Structure and process, legal regulation and consents


How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

The most common way to structure an acquisition or disposal of privately owned companies, businesses or assets in Spain is through the direct sale and purchase of the shares of the companies that own the target business. A direct sale of the business through an asset deal is rarely the chosen route for a private acquisition. It is mainly used as an alternative when only some and not all of the target business is transferred, to ring fence hidden or contingent liabilities of any business outside the perimeter of the transaction or as an alternative to financial assistance constrains.

The process of acquiring a company, business or assets will be influenced by the issues and number of parties involved, as well as whether the transaction involves a bilateral negotiation or an auction process with multiple potential buyers.

A bilateral deal typically involves:

  • a non-disclosure agreement, sometimes embedded in the memorandum of understanding (MOU) or letter of intent (LOI);
  • an MOU or LOI including the main terms of the transaction on a non-binding basis and, generally, granting exclusivity to negotiate the deal during a certain period of time;
  • a share and purchase agreement (SPA) and supplementary documentation (eg, transitional services agreements (TSAs), service level agreements (SLAs) and corporate documents for the replacement of management bodies); and
  • a closing deed, generally done at a Spanish notary public, recording the SPA in a public deed (to comply with compulsory formalities for a valid transfer of shares or as standard market practice in other circumstances).

Auction processes soliciting the interest of several buyers typically involve:

  • drafting a teaser that includes basic business and financial information on the target business, as well as an information memorandum marketing the company, business or assets;
  • completing a vendor due diligence, and drafting a SPA and other sale documents (approximately eight to 12 weeks);
  • ‘round one’ expressions of interest from potential buyers who will then be permitted to perform a due diligence (approximately three to four weeks);
  • ‘round two’ due diligence over target companies and binding offers by potential buyers with mark ups of the transaction documentation (approximately six to eight weeks); and
  • negotiating transaction documentation with one or several bidders until definitive terms are agreed on with one party (up to two weeks).

Each phase of the process could take more time for larger, more international target companies, businesses or assets (ie, involving assets in several jurisdictions): three or four months often elapse between distribution of an information memorandum and finalisation of definitive transaction documents. Owing to a lack of competitive tension in the process, bilateral transactions can take longer to complete.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

In Spain, the terms agreed on by the parties in the contract govern private acquisitions and disposals. Although the Civil Code and Commercial Code include several provisions governing the sale and purchase of goods and assets (including shares), these provisions can be replaced by the parties contracting on the main terms of the sale and purchase. This option is most commonly applied in Spain’s private M&A practice.

Although Spanish law governs most sales of Spanish companies, the law of an overseas jurisdiction can govern acquisitions. However, legal formalities that apply to a transfer of shares and assets and liabilities that are subject to local law must be complied with.

The legal formalities for transfers of shares in Spain vary depending on whether the transfer is of quotas or a Spanish limited liability company (SL), or a transfer of shares of limited liability by shares companies (SAs).

Both the quotas of a SL and the shares of a SA are hereinafter defined as ‘shares’.

Formalities involved in SL and SA transfers of shares

SL corporate law transfer formalities

When the Spanish company is a SL, the share transfer agreement must be notarised at a Spanish notary public and recorded in the SL shareholders’ book.

SA corporate law transfer formalities

When the Spanish company is an unlisted SA, the formalities involved depend on whether the certificates representing the shares have been issued, and whether the shares are issued as registered (the most common case) or bearer shares.

Non-issued certificates

The share transfer agreement (for registered and bearer shares) must be made in writing, usually notarised at a Spanish notary public. If shares are registered, the transfer must be recorded in the SA shareholders’ book.

Issued certificates: registered shares

There are two ways to transfer the shares:

  • carry out the transfer as described for non-issued certificates above; or
  • the transferor endorses unconditionally all the issued certificates representing the shares in favour of the acquirer. The transfer must be recorded in the SA shareholders’ registry book. Although transfers made through endorsement do not have to be notarised, it is a common practice we recommend following.

The transferor must deliver the share certificates to the acquirer (regardless of whether they are endorsed).

Issued certificates: bearer shares

The share transfer agreement must be formalised at a notary public, a stock broker or a credit entity (eg, banks). The transferor must deliver the share certificates to the acquirer.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Under the Spanish Civil Code, the Commercial Code and the Spanish Companies Act, approved under Royal Decree Law 1/2010, of 2 July (LSC) governing both SLs and SAs, acquiring legal title over shares in a SL or in a SA means that the buyer (shareholder) acquires all rights attached to the shares.

