Valuation of shares in the event of a shareholder's withdrawal or exclusion from a limited liability company

Which is the procedure to be followed for the valuation of shares when a shareholder has exercised its withdrawal right or has been excluded from the company?

Article 353 of the Spanish Companies Law (Ley de Sociedades de Capital, hereinafter the “LSC“) sets forth that, within the framework of a shareholder’s withdrawal or exclusion, unless the parties have agreed otherwise, the shareholder’s shares will be valued by an independent expert designated by the Commercial Registrar (registrador mercantil) at the behest of the company or the shareholder owning the shares to be apprised.

However, the LSC does not establish the valuation method to be followed. The LSC only indicates that the shareholder who withdraws or is excluded shall receive a “fair value” for its shares.

The Spanish Accounting and Audit Institute is the regulatory body that has established the valuation standards that shall be considered to determine the fair value of the shares in these cases. In its resolution of 23 October 1991, which still remains in force today, the main valuation standards that can be used to carry out the valuation are established:

• stock market value: means the value at which the shares can be transferred on the secondary market on or around the date of reference;
• real net asset value: means the book value of the net equity, adjusted by the capital gain or loss that may be identified in the assets, rights and obligations of the company at the date of reference;
• value determined by the capitalisation of profits: means the sum of the expected profits generated by the company during a certain period of time, discounted at the time the evaluation is carried out; and
• present value of monetary flow: means the sum of the present value of the company’s expected cash flows, discounted at the time the evaluation is carried out.

According to the Supreme Court ruling of 28 February 2011, unless the parties otherwise agree, the fair value of the company’s shares is understood to be the real value of the shares, as such transaction shall be regarded as a compulsory acquisition.

Finally, it is possible for the parties to come to an agreement on the valuation of the company’s shares. This agreement may be reached either at the specific moment in which the shares are valued or by regulating the valuation method in the company’s by-laws. On 15 November 2016, the Directorate General for Registers and Notaries allowed for the first time the possibility of setting forth a method of valuation of shares in the company’s by-laws. This is accepted because all shareholders had agreed on the inclusion of such provision, provided it is not an unconscionable agreement (which could prevent the shares from being transferred) and the valuation standards do not result in a capricious value (without any logic valuation criteria). Thus, the value resulting from the application of the valuation method will be accepted as long as the resulting value is close to the real value.

The confirmation of this new administrative doctrine would entail the possibility of avoiding the complex method of determining the fair value of the shares, provided that the procedure to be followed is established in the company’s by-laws and meets the requirements stated in the aforementioned resolution.