Spanish Commercial Law: Partnerships, Agreements, and Securities
Partnerships
General Partnership
Governed by the Commercial Code. No minimum capital amount. The partners are jointly and severally liable for the partnership’s debts. Any transfer of partnership interest requires the consent of every partner.
Simple Limited Partnership
Governed by the Commercial Code. Two types of partners: at least one partner with unlimited liability is in charge of the management and representation of the partnership; at least one limited partner who is liable only to the extent of their participation for the losses or other liabilities of the partnership. Limited partners may neither perform management functions nor act in the name of and on behalf of the partnership. No mandatory minimum capital.
Accounts in Participation
One or more parties (the “participants”) only make capital contributions while the other party (the “manager”) carries out the commercial activity to obtain the mutually agreed objective. Its status as a company or a bilateral contract is controversial because some parties make no personal collaboration in the business activities and only participate in the economic results of business carried out by another party.
Summary of a General Partnership
- Established by an agreement between two or more individuals (partners). No specific formalities are required by law, but a written agreement is recommended.
- Partners have unlimited personal liability for the debts and obligations of the business. This means creditors can go after their personal assets if the business cannot meet its financial commitments.
- By default, all partners share management responsibilities and have the authority to represent the partnership. A partnership agreement can designate specific partners for management or establish a sole manager.
- Partners share profits and losses according to the partnership agreement. If no agreement exists, profits and losses are shared equally.
- General partnerships are not separate legal entities from their owners. This means they cannot enter into contracts or own property in their own name.
- General partnerships are well-suited for small businesses with a high degree of trust and collaboration among the partners.
Limited Partnership
A limited partnership combines features of a general partnership and a corporation.
Key Points
- General Partners: Manage the business and have unlimited liability for partnership debts (similar to a general partnership).
- Limited Partners (Silent Partners): Invest capital but have limited liability for partnership debts, usually up to the amount they invested.
- Requires a public deed recorded at the business registry. The partnership name must include “Limited Partnership.” Unlike general partnerships, limited partners cannot have their names included in the business name (unless they accept unlimited liability).
- Only general partners can manage the business. Limited partners are prohibited from involvement in external management activities (dealing with third parties). They may, however, be able to participate in internal discussions or oversight depending on the partnership agreement.
- Limited partners contribute capital (assets or rights) to the partnership. Their profit sharing and loss sharing are generally proportional to their contribution. They have a right to information about the partnership’s finances at specific intervals. Their transfer of partnership interest requires approval from all other partners.
- Limited partners’ liability is limited to their investment amount. This protection can be lost if they participate in management or have their name included in the business name.
Silent Partnership (Account Partnership)
- Not a True Company: Differs from a formal partnership because it lacks its own assets and legal identity. The silent partner’s contribution becomes the property of the manager.
- The silent partner contributes capital to the business and shares in the resulting profits or losses according to a predetermined agreement.
- Silent partners are not involved in managing the business; it operates under the sole name of the manager.
- The silent partnership agreement is not publicly known (silent). Third parties dealing with the business only have recourse against the manager, not the silent partner. Conversely, the silent partner cannot take legal action against third parties contracting with the manager.
- Unlike other partnerships, silent partnerships have no specific formation requirements. The agreement can be verbal or written and proven by any legal means.
Sales-Purchase Agreement (SPA)
The SPA is a fundamental commercial contract used in buying and selling goods. It’s the most common and legally regulated bilateral agreement, serving as a model for other similar contracts.
Types of Sales
- General Sale: Governed by articles of the Civil Code (CC). This applies to any consensual agreement for the exchange of goods for a price.
- Mercantile Sale: Governed by articles of the Commercial Code (CCom). This applies specifically to the sale of movable goods (typically merchandise or raw materials intended for resale) with a speculative purpose (the buyer intends to resell at a profit). Real estate sales are considered civil sales.
Key Aspects of the SPA
- Creates a binding agreement between seller and buyer, obligating the seller to deliver the goods and the buyer to pay the agreed-upon price.
- Serves as a template for other bilateral contracts.
- Consumer protection laws may supersede the CC and CCom regulations in specific situations.
Risk Transfer in a SPA
A key aspect is determining who bears the risk of loss or damage to the goods between contract formation and completion due to unforeseen causes.
- Before Contract Formation: Seller bears the risk.
- After Delivery: Buyer bears the risk.
Risk Transfer Exceptions
- Negligence, malice, or breach of contract by a party shifts the risk to that party.
- Specific Goods: Risk transfers to the buyer upon delivery.
- General Goods: Risk transfers upon specification of the goods.
- Buyer’s Right to Inspect: Risk remains with the seller until after inspection.
- Conditional Delivery: Risk stays with the seller until conditions are met.
- SPA clauses can modify risk allocation.
Buyer’s Obligations
- Payment: The price must be “true, determined, and consisting of money or a monetary substitute,” typically paid in the agreed currency and cash, unless otherwise specified. Payment can be upfront or deferred. In retail sales, the buyer has 30 days to pay from delivery (unless otherwise agreed), with specific limits for perishable products. The seller’s right to claim payment expires after 15 years from delivery.