These rights would include the right to:

  • sell, encumber and dispose of the property of the shares;
  • attend and vote in the general shareholders’ meeting pro rata to his or her share capital;
  • obtain information on the company’s business and activities (except any information that is restricted to the directors by law);
  • certain supermajority thresholds for important matters (depending on the subject matter, thresholds in SLs are 50.01 per cent and 66.66 per cent of the total issued voting stock and in SAs are 50 per cent (first call ) and 25 per cent of the total issued voting stock, plus two-thirds of the attending voting stock in the second call);
  • pro rata dividend payments and other economic rights; and
  • pro rata shares of any liquidation or winding-up payments.

Even if the transaction documentation makes no reference to them, under the Civil Code, title covenants are obligatory under law; specifically, Chapter IV of the Civil Code provides protection for the buyer in connection with full legal title over the ownership of the shares; and any hidden or latent defects over the shares.

However, as the statutory regime established in the Civil Code has become obsolete under standard M&A practice, it is common practice in Spain for the buyer to seek additional protection from the seller through broader business representations and warranties, and unqualified title to shares or assets.

The parties may waive statutory protection for the buyer under the Civil Code, which can be replaced with broader representations and warranties. Under standard M&A practice, these are typically negotiated in a SPA. In these cases, the set of representations and warranties would be the sole remedy for the buyer in the event of a breach of title covenants or business warranties.

Title over the shares is automatically transferred from the seller to the buyer once the formalities for transfer of shares in a SL and SA have been fulfilled.

The transfer of title to assets subject to Spanish law is a more cumbersome process. Depending on the type of assets, it requires notifications to be given, consents from third parties to be obtained and registrations to be made.

Under Spanish law, there is no distinction between legal and beneficial title in property. A person registered as holding the legal title to a share in a company bears all political and economic rights. However, a shareholder’s rights may be transferred to a third party that would benefit from these rights through several means, including by granting a proxy for voting rights, a pledge of shares (assigning the political and economic rights to the pledgee) or through an usufruct of the shares where the economic rights (eg, dividends) are transferred to a third party.

Interest in other assets, including real estate, can be held in the same way.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

Buyers will typically prefer that all sellers sign the transaction documentation that the sellers agree to be bound by.

Minority shareholders may be required to sell their shares under ‘drag-along’ provisions in a company’s articles of association or a shareholders’ agreement that requires the transfer of title to their shares if established conditions are met. Under Spanish law, provisions that are not registered in the company’s by-laws or the Commercial Registry will not apply to bona fide third parties. When included in a shareholders’ agreement, these provisions would apply to the signatories of the agreement and would entitle the non-breaching party to seek indemnification on damages for a breach of contract (specific performance would not be an available remedy if a bona fide third party acquired the shares and if it was not aware that the acquisition was in breach of the shareholders’ agreement provisions).

Under Spanish law, no squeeze out is recognised in private companies. The squeeze out of minorities is available only for publicly listed companies when two thresholds are attained after launching a takeover bid for all the securities of the target company: the offeror has acquired more than 90 per cent of the target’s voting rights; and the bid has been accepted by at least 90 per cent of the voting rights to which it has been directed.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

Under Spanish contract law, buyers can generally choose the assets or liabilities they want to acquire in transactions structured as a business or asset sale.

When the assets and liabilities constitute an entire business as a going concern, important labour and tax implications must be considered.

Structuring a transaction as a business or asset sale with the aim of avoiding responsibilities to employees engaged in the target business is not permitted. Article 44 of the Spanish Workers’ Statute Act, as amended, applies to acquisitions of businesses in Spain: it requires contracts of employment to be automatically transferred to the buyer of a business, and that employee benefits must be respected (transfer of undertaking protection of employment).

Similarly, under Spanish tax law (article 42.1.c of Law 58/2003), the sale of assets as a going concern would entail the buyers’ joint and several liability for any outstanding tax liabilities of the transferred assets and business arising before the transfer date. In addition to any remedies in contract to indemnify and compensate the buyer for any of these tax liabilities, under Spanish law, the tax authorities may also issue a tax certificate that discloses any pending tax liabilities. This means that the buyer’s joint and several liability will be limited to these tax issues.

Depending on the type of assets or liabilities transferred, the transfer may require customary third-party consents. For example, a landlord’s consent may be required to assign a lease, or a counterparty’s consent may be needed for the assignment or novation of a contract (see question 7). Under Spanish law, transfers of debts are always subject to the creditor’s previous consent, while transfers of credit rights need to be notified only to the obligee or debtor (except if stated otherwise in the contract).


Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

In an SL, selling shareholders are subject to ‘pre-emptive’ rights of the other shareholders in the company. Pre-emptive rights require a shareholder to offer his or her shares to other shareholders before they can be sold to a third party. Such right is a right of first refusal, and the selling shareholder must give the other shareholders the right to match the terms of a sale that have been negotiated with a third party.

