A judicial decision issued by the Department of Legal Affairs on 18 March 2021 has settled an appeal against a registrar's refusal to allow regulated credit and finance activities to be included in the object of a limited liability company (LLC).

Facts

On 24 November 2020 a single-member private LLC was incorporated by means of a public deed, which was duly filed for registration with the Madrid Companies Registry on 30 November 2020. The companies registrar refused to register the company, citing a fault in the clause regarding the company's object.

The company's object included National Classification of Economic Activities (CNAE) Classifications 6492 ("Other lending activities") and 6499 ("Other financial services, except for insurance and other pension funds not included elsewhere").

The notary public who had granted the deed appealed the registrar's decision.

Decision

The Directorate General ruled in favour of the appellant on two of the three grounds claimed.

The Directorate General ratified the first ground of appeal – namely, that there were no errors in the company's object with regard to the main activity, which was classified with CNAE Classification 7022 ("Other consulting and business management activities").

Similarly, the Directorate General ratified the second ground of appeal, confirming that the use of a CNAE classification is sufficient for registry qualification purposes with regard to defining a company's object.

However, the Directorate General partially dismissed the third ground of appeal, which concerned the lending and finance activities that were included in the company's object. In this respect, the Directorate General agreed with the registrar that it is necessary to expressly differentiate between regulated and non-regulated activities when both lending and finance activities are included in a company's object.

Although the company's articles of incorporation provided for an exclusion along these lines, this was not specific and stated that "all activities subject to special rules that demand compliance with specific requirements that are not covered by the company will be excluded". However, the Directorate General upheld that the definition of a company's object in its articles of incorporation determines the application of special rules which provide for the fulfilment of certain requirements due to the defined scope of action. As a consequence, the company must comply with these requirements from the moment that it is incorporated, regardless of whether it will carry out such activities in the future.

CNAE Classification 6492 ("Other lending activities") covers several economic activities, including:

providing consumer credit; foreign trade financing; providing long-term funds to industry from industrial banks; monetary loans not within the banking system; granting credit to purchase homes from specialised institutions that do not receive deposits; pawn shops and lenders.

However, it also covers, in accordance with the description provided by the registrar, real estate loans that fall under Law 5/2009 and the arrangement of loans or credit contracts with consumers or brokerage services, as foreseen in Law 2/2009, for which certain requirements must be met by the companies offering these services. The same applies for CNAE Classification 6499 where financial services that are subject to the Securities Market Act should be differentiated from those that are subject to other special laws.

Comment

The Directorate General's position is clear and states that financial activities that cannot be performed due to legal limitations should be expressly excluded from a company's object where they are included therein by reference to a CNAE classification that covers such economic activity.

This decision stresses the need to differentiate between regulated and unregulated activities in a company's object in order to prevent any potential conflict between activities which are subject to legal limitations and the freedom to determine the company's object outside said scope.

Nonetheless, the demand to comply with all requirements from the time of incorporation may be impossible to fulfil because such requirements could be reserved for future acts (eg, obtaining permissions). Thus, doubts could arise as to whether commercial registries can insist that companies meet requirements set out in special laws relating to regulated activities from the time of incorporation, as outlined in this decision, when control over these activities corresponds to supervisory bodies such as the Bank of Spain, the Directorate General for Insurance and Pension Funds or the National Securities Market Commission.