INTRODUCTION

TO BUSINESS LAW
Course 17586 – Bachelor´s in Management & Technology.

Fernando Alfayate Fernandez

2022/2023
Tabla de contenido
1. INTRODUCTION ........................................................................................................................... 2
2. ENTREPRENEURSHIP ................................................................................................................... 4

3. BLOCK 1. SETTING UP THE STRUCTURE ........................................................................................ 5

1. GETTING STARTED. CHOOSING THE LEGAL FORM AND OPENING THE BUSINESS ...............................................................5
2. STRUCTURING INVESTMENT AND DECISION MAKING ...................................................................................................... 10

4. BLOCK 2. PROTECTING YOUR BUSINESS MODEL ......................................................................... 14

3. COMPETING IN THE MARKETPLACE AND PROTECTING YOUR COMPETITIVE ADVANTAGES ........................................... 14

5. BLOCK 3. PLANNING THE BUSINESS ACTIVITY ........................................................................... 21

4. CONTRACTS AND TRANSACTIONS ..................................................................................................................................... 21

6. BLOCK 4. EXPANSION STRATEGIES ............................................................................................ 33

5. EXPANDING DOMESTICALLY AND OVERSEAS .................................................................................................................... 33
1. INTRODUCTION
Commercial law: commercial law emerged historically as part of civil law. It has evolved pursuant to historical
circumstances and market exigencies. Historically, it was only applied to merchants. It was not practical to have such
a specialized law, so new applications started to appear.
 Commercial law is originally a special law with respect to common civil law; by reason of the subjects whose
relations come to regulate; it was conceived as the law of merchants.
 The formation of the modern state and the emergence of the public power drove those customary rules to be
recorded in writing. As a result, the former customary rules were included in compilations.
In the XIX century, mercantile law was enacted as a commercial law. Spanish private law has been divided into two
separate codes: Code of Commerce (1885) and Civil Code (1889).
In our system, the main mercantile law-making body is the Code of Commerce (Ccom). But, during the XX and XXI
centuries, disperse mercantile rules, outside of the Ccom, have been enacted.
Code of Commerce: body of regulations from the XIX century. It became a legal milestone because it made possible
the organization and unification of all the concepts and commercial legislation in a single text.
 But, of course, since then many things have changed in the commercial law landscape. New special legislations
have emerged.
1.1 SOURCES OF COMMERCIAL LAW

Art. 2.1 Ccom: “commercial acts, whether or not are executed by merchants, and whether or not
they are specified in this code, will be governed by the provisions contained therein; failing that, by
the commercial uses generally observed in each market and, in the absence of both rules, by those
of common law”.
Commercial Code => Commercial uses => Common law.
1.1.1 HIERARCHY OF SOURCES OF COMMERCIAL LAW

1.2 CUSTOM, USES AND PRACTICES

In the absence of an applicable commercial law, custom has the force of law, if it is substantiated and is not contrary
to moral standards or public order. Two main conditions must meet:
1. Relevant uses are the result of repeated and constant conduct in business trade
2. The general awareness of the existence of that reiterative conduct is essential to qualifying a repeated practice
as a binding customary rule.
1.3 GENERAL PRINCIPLES
General principles are the values that despite not having been included in a legal or customary norm, inform actively
the legal system, resolving the lack of normative regulation of a certain situation.
Therefore, they are useful when we encounter a “legal loophole”.
1.4 JURISPRUDENCE AND DOCTRINE
Despite that Court decisions are not among the sources of law, pursuant to legal theory, and due to their value in
defining the features of law, they hold a role of special value for the legal system.
Therefore, civil law entrusts the role of completing the legal system to the repeated opinions of the Supreme Court when
interpreting and applying the sources of law (Art.1.6 CC).
1.5 EUROPEAN UNION AND INTERNATIONAL LAW
EUROPEAN UNION LAW
There are three main elements of EU´s law: supremacy; direct applicability; direct effect. European Union Law is
divided into three sources
 Primary Law: treaties establishing the EU. They set out the distribution of competencies between the Union and
the Member States, as well as establishing the powers of European Institutions.
 Secondary Law: regulations, directives, decisions, opinions, and recommendations, as well as communications
and white and green papers.
 Supplementary Law: not provided for in the Treaties. That includes Court Justice case-law, international law, and
general principles of law.
INTERNATIONAL LAW
 Conflicts rules, used by international private law, for managing international activity, and aligning differences
between legislations.
 Uniform law schemes that include an instrumental collection of rules, regulations, principles, and legislation of
a wide range conventions, uses, standard practices, incoterms, European principles on Contract Law, etc.
2. ENTREPRENEURSHIP
The legal concept of entrepreneur, (or following the terminology of the Ccom, merchant) is basic to Commercial Law,
and it is included in Art.1.1 CCom, when it states that merchants are “those who, having the legal capacity to engage
in commerce, engage in it habitually”.
2.1 CONCEPT OF ENTREPRENEUR
The Commercial Code uses the term merchant for historical reasons, but that term is insufficient among other reasons,
because it does not include extractive activities. So, the definition goes as:
“Natural or legal person who, in its own behalf, by himself, or through another, carries out an
organized and professional economic activity aimed at the production or distribution of goods or
services for the market.”
1.5.1 REQUIREMENTS TO BE AN ENTREPENEUR
 To have Civil Capacity (Art.4ff CCom)
 To engage in an effective and regular practice of a business activity. The law sets the legal presumption of regular
exercise of commerce when the person intends to engage in business announces this (Art.3 CCcom)
 To act on one´s behalf. Thereby preventing agents from assuming responsibility when acting in the name of the
entrepreneur. This is what makes it so important. Otherwise, agents or factors might also be deemed
entrepreneurs or sole traders, even when acting on someone´s behalf (Case Law).
2.2 CLASSIFICATION OF ENTREPENEURS
 Natural or Legal person
o Natural: a human being
o Legal: an artificial person which the legal system uses to facilitate intervention in the market. Normally, it
comprises a group of people unified as a sole individual.
 Size criteria
o Big
o Small – medium (PYMES)
 Ownership
o State owned
o Private owned.
2.3 EXERCISE OF COMMERCIAL ACTIVITY
An entrepreneur, has two types of capacity:
 Civil Capacity: (capacidad jurídica) legal capacity to hold rights and obligations. All people have legal capacity
from birth, regardless of other factors. For example, a newborn child can be the holder of a bank account because
of his civil capacity.
o Nobody can be deprived of civil capacity, as this is an essential quality of the person and dignity (Arts.29,
30 and 32 CC)
 Legal Capacity: (capacidad de obrar) is the ability to exercise the subjective rights and legal duties that a person
holds.
o The legal capacity to act for a natural person requires to have turned the legal age and have free disposal
of assets (Art.4 CCom). The legal age begins upon turning 18 (Art.315 CC).
A person with civil capacity but not enough legal capacity would need a representative to act on his behalf, for his
actions to have civil effects.
Minors and incapacitated people do not have the legal capacity to exercise commerce, but they can be owners of a
company (Art.5 CCom).
3. BLOCK 1. SETTING UP THE STRUCTURE
1. GETTING STARTED. CHOOSING THE LEGAL FORM AND OPENING THE BUSINESS
1.1 DEFINING THE PROJECT, PLANNING THE ORGANIZATION AND ASSESSING NEEDED RESOURCES: CHOOSING
BETWEEN INDIVIDUAL ENTREPENEURS AND ORGANIZATIONAL FORMS
If an individual decides to set up a business alone, will surely become a sole trader. A Sole Trader is a legal form in
which the entrepreneur assumes unlimited responsibility for all (existing and future) debts and risks deriving from the
running of the business.
Advantages:
 No incorporation costs (costs related to the process, formalities and steps aimed to set up and organization –
registration, public deed, legal advice, capital…) must afforded.
 Management costs are very limited and, in some cases, inexistent, for the sole trader might manage the business
on his own.
 No risk of conflict with partners in decision making.
Risks:
 Exposition of all personal and professional assets. No line can be drawn between goods devoted to personal
purposes and professional ones.
o Generally, any asset can be sold to pay business debts
ORGANIZATIONAL FORMS

