A Capital increase resolution may be challenged on the grounds that it is abusive. The key point lies in the concept of “abuse of the majority,” which is primarily governed by Article 204 of the Consolidated Text of the Spanish Companies Act (Ley de Sociedades de capital).
A resolution is deemed abusive when the following circumstances occur simultaneously:
- Lack of a reasonable need for the company. The capital increase resolution does not respond to a real or strategic need of the company.
- Approval by the majority in its own interest. The decision to increase capital benefits the majority shareholders who approve it (or third parties related to them), rather than serving the interests of the company.
- Unjustified detriment to other shareholders. The capital increase resolution causes harm to minority shareholders and is not a logical or acceptable consequence of their position in the company, but rather is disproportionate and unfair.
All three circumstances must be present cumulatively for a capital increase resolution to be classified as abusive.
A practical example of an “abuse of the majority” in a capital increase would be a case where its real purpose is to dilute the stake of a minority shareholder who is unable to participate in the increase.
In order to successfully challenge the resolution, the minority shareholder must prove that all three of the above circumstances are present; in other words, the burden of proof generally rests with the minority shareholder challenging the resolution.
At PLANA VENTURA GARCÉS, we offer specialized advice in corporate and commercial law, addressing any issues that may arise in the relationship between shareholders and the company, as well as among the shareholders themselves.