In an SA, these pre-emptive rights do not apply to a Spanish SA company, meaning that selling shareholders can freely transfer their shares. However, these rights and other share transfer restrictions, including tag-along or drag-along rights, may be agreed on and registered in the company’s by-laws. In this case, these restrictions would apply to an SA (which is also a possibility in an SL).

Exchange control and foreign investments are liberalised in Spain (except for specific sectors, including activities related to national defence and security, airline carriers, gambling, TV and radio). This means that they are generally free from restrictions, but must be notified to the appropriate authority (the State Secretary for Trade or the Bank of Spain). These reporting obligations are imposed for statistical and tax purposes, and to prevent infringements of law. Failure to comply with these reporting obligations may result in monetary fines.

Non-residents include individuals domiciled abroad or whose principal residence is abroad; legal companies with registered offices abroad; and permanent establishments and branches of Spanish-resident individuals or companies abroad.

Foreign investments in Spanish entities

Foreign investments in Spanish companies must be notified to the State Secretary for Trade within one month of the investment.

As an exception, when investments proceed from a tax haven and exceed 50 per cent of the Spanish company’s share capital, an earlier declaration is required.

Reporting obligations for all foreign transactions and balances of financial assets and liabilities

Spanish residents (individuals or entities) must inform the Bank of Spain of any transaction made with non-residents or any asset or liability in countries other than Spain. Information regarding creditor and debtor positions must be provided monthly, quarterly or yearly, depending on the volume of the resident’s transactions made in the previous year, and the balance of assets and liabilities as of December of the previous year.

Payments or transfers of funds

Residents must provide information to their bank when making or receiving payments or transfers of funds to or from a non-resident. Collections, payments and transfers of amounts under €50,000 are exempt from this requirement.

Merger control

Acquisitions of companies and businesses in Spain may be subject to merger control requirements established in Spanish and EU law.

Transactions that meet the thresholds set out in the EU Merger Regulation are considered to have an ‘EU dimension’, and must be notified to and authorised by the European Commission. Transactions that do not meet the EU thresholds, but that still meet the thresholds established in Law 15/2007 of 3 July for the Defence of Competition (LDC), must be notified to and authorised by the National Commission for Markets and Competition (CNMC). Unlike other areas of Spanish competition law, the regional authorities have no jurisdiction over merger control. A transaction must be notified under the LDC if:

  • a share of 30 per cent or more of the Spanish market or a market within Spain is acquired or increased (market share threshold) as a result of the transaction, except where the total annual turnover of the target in Spain does not exceed €10 million, and none of the undertakings involved has an individual or joint market share in an affected market of 50 per cent or more, either in Spain or a market within Spain (the ‘de minimis exception’); or
  • the aggregate annual turnover of all the parties in Spain exceeds €240 million, or at least two of the parties in the concentration had a Spanish turnover in excess of €60 million (turnover threshold).

If a notification is required, the transaction must not be carried out before clearance unless a waiver is obtained, which is available only in exceptional circumstances. Fines for failing to notify or closing before clearance can be up to 5 per cent of annual turnover and have been imposed in a number of cases.

The test for clearance - whether the transaction hinders the maintenance of effective competition in any of the national market or any market within Spain - is long-established, but the CNMC occasionally challenges transactions applying novel theories of harm, which can make the process less predictable.

In general, Spain does not subject the acquisition of companies, businesses or assets to national industry considerations. However, if the transaction is prohibited or cleared with the CNMC’s commitments or conditions, the government has the power to overrule the CNMC to allow the transaction to go ahead or to vary commitments based on an open set of public interest criteria. However, this is rare, as there has been only one precedent since the possibility was introduced in 2007, which was in the Antena 3/La Sexta concentration in 2012.

There are no particular industries where the merger control clearance of a transaction requires consent from specific regulators or governmental bodies other than the CNMC.

Are any other third-party consents commonly required?

The requirement to obtain third-party consents will depend on the law governing the transfer of the assets and liabilities. Regarding the acquisition of a business, for the assets and liabilities governed by Spanish law to be transferred, the agreement of the counterparties to contractual arrangements is required to transfer the seller’s obligations to the buyer. Counterparty consent may be required to assign the benefits of contractual arrangements.

A landlord’s consent to transfer Spanish leasehold property and the consent or waiver of a lender’s rights to transfer loans governed by Spanish law are normally required in relation to the acquisition of a company, business or assets. Where security has been granted under Spanish law over a company’s assets or business, releases through a notary public deed and registration in public registries (eg, for mortgage over real estate) are normally required.