Organizational forms

Association Foundation Companies Groups Others

Group of people Nonprofit Partnership Joint Ventures Cooperatives

Organized Goals of general LLC Alliances Economic

interest interest grouping

Common aim Corporation Holdings

Distinct Worker-owned
patrimony companies
Stable
Durable basis

1.2 COMMERCIAL COMPANIES. THE PROTECTION OF LIMITED LIABILITY

A company has three necessary elements for its existence.
2. Company agreement (art.116 CCom)
3. Common goal (art.1655 CC and art.116 CCom)
4. Common promotion of the company´s purpose.
The commercial coalification implies subjection to the legal status of the entrepreneur, that is to a set of specific
obligations such as accounting, commercial registration…
1.3 COMPANY/PARTNERSHIP
A Company is a contract in which several subjects undertake to develop a common activity for the benefit of all of them.
Therefore, there is a distinction between civil and commercial companies.
A Partnership is a contract by which two or more people are obliged to pool money, goods, or industry, with the intention
of dividing the profits among themselves.
Characteristics:
 Intention to form a company
 No minimum capital
 Intention of obtaining profit.
  Gains distributed between partners.
 Minimum of two partners.
Examples of Civil companies vary from charities, sports clubs, private schools, professional associations…
Civil companies exist from the moment the partnership is granted. Freedom of form governs, and it is only necessary
to elevate the contract to a public deed in case that real estate is provided (art.1668 CC). Discussion of legal
personality: the CC does not expressly recognize it, but art.1669 CC denies legal personality to companies whose
agreements are kept secret between partners.
Regarding liability of the partners, the case law and doctrine coincide in affirming that it is unlimited and joint (each
partner responds according to the part of the company he owns).
1.4 TYPES OF CIVIL COMPANIES
 Universal civil companies
o All assets and profits derived from them are put in common (art.1673 CC)
o Each partner retains ownership of his assets which pass to the company in usufruct, and everything that the
partners acquire for their work is distributed for the duration of the company (art.1674 CC)
 Private civil companies
o According to art.1678 CC, a private civil partnership is one that has only certain things as its object, its use or
its fruits, or a designed undertaking, or the exercise of a profession or art.
1.4.1 ADVANTAGES AND DISADVANTAGES OF CIVIL COMPANIES
 Advantages
o The way to set up a civil company is less complex and more affordable sin it is not necessary to have a Public
Deed before notary nor to register the company in the Mercantile Register.
o It does not have a minimum initial capital figure.
o It is an option recommended for small business that do not have abundant initial capital.
 Disadvantages
o The liability of the partners is unlimited for debts with third parties.
o As it is not a very recurring form, the civil partnership is not excessively popular and is generally chosen when
there is a strong family or personal bond among the partners.
1.5 COMMERCIAL COMPANY
This legal form takes place when two or more people reach a covenant to place goods and means in a common fund
to obtain profit, shall it be a business company, whatever the class, provided it is incorporated pursuant to the terms of
the art.116 CCom. Once the business company is incorporated, it shall have legal personality.
Generally, a commercial company should adopt one of the following forms stated in art.122 CCom.
 General Partnership (Sociedad Colectiva)
 Simple Limited Liability (Sociedad Comanditaria simple o por acciones)
 Joint Stock Company (Sociedad Anónima)
 Limited Liability Company (Sociedad Limitada).
The classification criteria stated in art.122 CCom specifies that companies should be Partnerships (Sociedad
Personalista) or Capital companies (Sociedad Capitalista). Moreover, Partnerships can be divided into two different
branches: General Partnership and Limited Liability Partnership. In both legal forms, the partners respond personally to
the company’s debts and have the right to intervene in the company´s management. Capital companies can be divided
into three branches: Limited liability partnership by shares, Joint stock company and Limited liability company.
1.6 OTHER TYPES OF COMPANIES
 Cooperative company (art.124 CCom)
 Mutual guarantee companies (Ley 1/1994 de 11 de marzo)
 European joint stock company (Title XII LSC)
 The new limited liability company (Title XII LSC)
 Professional companies (Ley 2/2007 de 15 de marzo)
1.7 ATYPICITY
One of the most controversial matters related to company law, is the possibility that the founders, may contrive new
types of companies apart from those typified by law.
Nevertheless, the protection of third-party rights and securing of trade demands, prevent the absolute freedom of the
founders and the parties to determine by their own, the form of the company.
1.8 IRREGULAR COMPANIES

In general, the expression irregular company refers to that which does not observe the legal requirements for its
incorporation to the market. But, strictly speaking, irregularity can only be predicated of those companies whose
registration is required for the acquisition of legal capacity. That would be, the Joint Stock Company (SA) or the Private
Limited Company (SL).
Given the legal regime provided for the company in formation (arts.36 to 38 LSC), irregularity may appear once the first
year for the deed has passed and any member of the company is entitled to plead to the court for the company to be
put into liquidation (arts.39 and 40 LSC),
However, should the irregular company operate in the market, General Partnership (Sociedad Colectiva) rules shall
govern it in the case that the scope of business is of commercial character, or Civil Partnership (Sociedad Civil) rules
shall govern in the case of a civil character.
1.9 SINGLE MEMBER COMPANY
Consisting of a single partner. Reasons can be: 1) created like that; or 2) because the number of partners was reduced
to one over time. A natural or legal person can constitute as many single member companies as considered appropriate
without a maximum limit.
1.10 CAPITAL COMPANIES
Capital companies follow their own legislation. In art.1 LSC, the main types are stated:
1. Limited Liability partnership by shares 2. Joint stock company or Public Limited Liability Company 3. Limited Liability
Company or Private Limited Company
The legal regime of capital companies must be supplemented by their deed of incorporation and by-laws, and in some
cases, by the internal rules of their corporate bodies. The main characteristics are:
 Minimum capital; 3.000 SL and 60.000 SA.
 Share capital is divided into units that can be
o Participations for SL
o Shares for SA
 Partners/Shareholders shall not be held personally liable for the company´s debts, except in limited liability
partnerships by shares, in which at least one of them, the general partner, shall be held personally liable.
 Commercial character regardless of their corporate project.
 Corporate structure the company works through their bodies
 Acquire legal personality on registration with the Mercantile Register.
1.10.1 PROCEDURES OF FORMATION
The procedures of formation are stated in art.19 LSC
A – Simultaneous Formation
 - Takes place under an agreement where there are two or more parties or under a unilateral instrument, in the
case of single member companies.
B – Successive formation
- Through a public share offering, only applicable to JSCs (S.A.)
C – Structural change
- The company departs from an existing company, formation because of a structural change carried out in other
company(s), For instance, transforming other civil or commercial companies into either an LLC or a JSC, or
in the case of a merge between two or more companies, creating a new one.
1.10.2 DEED OF INCORPORATION
Company´s contract or unilateral founding act that must be signed by all founding partners or shareholders, whether
individual or corporate, “who must assume all of the stakes or shares therein” – art.21 LSC
Content of the Deed of Incorporation
Art.22 LSC establishes the minimum content of a deed or corporation.
• Identification of the members/partners or shareholders.
• Determination to form a capital company, specifying the type of company.
• Contributions made by each partner should be reflected, as well the number of stakes or shares attributed.
• Company´s by – laws.
• Identification of the person or people initially entrusted with the company´s management and representation.
The deed must mention the Standard Industrial Classification of Economic Activities (CNAE) codes that best
describe the business activities comprising the company´s objects. Additionally, some other statements must be
included depending on the type of capital company:
 Art.28 LSC allows founding partners to include in the deed or in the by-laws, any agreements or terms which
partners or shareholders deem suitable, provided they are neither unlawful nor breach the principles of the
type of company involved.
Company by-laws
By laws which are included as part of the deed of incorporation, contain the provisions that regulate the functioning of
a company, and the rights and powers of partners. Art.23 LSC establishes a minimum content that must be included in
the by-laws (principle of reserve in the by-laws)
 The company name
o Essential requirement since it identifies the company as central allocation of rights and obligations. The
absence of mention of the company name, determines nullity of the company.
i. To incorporate a company, a certificate of name availability and reservation must be applied
from the Mercantile Register, which confirms the reservation of the name.
ii. Capital companies must not adopt identical names to that of any other existing company.
iii. The company´s legal form must appear in the name: SA, SRL, SL…
 Corporate purpose
o Specifying the activities included thereunder. The purpose is understood as the activity through which seeks
to achieve its function.
i. It is of great importance, since it delimits the scope of representative powers of directors.
ii. The clause may include different activities, even without relationship between them.
 Registered office
o Law requires that a capital company must establish its office on Spanish soil if the place of its principal
establishment or operation is in Spain.
o Moreover, the company is not free to fix the registered office in any part of the country.
i. It shall be fixed “where its actual administrative and management activities, or its main
business establishment or operations, are located”
 Capital and the stake or shares into which it is divided.
o The by-laws must include mentions related to the capital and the shares or stakes.
o The absence of mention to the capital amount in the by-laws determines nullity of the company.
  Governance agreements
o The number of directors, as well as their term of office and the remuneration scheme.
i. In limited liability partnerships by shares, the identity of the general partners must be provided.
 Way company´s administrative bodies conduct their discussions and adopt decisions.
LSC regulates several aspects by default, so that if the founders want to regulate them differently, this regulation shall
be necessarily included in the by-laws.
1.10.3 REGISTRATION IN THE MERCANTILE REGISTER AND PUBLICATION IN THE OFFICAL BULLETIN
Art.32 LSC states that the founding partners and the first directors must submit the deed within two months of its
formalization. The LSC makes both jointly responsible for any damages caused by the failure to comply with it.
Art.22 LSC provides that “upon registration, the company shall acquire the legal status attendant upon the type of
company chosen”.
Once the company is registered, an Officer submits the information to the BORME, to be published. Submission
is done in a telematic way.
1.10.4 COMPANIES IN THE PROCESS OF FORMATION AND COMPANIES IN IRREGULAR SITUATION
During the period between the formalization of the deed and the registration, the LSC distinguishes two scenarios:

Company in the process of formation Company in irregular situation

In which the presumption of the will to register ceases to

The will to register the company is assumed, but not done yet.
operate, either because the will of the partners in not
Arts.36 – 38 LSC regulate the acts carried out on behalf of the
registering is verified, or because a year from the formalization
company in this scenario.
of the deed has elapsed. Art.39 LSC

