Draft bill to introduce “loyalty shares” published

A draft bill has been published that, in addition to transposing Directive (EU) 2017/828 into Spanish law, introduces other important new developments for listed companies. It foresees the introduction of loyalty shares, i.e., shares that confer double voting rights to their holders, provided that they are held for at least an uninterrupted period of two consecutive years from their registration in a special register, and that this is expressly provided in the articles of association.

As we reported earlier in this blog post, the draft bill introduces new features of great interest to listed companies, including loyalty shares, a figure that already exists in other neighboring countries (such as France and Italy) and that aims to encourage shareholders to hold their investments long term.

We  briefly present the main characteristics of this new regime below, in the wording of the draft bill, which introduces some relevant changes to the wording of the draft bill referred to in the blog post mentioned above:

• Listed companies can, through their articles of association, confer a double vote to each share held by the same shareholder for at least an uninterrupted period of two consecutive years from the date of registration in the special register referred to below. This minimum period of uninterrupted ownership may be extended by the company but not decreased. This regime will also benefit those who have made their investment through an intermediary and, therefore, are not entitled to be shareholders under the accounting register (the “ultimate beneficiary”), provided that ownership of the investment is proven  for the minimum period required.

• The application of this regime will, in any case, require an express decision at the shareholders meeting and its inclusion in the articles of association. The resolution must be passed with particularly stringent quorum and voting majority requirements to protect minority shareholders (i.e., 60% of the share capital present or represented when shareholders representing 50% or more of the subscribed voting capital are present, or 75% when shareholders representing 25% or more of the share capital, without reaching 50%, are present). However, these enhanced requirements, which may be included in the articles of association, will not be applicable to eliminate the statutory provision for double loyalty votes; therefore, the general requirements to amend the articles of association apply, and their elimination is made easier. In addition, ten years after the approval of the double loyalty vote, existing double voting rights will not be taken into account in the calculation to facilitate their removal.

• As we have already mentioned, given that this is a mechanism to encourage shareholders to hold their investments long term, as a rule, transferring the share associated with the double vote causes the extinction of this right. However, unless the articles of association provide otherwise, the draft bill establishes a number of cases of transfers in which the double vote will also benefit the acquirer. These include mortis causa succession, transfers as part of a structural change and transfers between companies of the same group.

• As already envisaged in the draft bill, these double loyalty votes will be taken into account to determine the quorum at shareholders meetings and to calculate the voting majorities required to pass resolutions. From the point of view of securities market law, they will be counted regarding the obligation to report significant holdings and the regulations on takeover bids.

• In bonus share issues, the double loyalty vote will automatically benefit the new shares issued that are allotted free of charge to their holders, which will be considered to have the same seniority as those that granted the right to such allotment.

• The company must create a special register for shares with double loyalty votes, and the shareholder that wishes to obtain the double voting rights must request their registration, indicating the number of shares for which it intends to have this right recognized. To do so, the shareholder must  submit a certificate of ownership.

The shareholder registered in the special register can notify the company at any time of its total or partial surrender of the double vote to which it is entitled. The minimum two-year period for attributing the double vote will be calculated from the date of entry in this register. As an exception, a special regime has been established for companies requesting admission to trading of their shares on a regulated market.

Please note that the draft bill may undergo changes that could affect the loyalty share regime during its parliamentary process. The draft bill is currently in the amendment phase, which will end on September 24.