Under Spanish law, the general shareholders’ meeting must authorise any acquisition or transfer of a ‘relevant’ or ‘essential’ asset. This applies to SL and SA companies under the requirements established in article 160.1 f) of the LSC. This article guarantees that the general meeting has authority to deliberate and resolve ‘the acquisition, disposal or the contribution to another company of essential assets’. There is ambiguity in the law surrounding when an asset is considered as ‘essential’, although there is an assumption established in the LSC where an asset is considered ‘essential’ when the transaction value exceeds 25 per cent of the company’s assets, which is proven in the company’s most recently approved balance sheet. To avoid any uncertainties surrounding the need to obtain the general shareholders’ meeting’s prior authorisation, in Spain it is standard practice in M&A deals to provide for this authorisation in almost all transactions of relatively high value and importance.

Regulatory filings

Must regulatory filings be made or registration fees paid to acquire shares in a company, a business or assets in your jurisdiction?

As a general rule, transfers of shares in SL or SA companies do not trigger any stamp duty or transfer taxes. However, transfer tax applies when the company’s assets are composed mainly of real estate located in Spain; this applies only if it could be concluded that the transfer of shares is an indirect transfer of real estate assets aimed at circumventing or avoiding the transfer tax that would have been triggered if the real estate asset had been sold directly. See question 31.

The transfer of a business as a whole does not trigger transfer tax. However, if the transfer includes real estate assets that are not taxable under (value added tax) VAT, transfer tax will normally be triggered. See question 31.

Advisers, negotiation and documentation

Appointed advisers

In addition to external lawyers, which advisers might a buyer or a seller customarily appoint to assist with a transaction? Are there any typical terms of appointment of such advisers?

Parties usually appoint a financial adviser and accountants to help with a transaction. Financial advisers provide strategic and valuation advice, while accountants provide help with accounting and financial matters. Tax diligence and tax structuring are typically entrusted to accounting or law firms specialised in tax matters. Strategy and business consultants may also be engaged to conduct commercial due diligence. Where parties to a transaction have securities listed on a stock exchange, public relations advisers are frequently appointed to coordinate any announcements that have to be made to the public market.

Professional advisers generally have standard terms of engagement that they will agree upon with the buyer or seller. Fees will depend on:

  • the monetary value of the deal;
  • the complexity of the issues:
  • the transaction’s timetable; and
  • the nature of the required work product.

A buyer’s total financial, accounting and legal advisory fees may amount to several percentage points of a deal’s monetary value.

Duty of good faith

Is there a duty to negotiate in good faith? Are the parties subject to any other duties when negotiating a transaction?

Spanish contract law imposes a general duty to negotiate in good faith. Parties to a transaction are not permitted to act without honouring their good faith obligations (articles 7.1 and 1.258 of the Civil Code).

There is a general duty to act in good faith. In addition, directors of Spanish companies are subject to fiduciary and statutory duties, including the duty to act in a way that a director in good faith considers to be in the interests of the company’s success and to be for the benefit of its members as a whole. Financial advisers are subject to certain standards of professional conduct and are monitored by the Spanish financial authorities (eg, the Spanish Securities and Exchange Commission (CNMV) and the Bank of Spain).


What documentation do buyers and sellers customarily enter into when acquiring shares or a business or assets? Are there differences between the documents used for acquiring shares as opposed to a business or assets?

Parties acquiring shares, a business or assets customarily enter into the following:

  • a confidentiality agreement regarding the exchange of confidential information during the transaction;
  • a SPA establishing the terms of the transaction. This will be similar whether shares, a business or assets are being acquired, except where business or asset acquisition provisions define the scope of the assets and liabilities to be transferred to the buyer, and a ‘wrong pockets’ clause to address any misallocation of assets and liabilities between the seller and buyer;
  • a disclosure letter in which the seller makes the general and specific disclosures that qualify the warranties included in the SPA;
  • a TSA or SLA specifying the basis on which the seller will ensure the continued provision of certain services to the target company or business by the seller or its affiliates following completion of the transaction; and
  • documents to transfer or register a title to assets establishing that the acquisition of shares in a Spanish company will consist of a share transfer deed (see question 2), and that the acquisition of a business or assets will consist of notifications to update registers of, inter alia, real property and intellectual property.

In addition, buyers often deliver one or more offer letters to a seller to express their interest in a transaction, and the terms, including the price, under which they would be willing to proceed. The parties also can negotiate heads of terms in a bilateral transaction to ensure resources are not wasted when evaluating a transaction before key terms are agreed. Finally, key management members of the target business can enter into new employment agreements following the completion of the transaction.

Are there formalities for executing documents? Are digital signatures enforceable?

Spanish law distinguishes between the execution of simple contracts and of public deeds. Certain documents must be finalised as deeds, including transfers of shares under certain circumstances (see question 2), interest in land, mortgages and charges, including pledges and powers of attorney. Failure to carry out formalities that are compulsory (which is unusual under Spanish law) could render a document invalid and unenforceable.