In the case of lacking registration, and where the desire not to register is observed, the main consequence is that the
company shall be governed by the rules of general partnership, or non-mercantile organizations.
Therefore, partners will be liable for the company´s debts as established.
1.10.5 USE OF TELEMATIC MEANS IN THE COMPANY´S CREATION
Some capital companies can be incorporated online: LLCs, the New Limited Liability Company (Sociedad Limitada
Nueva Empresa), and non-statutory private limited companies (Sociedad Limitada de Fundación Sucesiva). Online
registration cuts down the time involved in incorporating and registering companies and avoids unnecessary visits to
offices and reduces notary fees. However, this system, limits the partners´ freedom in the use of the deed of
incorporation and the by-laws to organize the company. When forming an LLC:
1. Classic procedure in person.
2. Some acts in person and some telematic
3. Entire process telematic (founders must always physically attend the formalization of the deed of incorporation)
In the case of an entirely telematic process, founders must decide if they adopt the simple model of by-laws
(estatutos-tipo). In the case they don´t, the time between the formalization of the deed and the registration is greater.
1.10.6 CORPORATE WEBSITE
A corporate website is mandatory for public-listed companies. The creation is published in the BORME. Any content
uploaded to the website shall have no legal effect and shall not be valid vis-à-vis shareholders or third parties.
1.10.7 NULLITY OF THE COMPANY
Art.56.1 LSC => once the company is registered it can only be declared null based on the few grounds that it mentions,
recognizing the damage that this declaration has:
1. Non concurrence during the formalization of the company formation by at least two founding partners,
where there are several, or by the founding partner or shareholder in single member companies.
2. «Incapacity of all founding partners or shareholders» (it raises the problem of determining which disability
or incapacity is being referred to).
3. Failure to include contributions in the deed of incorporation.
 4. Failure to include the company name in the deed of incorporation.
5. Failure to include the corporate purpose in the by-laws, or the inclusion of a purpose that is unlawful or
incompatible with law and order.
6. Failure to include the amount of the share capital in the by-laws.
1.10.8 SHAREHOLDER AGREEMENTS
Their aim is to integrate, supplement or amend certain aspects of the company life outside the provisions of the founding
contract or the by-laws.
The content is variable
The validity: agreements shall be valid between those who hold them, and if they are not in the deed nor the by-laws,
shall not be enforceable or used in opposition to the company.
1.10.9 SHAREHOLDER LIABILITY AND DOCTRINE OF PIERCING THE CORPORATE
VEIL
Shareholders will not be protected against a customer´s sue to the company.

1.10.10 CHOOSING PROJECT PARTICIPANTS AND ALLOCATIN ROLES IN THE ORGANIZATIONAL STRUCTURE

2. STRUCTURING INVESTMENT AND DECISION MAKING

2.4 DECISION MAKING IN THE COMPANY
2.4.1 DECISION RIGHTS AND ECONOMIC RIGHTS
Listed in art.93 LSC, there are economic (dividends, liquidation quota); political (attend the meetings, vote, impugn
decisions and receive information); hybrid (pre – emptive rights/derecho de suscripción preferente).
2.4.2 THE SHAREHOLDERS MEETINGS, FORMALITIES OF DECISION MAKING, AND VOTING SYNDICATES
Decision making is vested in the General Meeting, of shareholders/partners, (called in Spanish Junta de Accionistas)
in JSC (SA) and or Asamblea de Socios in LLC (SL). It is made for deliberating and deciding on certain topics related
to the company within the scope of competence.

 Two types of meetings: ordinary (must take place in the 1st six months of the year; evaluate management,
approve the accounts, and allocate current financial results) and extraordinary meetings.

 Participation formalities: members are entitled to participate in the decision-making process in their capacity
of owners. Accordingly, they must be dully called to attend the General Meeting where decisions are adopted.
The Bylaws, the minutes and modification
However, company members are entitled to modify the legal regime and lay down more flexible and realistic rules to
better meet their interests. Bylaws can provide for rules to be followed to convene a meeting. The minutes (acta de la
Junta). What are the minutes for? (3 reasons)
o Evidence purposes
o Minutes enable members to exercise their right to be informed about the company´s activities.
o If the decision adopted must be registered in the Mercantile Register, it is recorded in the minutes.
Decisions are taken on a majority basis. Different majorities are established by law, depending on what it is being
voted (art.198, 199 and 201 LSC). + importance => + majority. Bylaws can modify majorities, unless forbidden. The
company cannot reduce the majority, only increase it.

Nevertheless, unanimity (100%) is no admissible. If unanimity were required, companies would be ungovernable.

Deliberating and decision making

These processes are presumed by the law to be face to face and mainly oral. Today, the use of new technologies
enables distance attendance and voting to emulate presence meetings (art.182 LSC).
There are risks to be prevented: impersonation, interception or hacking, technical failures, or the lack of transparency.
Decisions adopted are subject to contestation. The members can bring a complain on the following grounds:

 Being against the law

 Infringing by laws of the company
 Harming company´s interests in the benefit of one or several shareholders/partners or third parties.
2.4.3 CHOOSING A MODEL OF DIRECTION
Administration body options. An administration body is entrusted with management functions, performance of adopted
decisions and representation role of the company. Directors are part of it.
1. Sole director
2. Several directors acting jointly – either director is fully entitled to bind the company, and can sign individually in
the name of it, representing it against third parties.
3. Two directors act on a joint basis – both must sign any transactions to be valid, they cannot act individually.
4. Board of directors that is a collective body (committee) acting and deciding on a collegial basis and according
to majority rules.
2.4.4 ANTICIPATING CONFLICTS AND BREAKING DEADLOCK
In case of an even number of members, a lack of agreement may lead to an infinite deadlock. If the company becomes
ungovernable, for no decision can be taken, the company head towards dissolution.
Therefore, several preventive measures are advisable: 1 – odd number of members in the Board; 2 – mechanism of
dispute resolution; 3 – nomination of an expert if disagreements refer to technical issues; 4 – protocol to break deadlock.

2.5 FINANCING THE BUSINESS PROJECT: FINANCIAL STRUCTURE, INVESTORS, AND INVESTMENT AGREEMENTS
2.5.1 SOURCES OF INVESTMENT, TYPES OF INVESTORS AND PARTNERS/SHAREHOLDERS
Company financing can be based on two sources

 EQUITY FINANCING
o The financial needs of the company are covered by the founders or the prospective investors that wish
to become owners of the business.
▪ Partners/Shareholders
o As owners, they are exposed to risks, but are also entitled to participate in the company´s benefits.
▪ Investors
o Also, depending on the stage, financial resources can be contributed by existing partners, different
types of investors, or even the investing public.
▪ General Public.
Partners: current partners can introduce additional capital to the company. (+ Capital) => (+ stakes) => existing
partners exercise (or not) their right to subscribe them in the corresponding amount.
 In a capital increase, a dilution problem can rise. If all partners can subscribe the new stakes, there would
be no distortion in the power balance. If some partners do not subscribe the new stakes, they lose participat

 These partners who not subscribe the new stakes, will lose the participation they owned.
 Investors: third parties might be interested in investing in the company. Hence, investors may subscribe new
stakes (or shares) after a capital increase or buy stakes sold by existing partners.
Public: the final and most ambitious funding option is going public. Only corporations whose capital is divided in
shares can go public. There are a set of legal requirements laid down in the Financial Markets Regulations.

 A company which goes public, sells part of its stocks throughout an Initial Public Offering (IPO). If the IPO
is successful, company´s shares start to be negotiated in a stock exchange.

 Therefore, a quoted company (publicly held company or publicly traded company) has access to capital
markets to finance its business.

 At the same time, it will be subjected to a tougher regulation and supervision.

 CREDIT FINANCING
o Credit based financing means that the company receives money from a creditor who must be repaid
in an agreed period with interests. Therefore, it has no effect on the company´s capital.
o Creditors are not considered owners of the business and are not entitled to exercise any of the rights.
Then, creditors do not assume business risks, at least in theory.
▪ Financial entities.
o Another way of obtaining credit is through BONDS. The company, instead of asking for a credit to a
financial entity, issues bonds that can be bought by the public.
▪ Bonds are financial instruments that represent parts of a credit.
▪ Bondholders.
2.5.2 3Fs, BUSINESS ANGELS, VENTURE CAPITAL, AND CROWDFUNDING
Depending on the stage of the company´s development, a different financing option is the most suitable. Therefore, not
all available financing options should be considered adequate.
1. 3Fs (“Friends, fools and family”). The people who may provide the initial funds when partners have no money nor
assets.
2. Business Angels: the first external source of capital. Business angels are individuals who invest in highly innovative
start-ups, in exchange of big quantities of equity (10% - 25%).
3. Venture capitalists: companies or funds whose activity is investing in other companies. They are professional
investors who subscribe stakes or shares. Their final aim is to disinvest in the future (within 3 – 5 years).
4. Crowdfunding: describes the collective group of individuals who pool their money through P2P platforms, to
support, sponsor, and finance projects leaded by other individuals.
2.5.3 ATTRACTING AND KEEPING TALENT: PARTICIPATION IN PROFITS AND STOCK OPTION SCHEMES
An important aspect of a start-up. An effective method to attract and retain talent may be to offer to directors and key
employees a direct part in the company’s capital, which also means a participation in its benefits.
There is a need of designing a remuneration system that motivates talent: stock option plan, vesting plans or stock
appreciation rights schemes. Any system of incentives will usually consist of:
 Company gives money to a person.

 Company gives shares to a person.

 Company gives the person options to buy the company’s shares.

o Including a stipulation that if the designated person ceases to be involved in the business, it will lose
any rights, and will have to resell the already acquired shares to the company.
2.5.4 ENTRY AND EXIT FROM THE PROJECT
ENTRY. There are two ways in which the entry can be facilitated
 Issuance of new shares. Company gives shares to the new shareholders.

