loyalty shares

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On March 24, 2021 the Senate approved the draft bill that will introduce important new developments for listed companies, including the loyalty shares regime (i.e., shares that confer double voting rights to their holders if they hold their shares for a given period of time).

Below we summarize the main characteristics of this new regime, in the wording of the bill finally approved, which includes some but not all of the proposed amendments to the draft bill that we summarized in our update of Febrary 3, 2021.

  • Shareholder approval. The application of this regime requires the approval of the shareholders’ general meeting and its inclusion in the bylaws with the following extraordinary quorum and majority requirements: 60% of the capital stock present (in person or by proxy) when the quorum is 50% or more of the company’s voting rights, or 75% when the quorum is between 25% and 50%.

    In addition, shareholders need to renew the loyalty shares regime included in the bylaws five years after its approval.
  • Removal of the regime. Extraordinary quorums and majorities are not required to eliminate the statutory provision of double loyalty vote. As a rule, loyalty shares can be removed with the general requirements to amend the bylaws (i.e., 50% + 1 when the quorum is 50% or more or 2/3 when the quorum is between 25% and 50%). However, ten years after their approval, it becomes even easier to eliminate them since existing double voting rights will not be taken into account in the calculation of the applicable quorum and majorities.
  • Registration and minimum holding period. If included in the bylaws, this regime will benefit those shareholders who (i) voluntarily register their shares in a special registry book and (ii) keep them for an uninterrupted period of at least two consecutive years from the date of registration. The company may extend this minimum period of uninterrupted ownership but may not reduce it.

    This regime will also benefit those who have made their investment through an intermediary and, therefore, are not formally entitled as a shareholder (the “ultimate beneficiary”), provided that ownership of the investment is proven for the minimum period required.
  • Implications. Double voting rights will be considered for the purposes of: (i) determining the quorum and voting majorities at shareholders’ meetings, (ii) disclosing major holdings, (iii) reporting significant stakes in credit institutions and (iv) calculating takeover thresholds. Also, in paid-up capital increases, the additional loyalty vote automatically benefits newly issued shares that are allotted free of charge to their holders.
  • IPOs.Companies requesting admission to trading will be able to apply this regime from the date of admission to listing. This means they can confer double voting rights to those shareholders that can prove that they held their shares for at least two consecutive years before the IPO.
  • Extinction of the double vote upon transfer. The transfer of the share or the investment associated with the double vote causes the extinction of this right. However, the bill provides for several exceptions, including inheritance or intra-group transfers, although these will not apply when the transferor is a controlling shareholder.
  • Transparency obligations. Listed companies whose bylaws include the loyalty shares regime must keep the Spanish National Securities Commission (CNMV) updated on (i) the number of shares with double voting rights and (ii) the number of shares registered in the special registry book that do not yet meet the minimum holding period, and must have permanently updated information in this regard on their website.

Once published in the Official State Gazette, the bill will enter into force twenty days after such publication.

This post is also available in: Español

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