In order for a company to be considered as irregular, it will be necessary that one year has passed since the deed was executed without an application for registration or that, before that time, the intention not to register the company has been confirmed. As long as this subjective element (intention not to register) or the objective element (passage of one year) is not fulfilled, the company will remain in the incorporation phase as a limited liability company, awaiting registration with the Commercial Registry.
Concept
In general terms, in order for commercial companies to be fully incorporated and acquire legal personality, two conditions must be fulfilled: they must be formalised in a public deed and this deed must be registered in the Commercial Registry. This is laid down in Article 119 of the Commercial Code, which states that any commercial company must, before commencing its activities, reflect its constitution, agreements and conditions in a public deed, which must be registered in the Commercial Registry. This provision is supplemented by Articles 20, 29 and 33 of the Capital Companies Act, which stipulate that companies (public limited companies or limited liability companies) are incorporated by means of a public deed, which must be entered in the Commercial Registry in order for the company to acquire legal personality.
The term irregular company refers, broadly speaking, to a company that does not comply with the legal requirements necessary for its incorporation. In other words, it is a company that has not complied with the formalities required for its creation. Strictly speaking, however, irregularity can only apply to companies whose registration is compulsory for them to acquire legal personality, such as public limited companies or limited liability companies. For example, one cannot speak of an irregular civil law company if it has simply not been registered. Similarly, if the missing element is the formalisation of the public deed, it is not an irregular company either.
In short, when the articles of association of a company are not entered in the Commercial Registry, the company is considered to be irregular and a special legal regime applies to it, which establishes a specific personal liability. Thus, those entrusted with the management of the company who violate the provisions of Article 119 of the Commercial Code, according to Article 120, are jointly and severally liable vis-à-vis third parties who have contracted with the company on its behalf.
Legal regime
The regime applicable to irregular companies is found in Articles 36 and 37 of the Capital Companies Act, which regulate companies in formation.
In this way, the following points can be distinguished:
- a) Those who enter into acts and contracts on behalf of the company prior to its registration in the Commercial Registry shall be jointly and severally liable for these, unless their effectiveness has been conditional upon registration and subsequent assumption by the company. b) For acts and contracts necessary for the registration of the company, those entered into by the directors in the exercise of their powers granted in the deed, and those entered into by specific mandate by the shareholders, the company in formation shall be liable with its assets. The partners, for their part, are personally liable up to the limit of the contributions they undertook to make.
Once registered, the company shall be bound by the acts and contracts referred to above. The company shall also be bound by those acts which it accepts within three months of its registration. In both cases, the joint and several liability of the partners, directors and representatives ceases. However, if the assets of the company, including the expenses necessary for its registration, are less than the share capital, the partners must make up the difference.
Article 39 of the Capital Companies Act provides that, once the intention not to register the company has been verified or one year has passed since the deed was executed without a request for registration, any shareholder may request the dissolution of the company being formed and, after liquidation of the company’s assets, demand the return of his or her contributions. This rule applies to limited liability companies. If the company has commenced or is continuing its activities, the rules of a partnership or, failing that, those of a civil law partnership apply.
The Supreme Court’s ruling of 18 May 1988 establishes that an irregular commercial company is subject to the regime of partnerships as regards the joint and several liability of the managing partners, if no other corporate form has been set up.
Therefore, a company not registered in the Commercial Registry is subject to the following legal regime:
- Those who have entered into acts and contracts on behalf of the company prior to its registration shall be jointly and severally liable for them, unless their effectiveness was conditional upon registration and subsequent assumption by the company.
- The company in formation is liable with the assets constituted by the contributions of the partners, for the acts and contracts indispensable for its registration, provided that they are carried out by the administrators within the powers conferred by the deed or by specific mandate granted by all the partners.
- The partners are personally liable up to the limit of the contributions committed.
Source: La Ley
This publication does not constitute legal advice.
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