 Purchase of existing shares. The company, or a former shareholder/partner, sells shares/stakes to the investor.
EXIT. Sometimes, one of the original partner/investors may be interested in leaving the project. It could happen due to
a situation of mutual agreement, or to conflict. Either way, it is important to have a mechanism to facilitate the exit.

 During the process, conflicts may arise. These risks and conflicts should be anticipated and regulated in the
bylaws and in the investment agreement.

 Two popular clauses that used to be included in investment agreements are today a commonplace in the
bylaws: “drag-along” clause, and the “tag-along” clause.
1. DRAG ALONG. This right gives majority shareholders the ability to sell a company to a third party without consent
from minority shareholders.
a. This right protects majority shareholders, but also minority (because they can sell their investment on the
same terms and conditions as the majority shareholders).
2. TAG ALONG. This right allows shareholders to accompany the majority sale. It is a right that provides the option
to accompany and voluntarily adhere to the sale. Minority shareholders sell their shares on the same terms as
majority ones.
a. The majority ones cannot sell unless the buyer acquires the shares of those who exercise the right. This
often means acquiring the entire company.
b. This right produces a balance between all partners. Thus, minority partners can obtain favorable sales
terms that would otherwise not be available.
c. The Tag Along is used to protect the minority partners in case of a possible change of control in the
company, and thus facilitate their separation from the project.
4. BLOCK 2. PROTECTING YOUR BUSINESS MODEL
3. COMPETING IN THE MARKETPLACE AND PROTECTING YOUR COMPETITIVE ADVANTAGES
4.1 RATIONALE AND CHARACTERIZATION OF INTANGIBLES
From a business perspective, various competitive advantages are intangibles: patents, trade secrets and trademarks.
The success of the business depends on how these assets are protected and how we efficiently exploit them.
Intellectual property Law, and other related legislations (such as unfair competition law):

 Assist business in protecting core assets in the competition game, distinguishing own goods/services from
rivals, strengthening reputational factors, enabling schemes to gain loyalty of customers/users, deploying
monetization strategies, encouraging innovation, and exploiting and transferring technology.
Intangibles. Since intangibles cannot be physically possessed (ownership vs authorship), an alternative legal
mechanism must be developed to demonstrate our ownership, authorship, and entitlement as well as to exercise our
rights and control over intangible assets.
4.1.1 BUSINESS AND LEGAL RATIONALE OF INTELLECTUAL PROPERTY LAW
INTELLECTUAL PROPERTY.
It constitutes an important aspect in Commercial Law. Immaterial assets which essential for business and economic
activities, which can be held by any natural or legal person acting in the market.
Intellectual property is integrated, in accordance with various international treaties, EU and national regulations, into
innovation protection by means of patents, distinctive signs, designs and the protection of literary and artistic works
through copyright.
There are four pillars upon which the legal system for protecting intellectual property is built.
1. Innovation protection: patents and other exclusive rights. Law grants the inventor a temporary monopoly to
exploit the invention and confers compensation on the creator: to promote search, investment, and innovation.
You can sell the rights to other companies to exploit it.
a. Used for physical inventions or new procedures for existing physical products.
2. Distinctive signs: the aim is to allow the distinction of the producer and their products and services in the
market without confusion. Distinctive signs regulated are trademarks, trade names, domain names and
geographical indications.
3. Copyright protection: creations of the human mind, intellectual creations regarding literary, artistic, or
scientific works. It helps to ensure the maintenance and development of creativity in the interests of creators.
4. Design protection: protection of the external appearance, that gives a product added value. It encourages
innovation and development of new products.
4.1.2 PROTECTING INNOVATION AND CREATIVITY: PATENTS, DESIGNS AND COPYRIGHT
PATENTS
Exclusive right granted for an invention, product, or process, that provides a new way of doing something, or that offers
a new technical solution to a problem. A patent provides patent owners protection for their invention.
The State grants a privilege to inventors, given them a temporary monopoly to exploit the invention and conferring
moral and patrimonial compensation to the creator.
Patents provide incentives to creators protecting their inventive activity (their investment) by offering the possibility of
obtaining an economic reward for their inventions.
The legal regime of inventions in Spain is regulated by Law 24/2015 of July on Patents (LP), which entered into force
on 1st April 2017.
PATENTABILITY REQUIREMENTS
These requirements try to select inventions deserving of the privilege of an exclusive right. As a subjective requirement,
any natural or legal person, including authorities established under public law, may request the titles.

 On the one hand, patents shall be granted for any inventions if they are new, involve an inventive step and are
susceptible to industrial application (art.4 LP)
  On the other hand, an invention shall be new it does not form part of the state of art. An invention shall be
considered to involving an inventive step if it’s not obvious to a person skilled in the art (art.6 LP)
PATENT RIGHT AND EMPLOYEE/ER INVENTIONS
The right to a patent belongs to the inventor. When more than one person has created an invention jointly, the right
belongs to them jointly (art.10 LP). A patent owner has the right to decide who may -or may not- use the patented
invention for the period during which it is protected.

 Employee inventions: if an employee has developed an invention during the execution of the contract, the
invention (and related patent rights) could belong to the entrepreneur.

 Employer inventions: are the ones where law states that patents rights belong to the employer over inventions
made by an employee during the term of his contract.
PATENT REGISTRATION PROCEDURE
The right to hold a patent is granted by the Spanish Patent and Trademark Office (OEPM) to the inventor of his
successors. At an EU level, the competent authority is the EPO.
CONTENT OF PATENT RIGHT
 As a positive aspect, the proprietor is entitled to use the patented invention, and the extension of the protection
that patent is determined by the patent claims.
 As a negative aspect, the patent right entitles the proprietor to prevent all third parties that do not have his
consent from:
o Producing, offering, putting on the market or using a product which is the subject-matter
o Using a process which is the subject-matter or offering the process for use.
o Offering for sale, placing on the market, or using a product which is produced directly by a process
which is the subject-matter of the patent (art.59 LP)

The patent´s owner is obliged to exploit the patented invention either by himself or by another
person, authorized. The protection is granted for a limited period. The term of the Spanish patent
shall be twenty years from the date of filling and is effective from the date the patent is published.
Once a patent expires, the protection ends, and the invention goes to public domain.

INDUSTRIAL DESIGNS
An industrial design is an IP protecting the ornamental aspect of a product. It can consist of three-dimensional
features, such as shape, or two-dimensional features, such as colors, patterns, or lines. Industrial designs are regulated
by Law 20/2003 of July on Industrial Design (LDI).
Art.5 LDI states the requirements for protection, which are both novelty and individual character:

 Novelty: the design is to be considered new if no identical design has been made available to public before the
date of filling the application.
 Individual character: a design has it if the overall impression it produces on the informed user differs from the
overall impression produced on such a user by any design which has been made available to the public before
the date of filling the application.
Design protection requires registration at the OEPM, to have the whole protection conferred. At the EU level, the
competent authority is the EUIPO.
Upon registration, a design meeting the legal requirements shall be protected for 5 years. The right holder has the term
protection renewed for one or more periods of five years, up to a total of 25 years (art.43 LDI)
COPYRIGHT
Copyright describes the rights that creators have over their literary and artistic works. Those works covered by copyright
range from books, music, paintings, sculpture and films, computer programs, maps, advertisements…
The legal regime of Copyright in Spain is the Royal Legislative Decree 1/1996 of April 12, Intellectual Property Act (LPI).
Copyright protects creations of the human mind, giving authors an exclusive right with positive and negative aspects.
To obtain this right, there are no registration needs and, in Spain, it can be done at the Intellectual Property Register.
(Art.10 LPI) Law states that the subject matter of copyright shall comprise all original production whatever the form of
its expression, whether tangible or intangible, that are presently known or may be invented in the future.
Economic rights → author → moral rights.
Regarding the duration of the protection, the general rule is that protection must be granted until the expiration of seventy
years after the author´s death.
4.1.3 IDENTIFYING GOODS/SERVICES AND DISTINGUISING FROM COMPETITORS: TRADEMARKS AND BUSINESS NAME.
SCOPE AND FUNCTIONS OF DOMAIN NAMES
TRADEMARKS
DEFINITION AND LEGAL FRAMEWORK
Art.4 LM states that it is a sign, including personal names or designs, letters, numerals, colors, the shape of goods or
even sounds.
The trademark system is managed in Spain by the OEPM. In addition, the Regulation on the European Union
Trademark, which allows the registration of EU trademarks valid in all EU members and are managed by the EUIPO.
As a third possibility, these regulations can be combined with the rules of governing The International Trademark
System, governed by the WIPO.
CLASSIFICATION OF TRADEMARKS
 Appearance. Denominative, figurative, three-dimensional, position mark, pattern, color, sound mark, motion
mark, multimedia mark, hologram, among others.

 Economic activity. We can distinguish between trademarks, for products.

 Applicant. Could be individual or collective.

 Function. According to their function, trademarks can guarantee the identify of origin to the goods or services
for which they are registered or guarantee the characteristics of the goods or services which are certified by the
proprietor of the mark.
GROUNDS FOR REFUSAL
To be registered as trademark the sign needs to follow to classes of registration prohibitions.