To be effective, simple contracts require the signature of a suitably authorised person. The authority of a signatory to an agreement is demonstrated through evidence of its appointment as a duly authorised officer who is registered in the Commercial Registry when acting on a company’s behalf or through a notarised power of attorney granted in favour of the signatory by the authorised officer. When acting on a natural person’s behalf, a duly notarised power of attorney granted in favour of the signatory would be required.

The terms electronic signature and digital signature are usually used interchangeably. Electronic signatures are legal and valid under Regulation No. 910/2014, which entered into force on 1 July 2016. In Spain, Law 59/2003 on electronic signatures establishes the following:

  • an electronic signature is the compilation of data in an electronic format, linked to others or associated with them, which can be used to identify the signatory;
  • an advanced electronic signature is an electronic signature that identifies the signatory and detects any modification after the document was signed. This signature is linked exclusively to the signatory, and the data that it represents are created in such a way that only the signatory can control; and
  • a recognised electronic signature is an advanced electronic signature that recognises a certificate and is generated through a secure signature creation device. The recognised electronic signature must have the same value as the handwritten signature.

Due diligence and disclosure

Scope of due diligence

What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

Due diligence allows potential buyers to evaluate the legal, labour, financial, tax, accounting and commercial position of a company, business or assets. Legal due diligence will typically confirm:

  • title to the company or business;
  • its legal structure;
  • the terms of financial obligations;
  • intellectual and real property;
  • ownership and use of information technology;
  • physical assets;
  • litigation;
  • employee arrangements;
  • labour matters;
  • contractual matters; and
  • compliance with the law.

Vendor due diligence reports commonly feature in controlled sales processes in Spain. They enable sellers to accelerate the sale process, minimise disruption of the target business, facilitate access for management and explain any complexities involved in a transaction. Customarily, a buyer and its lenders will be able to rely on vendor due diligence reports. Buyers often also complete a confirmatory due diligence as part of their evaluation of a transaction.

Liability for statements

Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

A seller can be liable for pre-contractual misrepresentations. However, with the exception of fraudulent misrepresentations, SPAs usually limit a seller’s liability to claims of breaches of contract, and exclude liability for pre-contractual and misleading statements.

Publicly available information

What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

SA and SL companies are required to make extensive filings that are made publicly available online with the Commercial Registry, including:

  • the company’s by-laws;
  • audited financial statements;
  • details of the board of directors and people with powers of attorney representing the company;
  • shareholder resolutions, including matters affecting the company’s by-laws or matters that must be registered under Spanish law (eg, change of the corporate objects or registered address, or any amendments to the matters described in this question);
  • details of changes to the company’s share capital; and
  • approval of annual accounts.

Details of, inter alia, the ownership, mortgages and charges of real property are available from the Spanish land registry for the area in which such real property is located. Details of registered intellectual property such as patents and trademarks can be obtained from the Spanish Intellectual Property Office.

Buyers of companies typically conduct a search of the information filed with the Commercial Registry to confirm that a winding-up petition has not been lodged against a company. Searches may also be carried out for registered assets held to be material to a transaction. Usually, registry fees must be paid to be to carry out these searches.

Impact of deemed or actual knowledge

What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

A buyer’s actual or deemed knowledge at the time of entering into an acquisition will prevent a claim for breach of implied title covenant or a claim for hidden defects (see question 3). In Spain, a usual negotiation point under an SPA is sandbagging provisions, where the buyer aims to not be precluded from filing claims for a breach of covenants or warranties, despite a buyer’s actual or deemed knowledge of any matters giving rise to the claim.

Therefore, an SPA usually specifies whether a buyer’s actual, constructive or imputed knowledge justifies the seller’s warranties. Note, however, that some scholars in Spain are reluctant to accept the validity of sandbagging clauses, and therefore a buyer’s knowledge at the time of entering into an acquisition will preclude a claim for breach of implied title covenant or a claim for hidden defects in any event.

Pricing, consideration and financing

Determing pricing

How is pricing customarily determined? Is the use of closing accounts or a locked-box structure more common?

The price is normally determined by using the customary methods for company valuation, such as cash-flow discounts, EBITDA multiples or similar valuation methods.

Locked-box mechanisms are used more often than closing accounts. Specifically, this applies when sellers are private equity funds, as sellers normally want to fully distribute the cash to their limited partnerships without any outstanding clawback obligations. It is also common where sales are made through organised competitive processes, where bidders have the opportunity to carry out due diligence on the accounts in advance and where sellers want to be certain of the final prices so they can accurately compare competitive bids.

