The resolution of 5 March 2019 issued by the Institute of Accounting and Auditing Accounts (“ICAC”) determines the criteria for the presentation of financial instruments and other accounting aspects related to company regulations, among others, the Spanish Companies Law (“LSC”). Chapter II of the aforementioned resolution, in article 13, establishes the accounting regulations applicable to “Company Contributions”. Specifically, to the “non-voting shares “, defined in articles 99 to 103 of the LSC.
Non-voting shares are those in which the owners do not have the right to vote at the General Shareholders’ Meeting and therefore to adopt resolutions. In consideration of this limitation, these contributions have been granted additional and preferential economic advantages to those corresponding to ordinary shares.
The LSC defines the specific characteristics, privileges and obligations that must be met by contributions through “non-voting shares”.
The main ones, among others, refer to:
– Limits on the issued amounts, in relation to the total issued and paid-up share capital.
-Requirement for the distribution of the minimum dividend in the event of distributable profits.
-Determination of terms to pay minimum dividends, if there are no distributable profits or if there are not enough of them, and preserving the economic advantages.
Accounting regulations related to non-voting shares
1.- The ICAC in the said Resolution, defines the different terms, established in the accounting regulations and General Accounting Plan (PGC), which are classified in the following:
– “Equity instrument” means any legal transaction that shows, or reflects, a residual participation in the assets of the company that issues such instruments after deduction of all the liabilities.
– “Financial liability” means a contractual obligation to deliver cash or another financial asset; …also meets the definition of a financial liability, in whole or in part, an instrument that …gives the holder the right to require the issuer to receive a predetermined remuneration provided there are distributable profits.
– “Compound financial instrument” means a non-derivative financial instrument that includes both financial liability and equity components simultaneously.
2.- Likewise, in this resolution, the ICAC specifies that in the issuance of the non-voting shares, the company assumes an obligation for an amount equivalent to the present value of the minimum dividend and, therefore, these shares will be classified as a compound financial instrument.
Relevant aspects to be considered from an accounting point of view:
Consequently, although from a commercial point of view, the issue of these shares are within the company’s share capital, from an accounting perspective for the company part of that share capital is a liability, so it will give rise to the issuance of a compound financial instrument. The classification between the equity instrument and the financial liability is determined by:
– The recognition in their annual accounts of a liability, which will be equivalent to the present value of the minimum mandatory preferential dividend, considered as a permanent income.
– The recording of the difference of the remaining value considered as a liability with respect to the total of the contribution, in the equity of the company.
– In both cases, both the amount of the aforementioned contribution to the share capital and the issuance of the share premium established in the transaction are included proportionally in the liabilities and in the net worth.
In this article, we have analysed some of the main aspects developed in the Resolution dated 5 March 2019 issued by the ICAC, which refers to company contributions, specifically those indicated as “Non-voting shares”. If you have any queries, you can use our website area to contact our team of the Economic-Financial area. We will be delighted to help you.