 Absolute registration prohibition.

o Protect public or general interests
o Prevent registration of signs which may not constitute a trademark because do not conform the
requirements.
▪ Devoid of any distinctive character.
▪ Are contrary to Law, public policy or to accepted principles of morality.
▪ Deceived signs or any other excluded from registration.
 Relative registration prohibition
o Prevent registration of signs which could conflict with other trademarks. In the case of absolute identity
between two signs (trademarks or tradenames) will not be accepted.
o It also prevents registration of signs if there is risk of confusion for the public, that might believe the
goods or services come from the same company/ies.
REGISTRATION PROCEDURE
Any natural or legal person may be proprietor of a Spanish trademark (art.3 LM).
1. Filling application form
2. Formal examination
3. Exam for possible absolute registration prohibition, preventing registration of signs contrary to public policy or
accepted principles or morality (art.5.1f LM)
4. Publication of the trademark application in the Spanish Official Bulletin of Industrial Property (BOPI).
 5. Third parties can file their oppositions to the registration.
6. Ex-officio examination for absolute registration prohibition and those relative ones in art.9.1b LM
7. Stay of the procedure
8. Eventual submission of grounds and documents by Amendments/withdrawals of the application could be made.
9. Publication of the decision to reject or grant the registration.
At EU level, the competent authority is the EUIPO, where a trademark is valid in all EU members states.
CONTENT OF TRADEMARK RIGHT
Registration confers exclusive right. Proprietor can use the trademark during trade. However, the exclusive position of
the owner is also characterized by granting him an ius prohibendi.
The trademark right is not absolute and shall respect limits. For instance, a temporal limitation; trademarks shall be
registered for ten years from the date of filling the application. Registration can be renewed for further periods.
The trademark right may be lost in case of existing grounds for revocation or invalidity.
OTHER DISTINCTIVE SIGNS
Trade names
Pseudonym used by companies to conduct their business under a name that differs from the registered legal name of
the business, distinguishing them from other companies with similar activities.
Geographical indicators
Include protected geographical indications and protected designations of origin that distinguish a category of products
(agricultural, wines, or spirit drinks) originating in a specific place, whose quality or characteristics are attributable to its
geographical origin.
Domain name
Familiar string of letters (domain name) to be used instead of an IP address, to allow the identification and access to a
webpage. They are characterized by a hierarchical structure. Domain names can be a country-code-top-level domain,
managed by national authorities, or generic top-level domains, managed by ICANN.
4.1.4 PROTECTING KNOW-HOW AND BUSINESS MODEL: TRADE SECRETS, UNFAIR COMPETITION AND OTHER RIGHTS
TRADE SECRETS
Trade secrets are intellectual property rights on confidential information which may be sold or licensed. What qualifies
as a secret?

 Commercially valuable
 Be known only to a limited group of people

 Be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use
of confidentiality agreements for business partners and employees.
The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest
commercial practices by others is regarded as unfair practice and a violation of the trade secret protection.
UNFAIR COMPETITION
Unfair competition law. Any conduct contrary to good faith or behavior that fails to abide by the requirements shall be
deemed unfair. The purpose is to protect competition in the interests of all and extends that protection to consumers.

4.2 THE SCOPE OF PROTECTION. LEGITIMATE USES AND ILLEGITIMATE INTERFERENCES

4.2.1 RIGHTS OF PATENT HOLDERS
A patent is an exclusive right granted for an invention, product, or process, which provides a new way of doing
something, or that offers a new technical solution to a problem.
A patent could belong to one owner or more jointly. A patent be transferable by any of the means recognized in the Law
(Art.10.1 LP). Patent owners can authorize third parties to use their inventions.

 Patents may be licensed as a whole, or only part of the rights, and for the entire or part of the Spanish territory.
 A license can be exclusive or non-exclusive. Law establishes a presumption in favor of non-exclusive licenses
(Art.83 LP).
Patent licenses can be differentiated according to whether they are voluntary contractual or compulsory.

 Contractual licenses: if someone wants a license under the patent, the proprietor must accept.
 Compulsory licenses: situations in which the license is granted regardless consent of the owner (Art.91 LP).
ART.91 LP – CASES OF GRANTING COMPULSORY LICENSES
• Lack of insufficiency of exploitation of the patent.
• Dependence between patents.

• To put an end to practices declared contrary to legislation for the defense of competition.
• Existence of reasons of public interest for the concession.

• Manufacture of pharmaceutical products intended for export.

EXTINCTION OF THE PATENT RIGHT
It can be consequence of a proprietor decision, a sanction of or because of formal or substantive defects in the patent
title. Patent invalidity (nulidad): Law states a patent may be declared invalid due to different grounds:
1. When it can be justified that the subject matter of the EU patent is not patentable
2. When the invention is not described sufficiently clearly or completely
3. When the subject matter or patent extends beyond the content of the application
4. When the proprietor is not entitled under article 10; is not the rightful inventor
The patent shall be deemed to no have the effects that it acquired.
Revocation or Limitation: patents may be revoked or limited by an amendment of the claims at any time of its legal
life. The effects of the limitation are those of total/partial invalidity.
Expiration (caducidad): patents expire when the deadline ends, if maintenance fees are not paid, and if the invention
is not exploited. Notwithstanding its declaration by the Spanish Patent and Trademark Office once a patent is expired,
the protection ends, and an invention enters public domain.
ACTIONS FOR INFRINGEMENT
A patent owner can enforce his rights against those infringing his rights and request the necessary measures to protect
the patent rights even with an arbitration option. (Art.136 LP)
The owner may bring the following actions from Patent Law (Art.71 LP):

 Cessation (cesación) of acts that violate their rights, or their prohibition if they have not yet been produced.

 Compensation (indemnización) for the damages and loss suffered.

 Seizure (embargo) of the objects produced or imported infringing their rights.
 Assignment to the patent owner of the property of the products, materials and means seized by virtue of the
previsions of the above section, if possible.

 Necessary measures to be adopted (adopción de medidas) to prevent the patent infringement or destruction.
 In exception cases, and at the request of the patentee, court may also order publication of the condemning
judgement (publicación de sentencia condenatoria) at the infringer’s expenses (Art.71 LP).
4.2.2 RIGHTS OF TRADEMARK HOLDERS
A Trademark is a sign that includes personal names, designs, letters, numerals, colors, shape, or packaging provided
that these signs serve to distinguish the good or service from others.
 Trademarks are registered on the Trademark Register in a manner which enables competent authorities
to determine the subject matter of the protection afforded to its proprietor (Art.4 LM)
  A trademark or application as property may belong pro indiviso1 to two or more people.

 Trademark may be given as security or be the subject of rights which rest on an object or good.
 These legal acts shall be binding on third parties acting in good faith only after entry in the Trademarks
Register.
Trademarks can be transferred separately from the company. Even though, if a company is completely transferred,
the trademark also is included in the transfer except there is agreement to the contrary. (Art.47 LM)
Trademarks can be licensed for some or all the goods or services for which a trademark was registered. Also, it can
be registered for the whole Spanish territory, or just part of it.

 A license can be exclusive or non-exclusive. Unless agreed, a license may be non-exclusive, and the licensor
may grant other licenses and use a trademark for his own purposes. (Art.46.3 LM)

 These legal acts shall be binding on third parties acting in good faith only after entry in the Register.
REVOCATION AND INVALIDITY
 Grounds for revocation (caducidad)
o Trademark may be lost due to revocation (ten years past from the date of filling the application, but these
can be renewed for further ten-year periods)
 Grounds for invalidity (nulidad)
o Trademark may be lost due to invalidity (prohibition in absolute or relative grounds).
o In a case where a trademark is declared invalid, it must be deemed not to have had the effects specified
in the Law (Art.52 LM)
o The trademark must be declared to be revoked on application to the OEPM or based on a counterclaim
in infringement proceedings:
▪ It has not been used
▪ The trademark has become the common name in trade
▪ The trademark is liable to mislead the public.
o The trademark revoke is done by the OEPM if it has not been renewed or withdrawn by the owner.
o In the case where proprietor´s rights have been revoked; the trademark shall be deemed not to have had
the effects specified in the LM.

 Generic trademarks
o A generic trademark is one that due to its notoriety or significance, has come to be used as generic term
for a category of goods and services, typically against the wishes of the trademark owner.
o This risk can be evaded.
▪ Education of consumers and businesses on proper trademark usage.
▪ Avoiding use of the marks in generic contexts.
▪ Enforcing the trademark rights.

 Actions for infringement

o The trademark owner can enforce the right against any actions that infringe it, and request the necessary
measures to protect, the trademark, considering the arbitration option (Art.40 LM)
▪ Cessation (cesación) of acts that violate their rights, or their prohibition if they have not yet been
produced.
▪ Compensation (indemnización) for the damages and loss suffered.
▪ Necessary measures to be adopted (adopción de medidas) to prevent the infringement continuity.

1
Pro indiviso = a partes iguales
 ▪ Destruction of the infringement products or their assignment for humanitarian purposes (cesión o
destrucción).
▪ Assignment to the trademark owner of the property of the products, materials and means seized.
▪ Publication of the court decision (declaring the infringement)
4.2.3 COPYRIGHT
Copyright describes the rights that creators have over literary and artistic works. Works covered range from books,
music, paintings, sculpture and films, computer programs, databases, advertisements, maps, and technical drawings.

 Copyright may be transferred or licensed.

A license (licencia o permiso de uso) is an agreement between at least 2 parties, where the licensor consents to share
rights to sell, use, or any covered under IP, with the licensee under certain terms and conditions. The royalties are the
consideration given by the license in exchange for the contractual license.
The are two types of licensing:

 Exclusive license. This license enables it to exclude everybody, even the licensor, from using the IP rights
reserving them exclusively for one person.