Form of consideration

What form does consideration normally take? Is there any overriding obligation to pay multiple sellers the same consideration?

Deal consideration normally involves cash being fully paid on closing. Sometimes, deferred payments are agreed on, and the purchaser can use the payments as a guarantee to secure payments under warranty claims.

Under Spanish contractual law, there is no obligation to pay multiple sellers the same consideration. However, Spanish corporate law establishes as a general principle the equal treatment of those shareholders who are in the same position. Therefore, certain restrictions may apply to the extent that they derive from the target company’s articles of association (eg, where tag-along, drag-along or similar rights apply, or where articles contain a waterfall for different shares classes).

Earn-outs, deposits and escrows

Are earn-outs, deposits and escrows used?

Earn-outs are uncommon. When used, they are meant to capture a potential increase of value based on the target’s future performance. Escrows have been the most common way to secure warranty claims, but there is an increasing trend to use warranty and indemnity (W&I) insurance policies, meaning that escrows are becoming less common. Where the consideration structure includes closing accounts, escrows are used to secure post-completion price adjustments.


How are acquisitions financed? How is assurance provided that financing will be available?

Depending on the buyer, financing ranges from bank financing to buyers financing deals with their own resources. Bank financing normally consists of syndicated senior loans and, depending on the deal size, mezzanine facilities. Buyers may also seek high-yield post-completion issuances.

Concerning assurances, where buyers are private equity funds using special purpose vehicles to fund a deal, standard equity commitment letters will be put in place. Otherwise, sellers would aim for the buyer to have enough substance to sustain any potential claims.

Limitations on financing structure

Are there any limitations that impact the financing structure? Is a seller restricted from giving financial assistance to a buyer in connection with a transaction?

Spanish limited liability companies are generally prohibited from receiving financial assistance regardless of whether they are private (ie, SL) or public (ie, SA), although in SAs if the purchasers are company employees or if the company is a financial institution, financial assistance is allowed. Financial assistance is defined in broad terms and includes financial assistance that may derive from forward mergers. However, if this is the case, a procedure to validate the merger, which involves an independent expert that the Mercantile Register will appoint, is available.

Conditions, pre-closing covenants and termination rights

Closing conditions

Are transactions normally subject to closing conditions? Describe those closing conditions that are customarily acceptable to a seller and any other conditions a buyer may seek to include in the agreement.

Parties to transactions normally try to have simultaneous signing and closing to avoid any unnecessary uncertainty. Normally deferred signing and closing occurs only where regulatory conditions apply (eg, antitrust and governmental authorisations) or where other significant consents or waivers are required (typically for key commercial agreements or a target’s financial providers). Where any of these closing conditions apply, purchasers may seek other conditions, namely repetition of representations and warranties on closing, which is normally agreed, and material adverse changes clauses, which sellers are normally reluctant to accept.

What typical obligations are placed on a buyer or a seller to satisfy closing conditions? Does the strength of these obligations customarily vary depending on the subject matter of the condition?

Typically, parties assume best efforts obligations to do anything that is reasonably necessary to ensure that the conditions are met. Spanish laws only distinguish between obligations where a specific result is to be obtained as opposed to obligations where only a specific conduct of the parties is required. In this case, there are no important differences between the level of intensity of the parties’ conduct. Therefore, a distinction between ‘best endeavours’, ‘reasonable endeavours’ and ‘commercially reasonable endeavours’ is not as important as it is in other jurisdictions.

Sellers may seek to impose ‘hell or high water’ obligations, especially in competitive processes and to impose conditions to fulfil regulatory conditions (eg, the disposal of part of the target assets or business).

Pre-closing covenants

Are pre-closing covenants normally agreed by parties? If so, what is the usual scope of those covenants and the remedy for any breach?

Sellers typically commit to run the company in the ordinary course of business during the interim period between signing and closing. This normally includes negative covenants on relevant or extraordinary matters (eg, capital increases, pledge of shares or assets, the company’s dissolution, disposal of relevant assets, further indebtedness and change of salary policies).

Occasionally, sellers also commit not to hold (or pledge to discontinue) any conversations with potential buyers if closing does not take place. Buyers also request access to the company’s information and its key executives. However, where antitrust conditions apply, this access may be limited.

Breaching any of these covenants will normally result in a claim for damages that is typically uncapped. Sellers may also be asked to confirm, on closing, that no breach has occurred. Occasionally, this confirmation may be construed as an additional condition to closing.

Termination rights

Can the parties typically terminate the transaction after signing? If so, in what circumstances?

