Small Market M&A and Restructuring

The fundamental difference lies in the subject matter of the transaction: an asset deal involves acquiring the assets directly, whilst a share deal consists of purchasing the special purpose vehicle that holds ownership of those assets, allowing for the automatic subrogation of agreements.

Both structures are common in Spain and the choice between them depends on a strategic comparison of the following factors:

• Tax implications: A detailed analysis is required to determine the efficiency of acquiring shares (generally exempt from VAT or capital gains tax under certain conditions) versus the purchase of physical assets, which is usually subject to indirect taxation.
• Transfer of agreements (Subrogation): In a share deal, agreements with suppliers, tenants and service providers remain in force by automatic subrogation, as the legal personality of the owner does not change. In an asset deal, the transfer of operations is more complex, as it requires the express consent of third parties for the individual assignment of each agreement.
• Due Diligence Process: In a share deal, the legal and financial audit process is significantly more extensive and costly, as it involves analysing the company’s entire history rather than just the asset.
• Risk Assumption: In an asset deal, the buyer assumes only the risks associated with ownership of the property. Conversely, in a share deal, the investor inherits both the asset-related contingencies and all the hidden liabilities (tax, employment or commercial) of the acquired company.

The transfer of unlisted shares may be subject to VAT (21%) or Property Transfer Tax (ITP, with a standard rate of 7% subject to regional variations) if the transaction circumvents the taxation of a property transfer. The Securities Markets and Investment Services Act (SMA) establishes this exception as an anti-tax avoidance measure.

Fraudulent evasion of the law is presumed, unless proven otherwise, when control is acquired or increased over companies whose assets consist mainly of property in Spain not used for economic activities. The specific cases are:

• Acquisition of direct control: The purchaser obtains control of an entity where more than 50% of its assets (at market value) are properties not used for economic activity.
• Acquisition of indirect control: The investor acquires shares that give them control over a subsidiary that meets the above condition of 50% of assets being non-operational real estate.
• Recent contributions: Shares subscribed to within the last three years are transferred in exchange for property not used for economic activities, contributed during the company’s incorporation or capital increase.

To qualify for the VAT exemption in M&A transactions, the transfer must encompass a set of tangible and intangible assets and liabilities that form an autonomous economic unit capable of carrying out a business or professional activity on its own. This provision safeguards the viability of business succession and reduces the tax burden on the purchaser.

To ensure this strategic exemption, the following requirements must be met:

• Business integrity: The assets transferred must constitute a productive unit operating on a continuous basis.
• Intention of the purchaser: The purchaser must be able to demonstrate their intention to retain the assets linked to a business or professional activity.
• Irrelevance of the exact activity: It is not strictly necessary for the investor to continue carrying out exactly the same economic activity to which the assets were previously subject.

The special tax deferral regime neutralises the tax impact of gains arising from mergers, demergers, non-cash contributions or share swaps.

The tax authorities will deny this protection scheme if they determine that the transaction is fraudulent, seeks to evade tax, or lacks a valid business reason. The conditions for application are strict:

• Eligible restructuring: Applies only to transactions governed by the Corporation Tax Act (e.g. mergers, demergers, transfer of the registered office of a European Company).
• Valid Economic Rationale: The transaction cannot be carried out for the sole purpose of obtaining a tax advantage; it must be based on sound economic and commercial grounds (improved productivity, synergies, etc.).

To benefit from the 95% tax exemption on dividends and capital gains from the sale of shares, the investor must hold at least 5% of the capital of the transferred entity and have held that stake continuously for at least one year prior to the transfer. This rule is key to the design of efficient holding structures in Spain.

For foreign shareholdings, additional requirements must also be met to qualify for the exemption:

• Similar taxation: The transferred foreign entity must be subject to a tax of an identical or similar nature to Spanish corporation tax.
• Minimum tax rate: The nominal foreign tax rate applicable to that entity must be at least 10%.

Non-resident companies and individuals operating without a permanent establishment in Spain are subject to Non-Resident Income Tax (NRIT) at a fixed rate of 19%, applicable directly to the capital gains realised on divestment transactions.

The legislation specifically subjects the following corporate liquidity events to this 19% tax rate:

• Capital gains arising from the transfer or redemption of shares or units in Collective Investment Undertakings.
• General capital gains arising from the direct transfer of assets and rights.
• Dividends and other income derived from equity holdings.

Under Spanish company law, there is a general and absolute prohibition (blanket prohibition) preventing limited liability companies and public limited companies from providing funds, loans, guarantees or any form of financial assistance to enable a third party to acquire its own shares or holdings.

This strict capital protection rule differs significantly depending on the type of company:

Although Spanish law does not impose a single timeline, M&A transactions follow a highly structured sequence of legal milestones to mitigate risks. The process typically ranges from preliminary negotiations to the formalisation of the transfer by means of a public deed.

The key milestones that govern this type of transaction are:

• Preparatory agreements: Signing of Letters of Intent (LOI), exclusivity agreements, confidentiality agreements and call option agreements.
• Due Diligence and Compliance: Conducting the purchase audit (particularly critical in a share deal), obtaining tax identification numbers (NIF) and foreign investor identification numbers (NIE) for foreign investors, and complying with anti-money laundering protocols (KYC/AML).
• Investment Declarations: Notification of Foreign Direct Investment (FDI) to the Directorate-General for International Trade and Investment, or application for prior authorisation from the Council of Ministers, where applicable.
• Signing & Closing: Execution of the deed before a Spanish notary and, in the case of a real estate asset deal or security interests, registration in the relevant registers.