 Non-exclusive license. Allows the licensee and licensor to utilize the IP rights together and it can be licensed
to any third party as well.
A copyright owner´s exclusive rights can be transferred to another party, but it must be written and signed by the
copyright owner to be valid. An author can only transfer the economic rights but will always keep the moral rights.
The three most important and essential questions when considering the transfer of a copyright are:
1. For how long is the transfer made?
2. What is being transferred?
3. In which territory can the work be exploited?
There are two payment systems for authors: proportional participation in the results; or a fixed amount of money
5. BLOCK 3. PLANNING THE BUSINESS ACTIVITY
4. CONTRACTS AND TRANSACTIONS
Main factor behind market is transactions. All agents take place in the processes. A market is a collection of participant-
to-participant transactions managed by a set of rules.
An entrepreneur wishing to run a business must conclude some contracts with providers, clients, independent
contractors, agents, or partners. There are contracts further above from clients.

4.1 CONTRACTS
Agreement reached by parties to mutually satisfy their interests.
Parties who engage in it are bound by its covenants. Provisions are enforceable by both parties. It is assumed that
the parties voluntarily selected the clauses that would best serve their interests and maximize the expected benefits.

 If contract is performed in accordance with terms, parties will be satisfied. If one breaches, the other party will
want to remedy the breach and sue for damages. The most common thing is to mediate before suing.
Parties are free to choose whom they do business with and under what terms. Still, there are some restrictions to avoid
abuses and restore imbalances. In the case it happens, what the parties allegedly agreed to, will be replaced by other
legally binding norms.
Only the parties to a contract are bound by it, and may be sued or sue under it, and third parties could not derive rights
from nor have obligations imposed on them.
Private autonomy should lead to privity of contract (vínculo legal de contrato); only the parties inside the contract can
dispute each other. Only the parties to a contract are bound by it and to solve any problems that might arise.
In connection with the concept of private autonomy, we must understand:
1. Limits to private autonomy
2. Requirements for a contract to be valid and enforceable
3. Rising of a contract from negotiations between parties
4. Remedies for parties in case of default.
4.1.1 PRIVATE AUTONOMY
Origin in the laissez faire laissez passer model. Enshrinement of private autonomy.
In Spain, it is regulated in (art.1255 CC) which states that the autonomy of will (autonomía de la voluntad) must be then
exercised in accordance with law, morality, and public order. Otherwise, such agreement will not be respected by the
Law because it does not comply with the main principles. => general limits
In addition, there are specific restrictions aimed to protect the weaker parties of an agreement (e.g.: clients):

• Growing involvement of consumers in commercial transactions

• Rise of adhesion contracts and standard terms articulating mass trade
• Development of antitrust (antimonopolio) legislation
• Growing receptiveness to a notion of freedom of contract conditioned by human rights and liberties.
To respond to new participation of consumers in market contracts, consumer law has started to conquer traditionally
mercantile laws establishing specific limits on the liberal conception of private autonomy.
Consumer biased legislation prevents abuses and unconscionability. The consumer law system is based in:

 Provision of duties on companies deemed as the strong party in every transaction

 Granting of rights and privileges to consumers treated as the weak party in the prospective contract. Underlying
economic rationale is evident, market fails and state intervention to repair them is demanded.
Legal rationale is meant to protect the weaker party. Legislators set limits on private autonomy aiming to rebalance
unfair situations. Usually there is an imbalance between consumer and company. In such cases, private autonomy
would be illusory.
Adhesion contracts: standard contract terms redraw transactional dynamics towards a contract without dealings
scenario => take it or leave it. These appeared to satisfice mass demand:
 1. Need of uniformity
2. Depersonalization
3. Expeditions pace of modern contracting
4. Better cost management
5. Rationalization of economic activity

Not individually negotiated conditions predisposed by the seller or supplier (one of the contracting parties) for
an indefinite number of transactions, particularly in the context of preformulated contracts, to be accepted by
the other contracting party (consumer but also professional) under the radical alternative take it or leave it.

4.1.2 WHEN IS A CONTRACT VALID AND ENFORCEABLE

Standard terms contracts are valid and enforceable given that:

 Ensure adequate notice of existing standard terms

 Give adherent opportunity to review them

 Enable the adherent to express a valid consent
In monopolistic/oligopolistic markets, behaviors likely to be inherent in the exercise of the freedom to contract, are
treated as abuse of dominant position or inadmissible refusal to deal.

 (e.g.: if a monopolistic provider refuses to deal with a company with no reasons, that company might get
unjustifiably expelled from the market.)
4.1.3 CONTRACT FORMATION
In general terms, a contract is a result of a multiphase complex process.

 Precontractual stage: acts and negotiations intend to reach an agreement between parties.
 Conclusion of contract: moment when parties materialize the deal by signing it.
 Performance stage: the contract must be fulfilled to satisfy parties’ interests.
PRELIMINARY DEALS
Acts or statements made to reach an agreement in the future, but prior to the offer. This period is not indispensable
for the agreement to be concluded afterwards but is common in complex transactions and in contracts between big
companies. Then, if preceding the reaching of an agreement, they decide to:

 Constitute parties´ intent for interpretation purposes.

 Fill gaps in the final agreement
 Detect vices of consent
In absence of contract, parties are to abide by good faith principle and bargain in good faith.
Despite there are no specific rules on pre-contractual liability in the Spanish Legal system, situations giving rise to
them, are common and easy to identify.
1. Failure to duly inform the contracting party
2. Unexpected breaking off from negotiations
3. Abusive withdrawal of an offer
4. Infringement of good faith requirements in bargaining
In contrast with the absence of regulation in Spain, supranational texts include rules on pre-contractual duties,
UNIDROIT principles or Principles of European Contract Law. In practice, pre-contractual liability appears in two cases:

CASE 1: NEGOTIATION´S INTERRUPTION CASE 2: NULL AGREEMENTS

Unfounded interruption of negotiations before reaching Conclusion of an agreement that happens to be null and
an agreement. This frustrates the other party´s void due to the violation of precontractual duties.
expectations on the seriousness of the dealings.
Precontractual rules could enable to compensate costs
and expenses undertaken in the expected agreement
 and the loss of opportunities to negotiate with others.

4.1.4 OFFER AND INVITATION TO TREAT

An offer is an invitation to reaching an agreement if parties accept it. Acceptance is followed by adhesion act. According
to the Vienna Convention on International Sales of Goods, a proposal for concluding a contract is an offer if:
1. It indicates the intention of the offeror to be bound in case of acceptance.
2. It is sufficiently definite (including the essential elements of the contract)
The concept of invitation to treat is described as a proposal for concluding a contract that is not sufficiently definite
and it does not express the intention of the proposer to be bound in case of acceptance.
An offer becomes effective when it reaches addressee/offeree. Until this moment, the offer can be withdrawn, provided
that the withdrawal reaches the offeree before or at the time of the offer.

 Once the offeree has received the offer, it is still revocable until the dispatch of the acceptance and unless the
offer states a period for acceptance, or it is reasonable to rely on the irrevocability thereof.

 Likewise, as far as an offer is accessible on the internet it is deemed to be in effect. In other words, to the
extent that an offer is publicly visible on the website, the potential offeree can rely on the fact that it has not
been revoked.
4.1.5 MIRROR IMAGE RULE. ACCEPTANCE AND COUNTEROFFER
An agreement arises as the result of an offer and an acceptance. Whereas the offer is the act of initiative, the
acceptance is the act of adhesion.

 Any assent-indicating conduct of the offeree constitutes acceptance if is coincident with the offer. Acceptance
is the mirror image of the offer.
 Should the mirror “break”, the statement purporting to be an acceptance but containing additions, limitations or
other modifications constitutes a counteroffer and entails the rejection of the offer and consequently,
negotiations follow.
In other words, the mirror image rule states that the acceptance of an offer must be exactly as demanded by the
offeror. That means that the acceptance must mirror the offer. If the offeree adds new terms to the acceptance, it is not
really an acceptance.
4.1.6 METHODS OF ACCEPTANCE.
An agreement arises because of the offer and the acceptance. Unless otherwise stated in the offer, the offeree is free
to opt for an express or tacit method to manifest assent.

Tacit forms of acceptance Express forms of acceptance

Offeree may express acceptance by assent (conducts like dispatch of These are normally undisputed but arouse
goods) or remain silent when these may account to acceptance. certain legal concerns as acceptance to be
inferred or deduced from a set of facts and
On the other hand, under Spanish rules neither silence nor inactivity
conducts.
accounts as acceptance.
Under certain circumstances, silence or inactivity means assent where
making a statement on the offer is due in accordance to generally
uses, practices between parties or good faith and fair dealing
requirements.

4.2 INTERPRETATION & GAP FILLING. GOOD FAITH, REASONABLENESS, AND DEFAULT RULES
Interpretation is a task aimed at ascertaining the meaning and sense of statements made by and other conduct of the
contracting parties to state effects and consequences on the contractual sphere.

