The Spanish Companies Act (“Ley de Sociedades de Capital”, or LSC) establishes specific restrictions on the exercise of voting rights by shareholders when conflicts of interest arise. Article 190 of the LSC expressly sets out the circumstances in which a shareholder may not participate in a vote, with the aim of protecting the company’s best interests and ensuring transparency in corporate decision-making.
When is a shareholder prohibited from voting?
- Authorization to transfer shares or interests subject to legal or statutory restrictions.
- Resolutions regarding the exclusion of a shareholder from the company.
- The release of obligations or the granting of rights in favor of a shareholder.
- Financial assistance to a shareholder, including guarantees issued on their behalf.
- The exemption of the duty of loyalty where the shareholder also serves as a director.
Although these limitations apply only in exceptional circumstances, they serve as an effective mechanism for balancing internal relations within capital companies and, in particular, for protecting minority shareholders against potential abuses of power by majority shareholders.
The practical significance of Article 190 LSC becomes most evident in the context of challenging corporate resolutions. If a shareholder subject to a voting prohibition nonetheless participates in the vote, the resolution may be contested.
When the conflicted shareholder’s vote was decisive in achieving the required majority, a minority shareholder with standing may seek annulment of the resolution simply by proving that fact—without the need to demonstrate that the content of the resolution is detrimental to the company.
Therefore, it is essential that the resolution pass what is known as the resilience test (the “test de resistencia”) set out in Article 204.3(d) of the LSC. In other words, if the resolution would still have been approved even after excluding the improperly cast votes, its validity will be upheld.
In calculating the required majority, the holdings of any conflicted shareholder are set aside from the company’s share capital. This approach ensures that voting outcomes reflect the will of the non-conflicted shareholders, safeguarding balanced decision-making without compromising the company’s ability to operate efficiently or to achieve the qualified majorities mandated by law.
For instance, in limited liability companies (sociedades limitadas), certain resolutions—such as amendments to the articles of association or the exclusion of a shareholder—require the approval of more than half, or even two-thirds, of the share capital. When a conflicted shareholder holds a significant stake, excluding their votes becomes essential to allow the company to pass the resolution. Otherwise, the company could face a deadlock, unable to move forward with key decisions simply because one conflicted shareholder holds enough capital to block the required majority.
The chairperson of the shareholders’ meeting plays a decisive role in such situations. It is their responsibility both to warn the shareholder that they lack the right to vote and to disregard any votes cast in breach of the duty to abstain when announcing the voting results. If this power is exercised incorrectly, the resolution will be subject to challenge.
It is important to note that the voting prohibition does not deprive the conflicted shareholder of their other rights: they may attend and participate in the meeting and express their views, although their votes will not count toward the majority.
Beyond the specific cases outlined above, shareholders do not lose their right to vote solely because they are in a situation of conflict of interest. However, if a resolution is passed with the decisive vote of the conflicted shareholder, the responsibility lies with both the company and the shareholder to demonstrate that the decision does not prejudice the company’s best interests. In essence, the law reverses the burden of proof to reinforce safeguards against potential abuses.
In such cases, Article 190.3 of the LSC establishes a presumption that the resolution is detrimental to the company’s interest, while allowing proof to the contrary. Accordingly, the company or the conflicted shareholder may demonstrate that, despite the conflict, the resolution genuinely serves the company’s legitimate interest—addressing a reasonable business need and being appropriate to fulfill it.
When a resolution is challenged due to a conflict of interest, it is not enough to prove that it causes no harm or that it does not reflect an abuse of majority control. The law demands more: it calls for clear and positive evidence that the resolution addresses a genuine business need and that its adoption is consistent with advancing the company’s best interests.
In this context, several factors may serve as meaningful indicators of validity. A positive sign, for instance, is when non-conflicted shareholders support the proposal, or when the conflicted shareholder gains no personal advantage from it. Such circumstances reinforce the idea that the decision was made for the benefit of the company, and not to favor the individual interests of a particular shareholder.
Victoria Perera
Partner & Head of Corporate Law & M&A
vpn@uhy-fay.com
