by a Notary is known as a deed of transformation of companies and must contain the mentions required for the constitution of the company that is going to change its corporate type, as well as the type of company into which it is transformed (also determining its company name, corporate purpose and registered office along with the share capital). In addition, it must include the mentions relating to the right of withdrawal: the partners who have withdrawn in the process of changing corporate types and their capital will be reflected, providing information on the proportion in quotas, shares or holdings of the partners or shareholders together with their identity.

The Notary is a legal professional who guarantees the legality and authenticity of operations involving changes to company types.

In the complexity demonstrated by the transformation of commercial companies, the figure of the Notary plays a decisive role, advising and counselling impartially throughout the procedure, not only for the deed of transformation of companies, but throughout the entire process of change and restructuring of the organisation and modification of related deeds that must be granted, such as the modification of company bylaws. Please share your doubts with us and make all the enquiries you consider appropriate.

JLA Notarios acts objectively and neutrally, certifying the authenticity of your documents and securing your transactions, so that procedures such as the deed of transformation of companies comply with laws and regulations, guaranteeing legal certainty and granting credibility to the facts presented in the deed.

The Notary validates both the documentation presented and the drafting of the deed through their signature on the document and carries out complementary tasks such as registering the deed in the Commercial Registry.

All companies must submit the following documentation for the execution of the public deed of company transformation:

• Transformation project
• Resolution of the General Meeting adopting the required formalities
• Structural modifications
• Company balance sheet for the last 6 months approved and, if necessary, a report on the asset modifications
• Report from the independent expert if required in Public Limited Companies
• Compliance with information duties with the publication of the transformation agreement (date of publication of the agreement in the BORME and newspapers)
• Mentions of the right of withdrawal of partners and shareholders
• Identification of the members of the board of directors
• Bylaws of the transformed company

The price for the Notary fees in public deeds is set out in the Notarial Tariff. Your quote will also depend on the total number of pages, as well as the authorised and simple copies issued. If you wish, ask us for a quote tailored to your case and you will receive it without obligation.