The establishment of a British company in Spain after ‘Brexit’ through the intracomunitary cross-border merger proceeding

VolverThe foreseeable and imminent exit of the United Kingdom from the European Union (EU) through the so-called ‘brexit’ implies that certain British companies decide to establish within the EU through their migration or, as it will be seen in the following article, through an intra-Community cross-border merger proceeding

Without prejudice to the arduous procedure of migration of a foreign company to Spain, this article contemplates a feasible and less complex proceeding by which British companies –or any other intra or extra-community company-, can be established in Spain enjoying the status of an EU company. The procedure will be carried out through two phases: (i) the constitution of a Spanish subsidiary –“filial”-, by the British parent company; and (ii) an intra-Community cross-border merger by inverse absorption proceeding that will discharge with the British parent company liquidation -absorbed-, and the block transfer of all its assets to the Spanish subsidiary company -absorbent- by universal succession.

Constitution of a subsidiary in Spain

The subsidiary –“filial”-, is a company established in Spain by non-resident person, with full legal and Spanish nationality. The constitution procedure is relatively simple and does not differ in its fundamental aspects from that one created by Spanish partners/shareholders. Thus in first, British parent company must comply with the UK regulations of incorporation translating and legalizing its bylaws. After that, it must apply for a corporate name negative certificate before the Spanish Central Mercantile Registry, and entry of the share capital into a bank with open offices in Spain - a minimum of 3,000 Euros for limited liability companies and 60,000 Euros in public limited-, although it is also feasible to contribute capital through non-monetary contributions as movable or immovable assets or credit rights, mainly.

There are also other different legal forms, such as the successive incorporation limited company, the new partnership limited company, professional cooperative or limited companies, although for practical purposes and provided that the corporate purpose of the subsidiary does not legally require its constitution through the form of public limited company -credit institutions, insurers, venture capital companies, or securities agencies, among others-, the standard and most practical formula is the constitution of a limited liability company. In addition, Spanish law only allows a cross-border merger for the limited liability company, public limited company and the limited partnership by shares.

Corporate bylaws will also have to be specified, which unlike the branch –“sucursal”-, its corporate purpose may be different from the parent company, extending or limiting its faculties respect to those of the parent company. Once raised to the public and registered in the competent mercantile registry, the tax identification number (NIE) will be applied, and the company will be registered in the Public Treasury for the economic activity tax (IAE), value tax added (IVA) and corporate tax (IS) processing. Registration in the Foreign Investment Registry under the Ministry of Economy will also be required. The estimated deadline for completion of this first phase since the notarial signature is approximately three weeks.

As a stepwise and orderly penetration formula, the creation of a subsidiary in a first phase might be practical when familiarizing with the legal and financial particularities of the Spanish market prior to the definitive corporate implementation in Spain.

Intra-Community inverse cross-border merger

Once this first phase is completed with the fully operational subsidiary in Spain, Spanish law -likewise the EU law through the Third Companies Directive 78/855 / EEC and its related legislation-, contemplates the viability of merging two intra-community mercantile companies giving rise, to (i) a supranational society, such as the European public limited company –vid. Council Regulation 2157/2001, of October 8-; or (ii) a domestic company. The fate of both -parent and subsidiary- may be either the creation of a third company, or the merger of the parent company in the subsidiary -reverse merger-. It will be this last assumption the one to be detailed below.

On a preliminary basis, the present and future partners/shareholders rights, the exchange of shares, voting rights, corporate governance and other conditions must be considered as preliminary reorganizations in the ‘Cross-border Merger Project’ to be drafted by the management bodies of both companies, including the advantages of this merger for the company and its partners or shareholders. Also, the workers involvement pursuant to article 67 of the Spanish Law 3/2009, April 3, on structural modifications of commercial companies must be taken into account. As it is an improper merger, that is, a fully owned company, information on the valuation of the assets and liabilities of the company to be extinguished -British parent company- and the dates of the accounts used must be included in the Merger Project.

The Merger Project must be made available to the partners/shareholders as well as to the workers representatives -or failing that, of the workers themselves-, within one month of the partners/shareholders meeting to be resolved on the merger agreement. General remarks of those should be also reflected in the Merger Project.

Once the merger agreement is approved, it must be published in the Spanish Official Gazette of the Mercantile Registry (BORME) with the conditions for exercising the rights of creditors as well as a postal address where to obtain exhaustive information on such conditions.

Finally, the effectiveness of the merger is subject to its registration before the mercantile registry after control of the legality by the mercantile registrar through prior certification of the correct performance of the acts and procedures prior to the merger. In the event that there must be a workers involvement in the proceedings, a participation agreement with them must be included as well.

It is important to keep in mind that in cross-border merger processes, workers could even participate in the management body of the resulting company provided that the conditions established for this particular case following the Spanish labor legislation.

‘Hard Brexit’ Scenario

If finally the political scenario opts for the so-called 'hard brexit' -or not ordered-, the procedure will differ substantially, since we must consider a cross-border extra-community merger proceeding pursuant to Directive 2005/56/EC, to be governed by the respective personal laws of both companies.

Commercial and Corporate Law Department of BELZUZ ABOGADOS has professionals from different jurisdictions authorized to provide all the necessary legal advice for the establishment of subsidiaries, branches and representative offices of foreign companies in Spain, as well as cross-border intra-community and extra-community merger proceedings.

Departamento Derecho mercantil y societario | Madrid (España)


Belzuz Abogados SLP

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