Practical requirements for the liquidation of corporations and the closure of branches in Spain: commercial and registry guide

Liquidation of capital companies

2.1. Regulatory framework and concept of the liquidation of companies

The liquidation of capital companies is mainly regulated by the Capital Companies Act (LSC), as a phase subsequent to the dissolution and prior to the definitive termination of the legal entity. During this period, the company retains its legal entity status, although its corporate purpose is functionally limited to the operations necessary for the liquidation, and the expression ‘in liquidation’ must be added to its name.

From a technical point of view, liquidation has three essential objectives: the sale of the company’s assets, the settlement of its liabilities and the distribution of the resulting assets among the shareholders.

2.2. Dissolution agreement and commencement of the liquidation period

In general, liquidation is initiated by a dissolution agreement adopted by the General Shareholders’ Meeting, except in cases of dissolution by virtue of law. This agreement must comply with the formalities applicable to amendments to the articles of association:

1. calling the General Shareholders’ Meeting;
2. adoption of the agreement with the majorities required by law or the articles of association;
3. recording in a public deed; and (iv) registration in the Commercial Register, with the corresponding public notice.

The registration of the resolution determines the formal opening of the liquidation period and results in the removal of the directors, who are replaced by the liquidators, unless otherwise provided for in the articles of association or otherwise agreed.

2.3. Liquidators: appointment, functions and liability

The liquidators are the body responsible for the liquidation. Their appointment must be recorded in a public deed and registered in the Commercial Register, and is enforceable against third parties from the date of its publication in the register.

Their main functions include:

1. drawing up the inventory and initial liquidation balance sheet, with reference to the date on which the company was dissolved;
2. completing pending transactions and carrying out those strictly necessary for the liquidation;
3. disposing of the company’s assets and collecting claims; and
4. paying creditors or depositing their claims.

Legal doctrine and case law have emphasised that liquidators are subject to a liability regime similar to that of company directors, being liable to the company, its shareholders and creditors for any damage caused by wilful misconduct or negligence in the performance of their duties.

During the liquidation, the liquidators must submit the company’s annual accounts and a detailed report on the status of the liquidation to the General Shareholders’ Meeting.

2.4. Final liquidation balance sheet and division of company assets

Once the company’s liabilities have been settled, the liquidators must draw up the final liquidation balance sheet, accompanied by a full report on the operations carried out and a proposal for the division of the company’s assets. These documents must be submitted to the General Shareholders’ Meeting for approval.

The final balance sheet fulfills a central role in the company liquidation process, as it serves as the basis for any challenges by the shareholders and for the distribution of the remaining assets, which shall be carried out in proportion to the share of the company’s capital, unless otherwise provided for in the articles of association.

As a practical matter, it should be noted that if the liquidation agreement is not adopted unanimously, the shareholders who did not vote in favour of it have two months to challenge it. Similarly, if the liquidation process takes longer than three months, the liquidators must submit an updated report on the status of the process.

2.5. Deed of liquidation and deregistration

Once the liquidation process has been completed, the liquidators must execute a public deed of deregistration, which must include, among other things:

1. approval of the final liquidation balance sheet;
2. the absence of pending challenges or the expiry of the legal period for their exercise;
3. the satisfaction or consignment of creditors’ claims; and
4. the custody of the company’s books and documents.

The registration of this deed in the Commercial Register results in the cancellation of the registry entries. However, in accordance with established doctrine and case law, the termination of the company’s legal entity status is subject to the conclusion and effective fulfilment of all its commercial relationships and obligations.

Closure of branches in Spain

3.1. Legal nature of branches in Spanish commercial law

A branch is understood to be a secondary establishment with a certain degree of operational autonomy, but without its own legal personality, through which a company carries out its activity on a stable basis. Its legal relevance derives from its registration and the consequences that its opening or closure has for third parties.

3.2. Corporate agreement to close the branch

The closure of the branch must be agreed by the competent body of the company, normally its governing body, unless the bylaws attribute this power to the General Shareholders’ Meeting. The agreement must be duly documented, specifying the effective date of cessation of activity.

3.3. Notarisation and registration in the Commercial Register

The closure agreement must be notarised and registered in the Commercial Register corresponding to the branch’s registered office. Although the registration is declaratory in nature, it is essential for publicity vis-à-vis third parties and for the correct updating of the registry history.

In the case of branches of foreign companies, the closure must also be registered in the Spanish Commercial Register, without prejudice to any reporting obligations that may apply in the jurisdiction where the parent company is located.

3.4. Additional implications of branch closure

From a practical perspective, the closure of a branch requires responding to a series of complementary actions, including:

1. notification of the cessation of activity to the tax authorities and deregistration from the relevant registers;
2. the termination or, where applicable, transfer of employment relationships, in accordance with employment and social security regulations; and
3. the cancellation of licences, administrative authorisations and sectoral registrations.

Failure to take these steps may give rise to financial and punitive penalties.

Conclusion

The liquidation of companies and the closure of branches in Spain are regulated by Spanish commercial law as formalised and sequential procedures, aimed at ensuring the orderly termination of business activity.

Strict compliance with legal and registry requirements is not only a legal obligation, but also a key element in preventing subsequent liabilities. From a legal and practical perspective, these processes highlight the importance of adequate legal planning and specialised advice, especially in contexts where there are multiple interests and potential conflicts.