Buying or selling shares in a Spanish SL: the steps, the tax and what to lock down in the contract

A shareholder exiting, a founder selling part of their stake to an investor, a buyer acquiring the entire company: in every case the underlying legal transaction is the same, a sale and purchase of participaciones sociales, the shares in an SL (sociedad limitada, the Spanish private limited company). Unlike a capital increase, no money goes into the company here: it passes from the buyer to the selling shareholder. It looks like a simple transaction, and at its core it is, but it concentrates three risks you should have firmly in view before signing: the rights of the other shareholders, the seller's tax bill and whatever the buyer takes on without knowing it.

Before negotiating the price: who else has a say

Shares in an SL cannot be transferred as freely as listed shares. The Ley de Sociedades de Capital (LSC, the Spanish Companies Act) only makes transfers free between shareholders and to a shareholder's spouse, ascendants, descendants or companies in the same group, unless the articles of association provide otherwise (art. 107.1 LSC). For any other buyer, you must look first at the articles and, if they are silent, the statutory regime in art. 107.2 LSC applies: the shareholder notifies the directors in writing of the proposed transfer (the shares, the buyer, the price and the terms), the general meeting decides whether to consent, and the company may only refuse if it puts forward, through a notary, one or more shareholders or third parties to buy all of the shares. If the company has not identified those alternative buyers within three months, the shareholder may sell on the terms notified.

In practice, almost every startup has replaced that regime with its own, set out in the articles and the shareholders' agreement: a right of first refusal for the other shareholders, a tag along right so that minority holders can sell on the same terms, a drag along right allowing a majority to force the sale of 100% of the shares when an offer comes in for the whole company and, often, an initial lock-up period during which no shares can be sold. The law allows these restrictions within limits: clauses that make transfers virtually free are void, as are clauses requiring a shareholder to sell a different number of shares from the number offered, and a temporary prohibition on transfer cannot exceed five years from incorporation or from the capital increase in which the shares were issued (art. 108 LSC). Selling in breach of the procedure is no minor irregularity: the transfer will not be enforceable against the company, and the buyer may end up holding shares without rights.

The steps in the transaction

1. Letter of intent and due diligence. In any significant sale, the buyer reviews the company before committing: contracts, debt, tax and employment exposures, intellectual property and the chain of title to the shares themselves. Whatever that review turns up feeds into the price or the contract.

2. Share purchase agreement. It sets out the price and payment terms, the conditions precedent to closing and, above all, the seller's representations and warranties, which we discuss below.

3. Complying with the other shareholders' rights. Notices, time limits and waivers in accordance with the articles and the shareholders' agreement, or with art. 107.2 LSC if there is no bespoke regime. Document everything in writing: it is the first thing the notary will check and the first thing a future buyer will examine.

4. Public deed. The transfer of shares must be recorded in a public document (art. 106.1 LSC), usually a deed executed before a notary. Unlike a capital increase, it is not registered with the Registro Mercantil (Commercial Registry): it is entered in the libro registro de socios (register of shareholders) kept under art. 104 LSC, and the buyer may exercise its rights against the company from the moment the company becomes aware of the transfer (art. 106.2 LSC).

5. After closing. The register of shareholders must be updated and, if control of the company changes, so must the beneficial ownership information. If the buyer ends up holding 100% of the shares, the company becomes a single-member company (sociedad unipersonal), and that status must be recorded in a public deed and registered: if six months pass without registration, the sole shareholder is personally, jointly and severally liable, without limit, for the company debts incurred during that period (art. 14 LSC).

How much tax the seller pays

If the seller is an individual, the difference between the sale price and what the shares cost (including the costs inherent in the purchase and the sale) is a capital gain taxed in the savings income base of IRPF (Spanish personal income tax), at rates from 19% to 30%. One rule catches many sellers out: for unlisted shares, the Spanish tax authorities (Hacienda) will not accept just any price. Unless it is shown that the agreed price is the one independent parties would have agreed, the transfer value cannot be lower than the higher of two amounts: the net equity attributable to the shares according to the last balance sheet closed, or the value obtained by capitalising at 20% the average profits of the last three financial years closed (art. 37.1.b LIRPF). Selling "at a friendly price" to a fellow shareholder or a relative can end up being taxed on a value nobody has actually received.

