Dividend Policy in the Family Business (The Reform of Article 348(2) of the Corporate Enterprises Act).

Abstract

One of the most significant amendments to Spanish law 25/2011 (1 August 2011), partially reforming the Spanish Corporate Enterprises Act, was made to its article 348(2). This article now provides for an exit right for the stockholders of unlisted joint stock companies and limited companies if dividends are not distributed, in the interests of protecting minority shareholders. However, this may have a negative ejfect on many companies’financial situation, in particular family businesses, as even if they make a profit, sometimes they cannot pay either the dividends or the reimbursement required by the legislation as consideration for exercising such an exit right. In this type of business in Spain, there is commonly an agreement called a protocolo familiar (family business agreement) which is intended to smooth communication between shareholders, by setting forth the agreements reached by them in order to prevent any future conflicts which may affect its continuity. Thus, the objective of this paper is to examine how well such a family business agreement neutralises or lessens the effects of article 348(2) of the Spanish Corporate Enterprises Act.