Limited Liability Company (LLC): Formation, Structure, and Operation

Posted on Jan 17, 2025 in Law & Jurisprudence

Organs of an LLC

1. Board Members

  • General Meeting: The Competition Board holds significant importance, as outlined in paragraph 2 of this article. The General Meeting has the authority to instruct the management body on operational matters.
  • Similar to a Public Limited Company (PLC), the Board must communicate with members, potentially through newspapers or the Official Gazette of the Mercantile Registry (BORME).
  • Alternatives to traditional meeting calls include using a local newspaper directory or individual written convocations.
  • The General Meeting does not require specific quorums for deliberation. Agreements are adopted by a majority representing:
    • 1/3 of the votes attached to the shares in the initial General Meeting.
    • Certain agreements require different majorities. Statutory amendments require a majority of half plus one of the votes.
    • Mergers, changes, or withdrawal of pre-emptive rights require an affirmative vote of 2/3 of the votes.
  • These percentages can be modified, but unanimity can never be mandated.

2. Governing Body

  • The General Meeting has the freedom to choose the constitution of this body.
  • Article 57 outlines potential systems for organizing the administration. Unlike PLCs, LLCs can entrust administration to several joint administrators.
  • The manager’s tenure is indefinite unless otherwise specified in the statutes.
  • The Board has two specific requirements: it must consist of 3 to 12 members, and the statutes must establish the operating regime of the council.

Key Aspects of an LLC

I. Definition

According to Law 2/1995, a Limited Liability Company (LLC) is defined as follows:

  • Its capital is divided into shares.
  • It is formed by social investments, and shareholders are not personally liable for the company’s debts.
  • The minimum capital cannot be less than €3,012 and must be stated in the statutes.
  • It is a commercial company by its nature.

II. Foundation

Registration is constitutive and follows a more flexible regime than that of a PLC.

III. Social Capital

  • Capital is composed of members’ contributions.
  • Members are not personally liable for debts.
  • Capital is divided into shares.
  • Shares cannot be called stock and cannot be considered securities.
  • Shares are indivisible, non-cumulative, and may be represented by title or book entries.
  • Holding a share grants the holder the status of a partner.
  • Incorporation is regulated (Articles 11 et seq.) and is similar to that of a PLC, requiring a deed and registration in the Mercantile Registry.
  • Articles 12 and 13 specify the content of the deed.

IV. Partner’s Contribution Obligation and Ancillary Benefits

Contribution rules are similar to those of a PLC, allowing for in-kind or cash contributions.

VIII. Amendment of Statutes

1. Capital Increase

2. Capital Reduction

  • The LLC Act aims to simplify procedures.
  • Requires the agreement of the General Meeting.
  • A change of address follows the same rules as in the PLC Act.
  • Capital Increase: Only the General Meeting (not administrators) can decide on a capital increase. New shares are issued with pre-emptive rights for members to maintain their equity. An increase in capital is also possible.
  • Capital Reduction: Must be agreed upon by the General Meeting. Requires a majority of more than half the votes (Article 53). It may aim to refund contributions or cover losses. The Act regulates the possibility of simultaneous capital reduction and increase.