 Subjective: statements made by conducts of parties are to be interpreted in conformity with their intent.
 Objective: interpretation attempts to find out the meaning of the statements made by or other conduct of the
parties in accordance with their commercial and social sense.
Although the CC aligns with subjective interpretation guidelines the more and more frequent resources to the good
faith principle by the courts is revealing an increasing objective bias in the interpretation of contracts.
4.2.1 RULES ON CONTRACT INTERPRETATION
One of the rules of contract interpretations is the search for the intent of the parties (art.1281 – 2, and 1289 CC). The
intent of the parties means the common intent, not the intent of each (Supreme Court, judgments of December 1965
and February 1981).

 The common intent is therefore the area where both wills agree. To discover the real intent of the parties, a
series of rules are provided (focus on grammatical rule).
GRAMMATICAL RULE
This rule takes priority unless the apparent grammatical clarity seems to clash with the evident intent of the parties
according to the context of the transaction. Therefore, the intent of the parties is to be inferred from the agreement and
from the previous or subsequent acts of the parties.
Arts.1283 – 1286 CC establish supplementary interpretation rules once the intent of the parties is ascertained.
 Analogical application of the agreed terms to situations falling out of the intent to the parties is forbidden.

 Where several meanings of a clause are possible, the interpretation more in keeping with the nature of the
contract and the scope of consent is to be preferred.
4.2.2 CUSTOM AND THE PRINCIPLE OF GOOD FAITH WHEN INTERPRETING CONTRACTS
There are cases in which interpretation is difficult. Customs and usages resolve ambiguities and fill eventual gaps with
clauses.
Hence, they intervene for interpretation purposes when a common intent of the parties is unable to be ascertained.
Interpreting, usages are to be proved by the party alleging them.
Good faith: this principle guides the interpretation of contracts with the following consequences.

 Manifestation will prevail over real will if they differ due to mischievous or careless conduct of one party and the
good faith of the other party

 Manifestation will prevail if it has been understood or should have been understood in the sense wished by the
declaring party despite the objective meaning of the used
o Habeas Corpus example. The idea is that a party should understand that the other one was trying to
say or act in some way, even if they had misspelled the principle.
Art.1288 CC => embodies a specific application of the good principle, when stating that unclear o obscure clauses are
not to be interpreted favorably to the party liable for the obscurity (contra proferentum rule).

 The problem with this rule is to prove that there was a negative intention from one of the parties.
There are additional rules set by art.1289 CC which try to grapple as a last resort with uninterpretable statements. If
the elements of the statement are still unintelligible, the contract is null.
4.2.3 SUPPLEMENTING A CONTRACT
Art.1258 CC => Parties must abide by not only the agreed terms but also the natural consequences of the agreement,
as far as they are in conformity, with usages, law, and good faith requirements.
Art.1287 CC => Apart from interpretation rules, this article establishes that usages normally observed in the country (or
place the conclusion of the contract) shall fill the gaps of contracts by including currently agreed clauses.
PRIVITY OF CONTRACT
Generally, only the parties to the contract are bound thereby, can sue, or be sued under the contracts; and third parties
cannot derive rights from, nor have obligations imposed on them by it. Privity of contract should be the natural
consequence of private autonomy.
INTER PARTES
With a categorical and unequivocal wording, (art.1257 CC) proclaims that contracts have effects only on and between
the parties (inter parties’ effects), adding in this regard, that they could also bind the parties' heirs unless rights and
obligations are not transferable by statute or by covenant.
4.2.4 NULLITY & VOIDABILITY
A valid and enforceable contract, requires the fulfilment of three conditions (art.1261 CC):
1. Free and valid consent
2. Certain object (scope of consent)
3. Cause of the obligation established
Certain circumstances are likely to affect to some extent each of these prerequisites entailing the setting aside of the
contract on grounds of nullity or voidability. Void and voidable contacts may arise through:

 Lack of requisites for an enforceable contract (art.1261 CC)

 Impairing consent (art.1265 CC)

 Illicit object (art.1271 CC)

The Spanish legal system provides two regimes: either contract is void or the contract is voidable.
Unlawfulness of the consideration presumed licit and existent until proven otherwise by the debtor, on grounds if
immorality, falseness, or affront to public order.

• Art.1275 CC
• Supreme Court judgement of 4th October 1984.

4.3 ALTERNATIVE DISPUTE RESOLUTION (ADR)

During a conflict, Law provides parties in conflict with methods to resolve the dispute.

 The main dispute resolution system is the Judicial System. Courts embody the independent and exclusive
power to judge and execute judgments.
o Therefore, States must be responsible for enabling citizens access fast, efficient, and easy Justice
Systems. The Right to Access to Justice is a fundamental one, stated in Constitution.
o In the last decades, the capacity of courts to comply with these characteristics has been questioned,
and alternative legitimate dispute resolution methods have been considered.

 ADR: divided into arbitration & mediation.

o These dispute resolution methods also operate on the Internet.
o Especially suitable for dealing with international, interpersonal, and cross-border conflicts. Thus, it
makes sense that ADR have proliferated in electronic transactions and markets.
o Judicial methods for dispute resolution encounter delocalization, lack of supranational courts and non-
existent of universal legislation.
4.3.1 HOW ARE CONCILIATION, MEDIATION AND ARBITRATION DIFFERENT?
The three processes have the same goals, but range in formality, responsibility, and improvisation. In each case, a third
party participates in the dispute resolution process.

MEDIATION CONCILIATION

More flexible than arbitration; less formal and both parties
can take part in the dispute resolution.
Parties have the right to agree or not agree. The
resolution is not reached unless both parties agree.
Least formal, more improvisation. Conciliation avoids
litigation and is more cordial and open to negotiate.
An impartial party must identify the objectives of each
party during conciliation, before making suggestions for
possible resolutions.
An impartial third party helps to communicate more
effectively and reduce tensions.

4.4 ARBITRATION
Regulated on Act 60/2003, 23rd December, on Arbitration (“LA”):

 “Extrajudicial dispute resolution method based on the free will of the parties, who through an agreement entrust
the solution of present or future disputes to a third party, attributing authority to issue a resolution which will
 become final and executive (“arbitration award” = “laudo”).”
The Constitutional Court establishes arbitration as:

 “Jurisdictional equivalent, through which the parties obtain the same objectives as with civil jurisdiction, that is,
obtaining a decision in the conflict with all the effect of res judicata with the declaration of the reciprocal rights
and obligations of the parties to the dispute, and which is covered by auctoritas by the imperative of the Law.”

RES JUDICATA: LATIN TERM FOR “A MATTER DECIDED”. REFERS TO EITHER OF TWO CONCEPTS: A CASE IN
WHICH THERE HAS BEEN A FINAL JUDGEMENT AND THAT IS NO LONGER SUBJECT TO APPEAL; AND THE
LEGAL DOCTRINE MEANT TO BAR RELITIGATING OF A CLAIM BETWEEN THE SAME PARTIES.

4.4.1 LEGAL NATURE

Another discussion occurs when considering arbitration as contractual or jurisdictional figure. Constitutional Court
considers it a “jurisdictional equivalent”, which allows a resolution issued on the merits with all the effects or res judicata.

JUDGES ARBITRATORS (ADJUDICATORS)

Difference has been discussed in the doctrine of the Constitutional Court. Arbitrators are not qualified as judges.

art.117 CE: “holder of the jurisdictional power, competent to “Individual who exercises a public function, para-jurisdictional
judge and enforce what is judged”. or quasi-jurisdictional activity, which lacks full jurisdiction results
in the absence of jurisdictional power”.

Arbitration is also a single instance system. There is no higher arbitration organization that allows for appeals to review
the decision (art.42.2 LA); and the process is regulated by the State itself. It has the same elements as a trial:
1. Two or more parties involved in a dispute.
2. A controversial object or thing.
3. A person (arbitrator) invested by the parties with jurisdiction (delegated jurisdiction).
Jurisdiction in which the will of the parties confers to the individuals who are going to arbitrate the power to decide on
issues submitted to their knowledge. State is obliged to verify compliance with the requirements of LA and that the
entire process itself is carried out in accordance with the law.
4.4.2 ARBITRATION OF LAW AND ARBITRATION IN EQUITY

ARBITRATION OF LAW ARBITRATION IN EQUITY

Application of legal norms on the case (art.34 LA). These
standards may be designated by the parties.
If they do not, the arbitrator may choose applicable law. This
modality works as a rule.
If chosen, arbitrator must be a lawyer.
Eliminating the application of the rules so that the case is
governed by the principle of good faith and by the reason of the
arbitrator, who does not have to be a lawyer.
Equity does not grant absolute freedom to the arbitrator.
Equity has been defined as “power that judges have to mitigate
the harshness of the strict application of a law or to do justice in
the resolution of a dispute”.

4.4.3 ORDINARY vs SPECIAL ARBITRATION

Ordinary arbitration is not governed by any special rules, the LA being applicable. Instead, a special arbitration is
governed by a different rule depending on its subject matter.

SPECIAL ARBITRATION

Legal regime completed with arts. 7 and 8 of the Regulations of the Land Transport Planning
Transportation arbitration
Law.

Industrial Property arbitration Arbitration provided for in matters related to the rights recognized by the Law (with some
exceptions).
The Spanish Patent and Trademark Office will be the institution in charge of carrying out the
arbitration.
 Bylaws arbitration The art. 11 bis LA plans to introduce a clause of submission to arbitration for conflicts that
arise. Challenges to company agreements may be established through arbitration.