The Civil Code provides a termination remedy if the consent of any of the parties to enter into an agreement has been vitiated as a consequence of an error or fraud. However, SPAs are normally construed in a way that the ability of any one of the parties to terminate these agreements is excluded, limiting the possibility of claims for damages. While this normally works for negligence or error, fraud cannot be wholly excluded. Therefore, in this case, termination could apply. Otherwise, if the transaction is subject to closing conditions, long-stop dates that allow for the agreement to be terminated normally apply.

Are break-up fees and reverse break-up fees common in your jurisdiction? If so, what are the typical terms? Are there any applicable restrictions on paying break-up fees?

Break-up fees are uncommon in transactions subject to Spanish laws. However, break-up fees may occasionally apply in a competitive process for typical situations:

  • when shortlisted bidders are invited to the second phase without exclusivity, in which case the seller may agree to cover the cost that the bidder incurred in the due diligence, up to certain caps, through cost coverage letters; or
  • when buyers that need to apply for regulatory or other personal conditions to close, specifically in cases where other buyers would not, ensuring that the sellers have certainty of closing.

No specific rules apply to break-up fees in private transactions. In takeover bids on public companies, a maximum of 1 per cent of the aggregate amount of the offer is allowed.

Representations, warranties, indemnities and post-closing covenants

Scope of representations, warranties and indemnities

Does a seller typically give representations, warranties and indemnities to a buyer? If so, what is the usual scope of those representations, warranties and indemnities? Are there legal distinctions between representations, warranties and indemnities?

Sellers’ representations and warranties are typically provided for deals subject to Spanish law. There is no net distinction between representations and warranties. Normally, sellers represent and warrant that certain statements are true, correct and complete, and are subject to standard limitations. Breaching any of these statements is normally considered a contractual breach for which, normally, only damages may be claimed.

Representations and warranties include the title and capacity of the sellers. Business representations and warranties can also be included. However, when a deal is done through a competitive process, bidders may expect that only title and capacity are given.

Occasionally, sellers may also grant specific indemnities to cover certain issues detected under the due diligence process. In this case, claims will also consist of contractual damages, but standard limitations, including buyer’s knowledge, do not apply.

Limitations on liability

What are the customary limitations on a seller’s liability under a sale and purchase agreement?

Customary limitations on the seller’s liability will normally include the following:

  • scope of damages: normally, the seller will seek to assume liability only for direct damages, but excluding indirect or consequential losses, loss of profit or loss of opportunity;
  • buyer’s knowledge: sellers will not be liable for any facts or circumstances fairly disclosed to the buyer during the due diligence process;
  • de minimis and baskets normally in the region of 0.1 and 1 per cent of the purchase price. Baskets are normally construed as tipping;
  • temporal limitations: normally ranging from 12 to 24 months for business representations and warranties, except for tax and social security issues that are normally covered for their corresponding statute of limitation (around five years). Fundamental representations and warranties (ie, seller’s title and capacity) will also be subject to a statute of limitations (five years); and
  • other limitations: SPAs may also include other limitations, including buyer’s mitigation duty, non-liability for retroactive laws or practices, no double recovery, etc.

Transaction insurance

Is transaction insurance in respect of representation, warranty and indemnity claims common in your jurisdiction? If so, does a buyer or a seller customarily put the insurance in place and what are the customary terms?

In recent deals, W&I policies have become more common, and buyers typically put them in place. However, in competitive processes, sellers may want to contact an insurance company to offer buyers a staple W&I insurance. Normally, insurers take around three weeks to complete the internal procedures to offer a W&I policy, but this period is sometimes shortened. Customary terms will include excluding any matters disclosed under the due diligence, but certain specific known issues may be covered at a higher premium. Other general exclusions may also apply (eg, transfer pricing issues and environmental issues). A premium is typically in the region of 1 per cent to 1.5 per cent of the insured amount.

Post-closing covenants

Do parties typically agree to post-closing covenants? If so, what is the usual scope of such covenants?

Sellers normally commit not to compete with the target business or activities during a certain period after closing. This normally includes a non-poaching agreement for the target company’s key employees. Typically, this period does not exceed two years after closing.


Transfer taxes

Are transfer taxes payable on the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

Transfers of shares

As a general rule, transfers of shares do not trigger transfer tax. Transfer tax applies if the company’s assets are composed mainly of real estate in Spain. However, this applies only if it could be concluded that the transfer of shares hides an indirect transfer of real estate assets aimed at circumventing or avoiding the transfer tax that would have been triggered if the real estate asset had been sold directly. A case-by-case analysis should be made.

Transfers of businesses

The transfer of a business as a going concern does not trigger transfer tax. However, if the transfer includes real estate assets, transfer tax will normally apply to the value of the real estate asset.

Transfers of asset

In general, the transfer of an individual or a series of single assets (not as a going concern) does not trigger transfer tax. However, a transfer of real estate that is not taxable under VAT does normally trigger transfer tax.