No, the drafting of preparatory and pre-contractual documents (such as letters of intent or reservation agreements) is a very common practice, but does not constitute a binding legal requirement under Spanish law. The principle of freedom of contract allows the parties to proceed directly to the final sale and purchase agreement.

For the transfer of ownership to be legally effective, Spanish law requires only a valid title (the legal agreement of sale) accompanied by the physical handover of the asset or title.

However, having the agreement drawn up as a public deed is essential for its subsequent registration in public registers.

A Spanish corporate transaction in regulated environments requires rigorous multi-party coordination. At Seegman, we take on the central role of legal counsel to the General Counsel, coordinating all parties to ensure compliance and expedite the closing of the transaction.

The key parties involved independently in the process are:

• Notary Public: Authenticates the transaction, formalises the deeds of sale and identifies the beneficial owner.
• Banks and credit institutions: They facilitate the transfer of funds, open accounts and act as regulated entities in the detection of potential illicit flows.
• Solicitors, Tax Advisers and Auditors: They carry out due diligence, structure tax efficiency and assume regulatory responsibilities regarding the prevention of money laundering.

It is not necessary to travel to Spain, as the foreign investor can be fully represented at the closing by means of a power of attorney formalised in their country of origin. This power of attorney must specify the precise powers to sell or acquire the company or the assets.

For the document to have full legal effect before a Spanish notary, two international formalities must be complied with:

• The power of attorney must be duly apostilled in accordance with the Hague Convention, or legalised by a Spanish consul.
• If the original power of attorney is not written in Spanish, an official sworn translation into Spanish must be provided.

In transactions where there is a period between signing and completion, at what exact point is ownership of the shares or holdings transferred?

Under Spanish law, the ‘theory of title and mode’ prevails, meaning that the signing of an agreement of sale (title) does not in itself transfer ownership. The actual transfer of ownership requires the handover of possession to the buyer (traditio or mode).

• Title (Signing): A private agreement formalises the intention to transfer but is not sufficient to ensure full legal certainty.
• The Mode (Notarial Completion): For ownership to be transferred with full effect and protection against third parties, the final completion must be formalised in a public deed before a notary

The articles of association provide a public and regulated framework that does not always accommodate the strategic flexibility required by corporate investors. Our combined experience in Madrid and Lisbon shows that multinational parent companies use limited liability companies and complement the legal rigidity with private shareholders’ agreements to shape sophisticated control systems.

Signing a shareholders’ agreement ensures key operational advantages that should not be exposed to public scrutiny by the Companies Register:

• It provides total corporate flexibility to agree on reinforced voting majorities, share syndication, drag-along or tag-along rights.
• It guarantees absolute confidentiality regarding dispute resolution mechanisms, liquidity options or transfer restrictions, which only take full effect if they do not conflict with company law. It is crucial to note that, in listed companies, agreements restricting votes or transfers must be disclosed to the market to be effective.

Under the Acquired Rights Directive and the Workers’ Statute, the sale of an autonomous business unit does not justify dismissal or changes to working conditions. Employees within the scope of the business are automatically transferred to the new acquiring entity.

The purchaser is subject to compulsory subrogation with the following effects:

• All previous employment rights are fully preserved, guaranteeing pay conditions and absolute respect for accumulated length of service.
• The new owner assumes the exact position of employer, becoming a legal and indivisible party to the existing employment agreements.

In a business succession scenario, what joint liabilities do the buyer and seller assume regarding employment and social security debts prior to the transaction?

Spanish law imposes very strict joint and several liability to prevent the transfer of assets from being used to circumvent social obligations. The seller (transferor) and the buyer (transferee) are jointly and severally liable for any non-payment by the former management.

This regime of joint and several liability is governed by the following principles:

• It applies to all outstanding employment obligations (wages) and social security contributions incurred prior to the corporate transfer.
• The period of joint liability extends for a statutory period of three years, calculated from the effective date of the transfer.

Any M&A transaction involving a takeover that does not exceed the European scope must be notified to the CNMC if it exceeds any of the turnover or market share thresholds set out in the Competition Act. At Seegman, we conduct a preliminary assessment of the antitrust impact of any corporate acquisition, mitigating the risk of fines of up to 5% of global turnover for gun-jumping.

Notification is mandatory if either of these two alternative scenarios applies:

• Market share threshold: A minimum market share of 30% is acquired or increased in the relevant geographic or product market in Spain (unless the Spanish turnover of the acquired entity is less than €10 million and the combined market share does not reach 50%).
• Turnover threshold: The sum of the aggregate turnover in Spain of the undertakings involved exceeds €240 million in the last financial year, provided that at least two of them have individually achieved a turnover of more than €60 million within the national territory.

The Foreign Direct Investment control regime suspends the liberalisation of capital and requires government authorisation (usually from the Council of Ministers) if a non-EU investor acquires 10% of the share capital or assumes administrative control of the Spanish business.

This regulatory barrier applies primarily for reasons of public order and public health, based on two main criteria:

• Investments in strategic sectors: This affects critical infrastructure, dual-use technologies (artificial intelligence, semiconductors, aerospace), essential supplies (energy, food) and sectors with access to sensitive data or the media.
• Investor risk profile: This applies regardless of the sector if the foreign buyer is controlled by the government of a third country, has a criminal record, or has previously invested in sensitive sectors in another EU Member State. (Additionally, and as a transitional measure until 31 December 2026, EU/EFTA residents are subject to this screening if they invest more than €500 million in strategic sectors).