- Receipt of Goods: The buyer must receive the goods at the agreed location and time, specifying the delivery location or preferred transport method. Unjustified refusal or delay allows the seller to judicially deposit the goods at the buyer’s expense (excluding carrier takeover situations).
Seller’s Obligations
- Transfer of Ownership: Requires both a contract (SPA) and delivery (traditio). Delivery must occur at the agreed location or, if unspecified, where the goods were at contract formation, within 24 hours of contract formation (unless otherwise agreed).
- Freight Collect: Buyer pays for transport, seller delivers to transporter, risk transfers to buyer upon delivery to transporter (default).
- Carriage-Paid: Seller pays for transport, fulfills obligation upon delivery to buyer, bears risk during transport.
- Delivery of Goods: Seller must deliver the agreed quantity and quality.
- Warranty Against Eviction: Seller guarantees the buyer’s correct possession. Liable if a court orders relinquishment due to a prior claim.
- Warranty Against Hidden Defects: Seller is liable for pre-existing hidden defects or encumbrances. Buyer must promptly notify the seller.
- Manifested Defects (Recognizable upon inspection): Buyer must denounce in the delivery act or within four days if packed. Can terminate the contract or demand fulfillment with damages.
- Hidden Defects (Not immediately recognizable): Buyer has 30 days from delivery to denounce. Legal action within six months. Parties can agree on specific warranty terms (e.g., extended warranty, limited liability).
Breach of Contract in a SPA
Common Breaches
- Delivery Breach by Seller:
- Late delivery: Buyer can terminate and refuse or demand fulfillment with damages.
- Short delivery: Buyer can refuse partial delivery or accept and demand missing goods/fulfillment/termination.
- Wrong quality: Buyer can refuse or demand fulfillment with compensation. Warranty against hidden defects applies.
- Payment Breach by Buyer:
- Non-payment: Seller can refuse delivery, terminate, or demand fulfillment.
- Late payment: Seller can claim interest or terminate (if goods delivered). Upfront payment allows the seller to withhold delivery until paid.
- Retail sales: Interest accrues automatically from the day after the deadline.
- Breach of Receipt Obligation by Buyer:
- Unjustified refusal: Seller can demand fulfillment (judicial deposit) or terminate.
- Delayed receipt: Seller can terminate with damages or fulfill with custody and damages.
Trade Securities
Trade securities are simplified documents representing a promise in business dealings, streamlining trade and credit transactions.
Classification Criteria
- Form of Issuance
- Nature of the Right
- Holder Legitimization
The Bill of Exchange
Developed in medieval times for fund transfers, becoming a regulated security by the 18th century.
Parties
- Drawer: Orders payment, guarantees payment, initially indebted to the holder.
- Drawee/Acceptor: Receives payment order, initially indebted to the drawer, obligated to pay upon acceptance.
- Holder: Entitled to payment.
Key Characteristics
- Governed by Articles 1-93 of the Spanish Commercial Code.
- Drawer liable for completion; drawee can choose to accept.
Difference from Promissory Note
- Promissory note: Debtor writes to creditor.
- Bill of exchange: Creditor writes to debtor.
Underlying Relationships
- Value relationship (drawer and holder)
- Provision of funds relationship (drawer and drawee)
Endorsement
Similar to promissory notes, but bill of exchange endorsers are liable for both acceptance and payment (unless otherwise specified).
The Promissory Note
A written promise to pay a specific sum without conditions.
Parties
- Promisor: Guarantees payment.
- Promisee: Entitled to payment.
Transfer Methods
- Assignment of Credit: Underlying right to payment is transferred.
- Endorsement: Note title is transferred.
- Full Endorsement: Transfers ownership (most common).
- Endorsement for Collection: Authorizes collection on behalf of endorser.
- Collateral Endorsement: Pledges collection right as security.
Payment Guarantees
- Implicit endorsement
- Explicit guarantee (separate document or within the note)
Personal Guarantees
- General: Covers the entire amount.
- Limited: Covers a specific portion.
The Cheque
A payment order to a bank.
Parties
- Drawer: Issues the cheque.
- Drawee (Bank): Holds the account, receives payment order.
- Holder: Entitled to payment.
Underlying Relationships
- Cheque pact (drawer and bank)
- Value relationship (drawer and holder)
Types
- Certified cheque
- General crossed cheque
- Special crossed cheque
- Account payee cheque
Transfer
- Bearer cheques: Simple delivery.
- Nominative cheques: Endorsement.
Deed of Incorporation and Bylaws
1. Deed of Incorporation (Public document)
- Formally creates the company.
- Outlines essential elements (name, type, purpose, bylaws, capital, management, domicile).
- Registered with the Spanish Mercantile Registry.
2. Bylaws (Internal rules)
- Regulate operations and governance.
- Cover details not in the deed (shareholder rights, meetings, profit distribution, director appointments, internal controls).
- Can be separate or within the deed.
- Amendments typically require a shareholder vote.
Relationship
- Deed: Foundation, establishes existence and core characteristics.
- Bylaws: Specific rules for internal function.
- Both define the legal framework and ensure proper operation.
Consult a legal professional for compliance with Spanish mercantile law.