Ancillary benefits in capital companies: what are they and how do they work?

Ancillary obligations are regulated in Article 86 et seq. of the Capital Companies Law (LSC). They can be defined as those obligations that the partners assume, beyond making the contribution to the capital stock to the company. These types of obligations may be remunerated or free of charge. They can also be linked to the shareholder or to the participations or shares held by him/her. These obligations may consist of actions of giving, such as contributing know-how. They may also involve actions of doing, such as providing professional services. On the other hand, they may consist of actions not to do, such as refraining from activities that may involve competition for the company. All this will depend on what is agreed in the articles of association.

What are the characteristics of ancillary services?

The main characteristics of the ancillary services are as follows:

• They are of an accessory nature. As already mentioned, this type of obligation is linked to the main obligation, to contribute the capital stock, but they are not considered part of it. As they are linked to the main obligation, only the partners of the company can assume this type of obligation.
• They are optional. Unlike the obligation to make the contribution to the capital stock, accessory obligations are voluntary, so they cannot be imposed unilaterally, but must be accepted by the shareholder to whom they apply.
• Compliance is mandatory. Once the partner on which the accessory obligations fall has given its consent, compliance becomes mandatory. Article 350 of the LSC provides that “the limited liability company may exclude a partner who voluntarily fails to comply with the obligation to perform ancillary obligations”. Similarly, the partners may agree on different penal clauses in the bylaws in the event of noncompliance.

Where are ancillary benefits regulated?

Ancillary services are of a statutory nature, i.e. they are regulated by the bylaws. Thus, both the creation, modification and early termination of the obligation to provide ancillary services must be agreed with the requirements set forth for the modification of the bylaws and will also require the individual consent of the obligors.

According to the Resolution of March 7, 2000, of the General Directorate of Registries and Notaries, ancillary services must be regulated in a clear and specific manner, avoiding generic or indeterminate clauses that could lead to error. Clauses such as “all kinds of work”, “to provide any goods” or “for an indefinite period of time” should be avoided.

Likewise, it is not admissible for the interpretation of an obligation to be left to the discretion of the general meeting, as this could generate conflicts among the partners.

In the event that these clauses are not regulated in the bylaws in a clear and concise manner, this could pose a problem when requesting the registration of the bylaws in the Commercial Registry, since the latter would not register them or would register them partially, eliminating such clauses.

How are paid ancillary benefits regulated?

In the event that they are remunerated, it is necessary to establish in the bylaws, not so much the amount, but the form of remuneration. These forms of remuneration could include:

• Fixed periodic remuneration.
• Remuneration based on a percentage of profits.
• Establishing advantages in terms of certain social rights.
• Assigning the use of an asset belonging to the company.

In any case, as well as the manner of expressing ancillary benefits, this must be determined by establishing clear criteria in the way it is carried out.

It is necessary to take into account when remunerating ancillary services that article 87 of the LSC establishes that this cannot exceed the value of the service itself. In other words, the company cannot pay the partner obliged to perform the ancillary service a higher value than the value of the service itself (normally the market value will be taken into consideration).

Is it possible to transfer shares with ancillary benefits?

The transfer of participations or shares with ancillary benefits is regulated in Article 88 of the LSC, which establishes that the company must authorize the transfer if any of the partners wishes to transfer them voluntarily.

In the case of Limited Liability Companies (S.L.), the competent body is the general meeting, whereas in the case of Public Limited Companies (S.A.), the competence to accept the transfer belongs to the administrative body.

Two situations are possible when transferring the partnership interests or shares, depending on whether the obligation is linked to the partner/shareholder or to the partnership interests or shares:

1. Ancillary performance linked to the partner/shareholder: In this case, the ancillary performance is directly associated with the holder of the capital stock in the company (very personal obligation) and, therefore, at the time of transferring the shareholding or the share, it would imply its extinction and the purchaser would not assume the obligation to perform the ancillary performance.
2. Ancillary performance linked to the shares of capital stock: In this case, the accessory performance is associated with the shares of capital stock and, therefore, the purchaser would be subrogated to the obligation to comply with the accessory performance under the terms and conditions set forth in the bylaws.

What are the causes for the termination of ancillary benefits?

The only cause for termination of the obligation to perform an ancillary obligation is set forth in Article 89 of the LSC. This article establishes that ancillary services may be extinguished, modified or created, following the requirements for the amendment of the bylaws, provided that the consent of the shareholder on whom the service is to be rendered is obtained.

In addition to the termination by corporate resolution and express consent of the affected partner or shareholder, there are other causes of termination, such as:

• The death or separation of the partner/shareholder on whom the accessory performance falls, if the obligation was personal or, otherwise, if there is no other partner/shareholder to be subrogated to the same.
• The extinction of the company.
• The impossibility of carrying it out, for any reason whatsoever, without prejudice to the legal and corporate consequences that this may cause.

As it has been observed, the regulation and the way to establish ancillary benefits can be complex. For this reason, Devesa has highly specialized professionals in commercial law in order to ensure regulatory compliance and the implementation of ancillary benefits in the bylaws.

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