Stamp duty tax

Stamp duty tax does normally apply to a Spanish real estate asset, whose transfer is taxed under VAT, or to the transfer of other assets that can be registered in Spanish official registries. This normally applies to trademarks or certain intellectual property.

For certain key issues, the Spanish regions govern transfer and stamp duty taxes. This means that the tax rates differ from one region to another. Typically, the transfer tax rate is 7 per cent, while stamp duty tax is 1 per cent. Because these rates vary by region, each transaction must be analysed thoroughly. The buyer usually pays these taxes.

Corporate and other taxes

Are corporate taxes or other taxes payable on transactions involving the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

Corporate taxes

In general, the transfer of shares in a company, a business or business assets will be a taxable event under the transferor’s corporate income tax (the current tax rate is 25 per cent). However, the transfer of shares in a company can be exempt provided that the following requirements are met:

  • the participation held by the transferor in the company is at least 5 per cent (directly or indirectly);
  • the participation should have been held for at least one year;
  • if the company is a non-resident Spanish company, it must have been subject to a tax on income similar to the Spanish corporate income tax at a statutory rate of at least 10 per cent, or it must be resident in a tax treaty jurisdiction whose treaty contains a provision on the exchange of information;
  • the company should not be a passive entity. Holding companies, provided certain requirements are met, are not passive companies.

The seller usually pays the corporate income tax.

Value added tax

As a general rule, a transfer of shares in a company will not be taxed under Spanish VAT. However, if the transfer of shares is disguising an indirect transfer or real estate assets resulting in a saving in the VAT cost relating to the situation in which the real estate assets had been transferred, VAT could be triggered. A case-by-case analysis should be conducted. Should any VAT apply, the buyer would pay it.

The transfer of a business is not normally subject to Spanish VAT on the basis of the ‘transfer of an going concern’ exception.

The transfer of an individual or series of single assets, and not as a going concern business, is normally subject to VAT, which the buyer will bear. However, in certain cases, transfer or real estate assets linked to a business activity may be exempt from VAT.

The current VAT rate in Spain is 21 per cent.

Employees, pensions and benefits

Transfer of employees

Are the employees of a target company automatically transferred when a buyer acquires the shares in the target company? Is the same true when a buyer acquires a business or assets from the target company?

The acquisition of the shares of a Spanish company does not alter the employment relations a company has with its employees. An acquisition of shares does not modify the employer’s liability, and changes only its ownership but not its condition as employer.

A transfer of shares does not qualify as a transfer of undertakings, as the employer remains the same.

However, where a business or assets in Spain are acquired, the Workers’ Statute (article 44) applies to transfer automatically the employment and benefit obligations of the target business to the buyer. The new employer will be surrogated regarding the employment and social security rights and obligations, including pensions liabilities and the company’s social welfare provisions.

Notification and consultation of employees

Are there obligations to notify or consult with employees or employee representatives in connection with an acquisition of shares in a company, a business or assets?

The Workers’ Statute establishes that the seller and buyer must inform each of their employee representatives of the employees who may be affected by a transaction resulting from the acquisition of a business or assets, or of any change in a Spanish company’s ownership. If there are no employee representatives, the seller and buyer must inform the employees directly.

The aim of this obligation is to provide full information about:

  • the expected date of transmission;
  • the reasons for the transmission;
  • the legal, economic and social impact on the employees; and
  • measures taken in relation to the employees.

The buyer must provide this information before the transmission is made. The seller must also communicate this information before its employees’ employment conditions are affected by the transmission.

However, in the event of an acquisition of the shares of a Spanish company, the Workers’ Statute (article 64) establishes that the works council must be informed to the same extent as the shareholders. The board of directors must inform the company’s shareholders of the transaction. The same information must also be given to employee representatives (works councils).

Transfer of pensions and benefits

Do pensions and other benefits automatically transfer with the employees of a target company? Must filings be made or consent obtained relating to employee benefits where there is the acquisition of a company or business?

Article 44 of the Workers’ Statute establishes that pensions and other benefits will be automatically transferred with the employees of a target company when a company or business acquisition occurs, and it is unnecessary to obtain their consent or make any filings.

Update and trends

Key developments

What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?

Spanish market trends in private M&A transactions have remained stable during the last 12 months without major relevant changes to be reported. The market continues to be seller driven with a huge appetite both from national and international investors for deals in all segments. Competitive private auctions intermediated by financial advisers continue to be the preferred option both for industrial and financial sellers for the largest deals. Growth deals are also drawing the attention of funds normally focused in the middle market segment. There has been an increase in fund formation active with a number of investing platforms being set up with a focus on specific asset classes, such as renewable energies or real estate-related business.