If the seller is a company (for example, the founder's holding company), the gain may be exempt from Impuesto sobre Sociedades (corporate income tax) where the stake is at least 5% and has been held continuously throughout the preceding year (art. 21 de la Ley del Impuesto sobre Sociedades). The exemption is not total: since 2021, 5% of the gain is treated as management expenses and taxed, so at the standard 25% rate the effective cost is around 1.25% of the gain. This is the main reason many founders hold their stake through a company ahead of a sale, but that reorganisation has its own requirements and timelines and cannot be improvised once an offer is on the table.

For the buyer, the purchase of shares is exempt from VAT and from the Impuesto sobre Transmisiones Patrimoniales (transfer tax) under art. 338 de la Ley 6/2023, the Spanish Securities Markets Act. The exception is a transaction designed to avoid the tax that would apply to a direct sale of real estate, for example where control is acquired of a company at least 50% of whose assets consist of real estate in Spain not used in a business activity: in that case the purchase is taxed as if the real estate itself were being bought. With property-holding companies, this is the first point to check.

What to lock down in the contract

Whoever buys shares buys the company with everything in it, including the debts nobody has mentioned. That is why the core of the contract is not the price but the seller's representations and warranties (that the accounts give a true and fair view, that there is no litigation and no hidden debt, that the intellectual property belongs to the company, that the material contracts are in force) and the liability regime if they turn out to be untrue: what is indemnified, for how long and subject to what caps. Beyond that, the usual mechanisms are a portion of the price held back or placed in escrow for a period, a variable price linked to future results (earn-out) and, where the seller remains involved in the business or could compete with it, reasonable non-compete and retention covenants.

On the seller's side, the aim is the opposite: limit the warranties to what the seller actually knows, set an overall liability cap and a short claims period, and ensure that anything disclosed in the due diligence is excluded from future claims. If the buyer is foreign and the company operates in a strategic sector, it is also worth checking whether the transaction requires prior authorisation under the foreign investment screening regime, as this drives the closing timetable.

Frequently asked questions

Can shares be sold under a private document?

The agreement between the parties can be signed privately and is binding on those who sign it, but the transfer must be recorded in a public document (art. 106.1 LSC). Without one, the buyer will struggle to prove title to the shares vis-à-vis the company, third parties and any future buyer or investor.

Can the other shareholders block the sale?

Under the statutory regime, only if the company puts forward alternative buyers to acquire all of the shares on the same terms. Under provisions in the articles, they may have a right of first refusal or restrict sales for a period, but they cannot block a sale indefinitely unless the articles give the shareholder the right to withdraw from the company at any time (art. 108.3 LSC).

Does the buyer have to pay any tax?

As a general rule, no: the transaction is exempt from VAT and transfer tax. The exception is the acquisition of control of a company whose assets are mainly real estate, which may be taxed as a purchase of real estate.

What if I sell below book value?

If the seller is an individual, the tax authorities may calculate the gain on the higher of the values in art. 37.1.b LIRPF (net equity or capitalised profits), unless it is shown that the price is the one independent parties would have agreed. That is why a sale below book value must be justified and documented.

How we handle it at Satya Legal

We act for buyers and sellers on share sales, from a single shareholder's exit to the sale of the entire company: review of the articles and shareholders' agreement, due diligence, negotiation of the contract, calculation of the tax impact for the seller and coordination of closing before the notary, all on a fixed fee. You can see how we work on our page on M&A for startups and SMEs. If it is a founder who is leaving, you may also want to read what happens when a co-founder leaves the startup. The first consultation is free.