Consumer arbitration Art.1 of RD 231/2008 defines it as "institutional arbitration of extrajudicial resolution, of a

binding and executive nature for both parties, of the conflicts arising between consumers or
users and companies or professionals in relation to the legal or contractually recognized rights
to the consumer"

Intellectual property It is regulated in arts. 158 and 158 bis of the Intellectual Property Law. It will be carried out by
arbitration the First Section of the Intellectual Property Commission, resolving conflicts arising from
collective management.

Maritime arbitration The Maritime Navigation Law allows the stipulation of an arbitration clause in the contract if it
has been negotiated individually by the parties (art. 468 LNM).

Online or offline arbitration. Take place both electronically and traditionally; ODR (online dispute resolution). This variant
of conflict resolution methods arises from EU Regulation (EU) 524/2013.
4.4.4 AD-HOC OR INSTITUTIONAL ARBITRATION
Submission of the parties (exercising the principle of autonomy of the will) to an arbitration institution so that it
administers the procedure according to regulations.
These usually refer to a judicial procedure, but they differ from these in that they are much more abbreviated both in
stages and terms.
The parties may entrust the arbitration to:

 Public Law Corporations and Public Entities that perform arbitration functions, according to their regulatory
standards (Chambers of Commerce, Industry and Navigation or Professional Associations).
 Associations and non-profit entities whose statutes provide for arbitration functions.
Arbitration is entrusted to natural persons designated by the parties without the existence of any intermediary. It is left
to the parties to create the procedure rules.

 Ad hoc arbitration guarantees confidentiality to a greater extent, since only the parties and the arbitrator or
the tribunal are aware of the dispute, and there are less possibilities of leaks.

4.5 INTERNATIONAL ARBITRATION

4.5.1 INTERNATIONAL CRITERIA
An arbitration is international when:
 At the time of signing the arbitration agreement, the parties have their domiciles in different States.

 1) the place of arbitration is determined in the agreement or in accordance with it. 2) the place of fulfillment of
a substantial part of the of the obligations of the legal relationship from which the dispute arises. 3) the place
with the one that has closer relation, is located outside the State in which parties have their domiciles.
4.5.2 APPLICABLE LAW
1. Parties may apply any state law. This choice does not imply the exclusion of the uses and customs of international
trade. There is a possibility that the chosen law by the parties, cannot be applied in the arbitral tribunals.
2. Parties can designate a normative set that does not have to have a state origin, such as the UNIDROIT Principles
on international commercial contracts.
3. The adoption of the lex mercatoria as a generic choice is allowed. The lex mercatoria are the uses and customs
understood in international trade.
4.5.3 RECOGNITION & ENFORCEMENT
Recognition and execution of arbitral awards must be done in agreement with the principles stablished in the New York
Convention of 1958 and the European Convention of 1961, as well as the Act of International Legal Cooperation.
These agreements also establish some cases in which the recognition or enforcement of awards will be denied.
4.5.4 ADVANTAGES OF ARBITRATION

Binding final decisions not Unlike other methods, such as judicial process or the mediation, arbitration decisions are not
subject to appeal. subject to more than very limited grounds for appeal or recourse.

International recognition and The arbitration award is a good way of solving conflicts, because the award is made based on
forced execution. the guidelines established by the parties.

Flexibility and autonomy of Parties can choose the type of arbitration they prefer, be it free or institutionalized, online or
parties. offline, in law or equity. As well as who, will be responsible for deciding the differences.

Procedural neutrality. The process enables parties to establish in advance the place of arbitration, the language,
applicable legal rules…This flexibility should be sufficient for the parties to structure a neutral
procedure.

Competence of arbitrators. Unlikely the judicial process, in which the matter being litigated falls to a judge with a generic
specialization in Law, here the parties choose highly specialized professionals as arbitrators,
provided they are independent.

Speed and economy. Arbitration is faster and cheaper than litigation in court. Its procedure assures the parties that
none will be entangled in appeal processes since it is not possible.

Confidentiality. Allows the parties to a process to keep their differences secret and safeguard their image,
with the assurance that their industrial secrets, confidential information… will not be disclosed
or discovered to its competitors and third parties.

4.6 EXAMPLES OF ARBITRATION CLAUSES

 International Chamber of Commerce (ICC)
o All disputes arising from this contract or related to it will be resolved in accordance with the Arbitration
Rules of the ICC by one or more arbitrators appointed in accordance with these Rules.

 Spanish Court of Arbitration

o Any dispute arising from this contract, or an agreement will be resolved through arbitration administered
by the SPA, in accordance with its Regulations and Statute.

 Chartered Institute of Arbitrators (CIArb)

o Any dispute arising out of or in connection with this contract, including any question regarding its
existence, validity, or termination, shall be referred to and finally resolved by arbitration under the
London Court of International Arbitration Rules.

4.7 MERCANTILE SALE PURCHASE AGREEMENT (SPA)

The sales purchase agreement is the most important, as the most legally regulated and the prototype of bilateral
contracts. Its legal regulation is applied to all other bilateral contracts when they lack a specific regulation. SPA = Sale
and Purchase Agreement.
Mercantile/Commercial SPA:

 Arts.325 et seq. CCom

 Arts 1445 et seq. CC
Additionally, if the SPA fits within the definition of the Protection of Consumers and Users Act (Royal Legislative Decree
1/2007), this regulation would be applicable and would prevail over the two mentioned above codes.
SPA: contract by which the seller is bound to deliver an item to the buyer, who is bound to pay a price. This contract
accomplishes a key function from an economic point of view since it allows circulation of goods and occupies a relevant
position in business.

• The CCom lacks a definition of the concept of sale-purchase. Consequently, the definition provided in art.1445
CC, which defines it as a “consensual agreement”, is applicable.
• From a legal perspective, the SPA must be considered as the standard for bilateral contracts, whose regulations
have been generalized to a great extent to contracts of reciprocal performances, in which the principle of
equivalence is key.
The SPA concept and its obligations are foreseen in the CC. However, Spanish legislation has a special regulation for
those SPAs that are considered mercantile, by means of arts.325 - 326 CCom.
This double regulation, in the CC and the CCom, gives rise to litigation because of a lack of certainty regarding the legal
regime of the contract, leading to widespread disagreement about which sales-purchases must be considered civil and
which ones commercial. We consider mercantile, two situations:

 Purchase made with a profit-making purpose via the resale of good (arts.325 – 326.1CCom). The goods may
be acquired to sell them in the same state as they were when bought or in a different state.

 Sales made by entrepreneurs when the buyer is also an entrepreneur who will use the goods for their economic
activity.
Apart from the regulations laid down in the CCom and in the CC, when it comes to a SPA, we also must consider the
regulations about mercantile SPA for consumers, provided in Act 7/1996 which regulates retail trade and the Protection
of Consumers and Users Act (Royal Legislative Decree 1/2007).
However, when it comes to international merchandise SPAa, we take into consideration the UN Convention on
Contracts for International Sale of Goods held in Viena 1980.

4.8 EFFECTS OF THE CONTRACT. SELLER´S OBLIGATIONS

The main obligations for the seller are the delivery of movable goods and provide warranty over the goods constituting
the subject matter of the sale.

• The transfer of the property requires a title and the mode. Thus, in this case, the title is the SPA and the mode,
the traditio, which is the bilateral act that includes the delivery by the seller and the receipt of the goods by the
buyer.

• The following requirements should be met:

o Delivery place
o Delivery time
o Actual delivery of the object
4.8.1 DELIVERY PLACE
The merchandise must be delivered at the agreed place, and if there is no agreement about it, at the place where it was
located at the moment of the perfection of the contract (art.1171 CC).
The buyer has an obligation to withdraw the goods from the establishment where the merchandise was at the perfection
of the contract. It is common that seller and the buyer are in different places, so in these cases, a transport is needed.
The general rule, according to art.1171 CC, is that the goods are delivered freight collect, which implies:

• Transport expenses are assumed by the buyer.

• Seller fulfills his obligations by delivering the merchandise to the transporter.
• Delivery of the goods takes place between the transporter and buyer, who receives it on behalf of the seller.
Parties can also agree a carriage-paid delivery, which implies three things:

• Seller assumes transport expenses

• Seller has not fulfilled obligation of delivery until transport delivers merchandise to buyer
• Seller assumes risk during transportation.
4.8.2 DELIVERY TIME & OBJECT
Delivery time: the merchandise must be delivered at the time agreed between the parties (Art.329 CCom) or, failing
that, within 24 hours from the perfection of the contract (Art.337 CCom).
Object: the seller must deliver the quantity and quality agreed for the goods.

• If the SPA refers to a specific good, it will be that good which must be delivered.
• In the case of generic goods, the seller should deliver the good as established in the contract. The goods are
considered delivered when in power and possession of the buyer (art.1462.2 CC).

4.9 WARRANTY OBLIGATION

The seller shall be liable to the purchaser. One, for the lawful and peaceful possession of the things sold; and two, for
any hidden defects it should have.

 Manifest defects: external defects, appreciable for the buyer, or that must be appreciable for the buyer if the
buyer is an expert who, because of his profession, should easily recognize them.

 Hidden defects: defects that, existing before the delivery, cannot be appreciated with the naked eye by the
buyer.
The buyer has a duty of denouncing promptly the existence of defects, or to take legal action against the seller. The
Civil Code establishes some brief deadlines dealing with the denouncement of defects.
The main aim of imposing these short time frames is to let the seller know that the business transaction has concluded
successfully. By means of his protection to the seller, the system grants a protection to the security of commercial trade.
Regarding the denouncement deadlines, we should distinguish:
One:

 If the defects or flaws regarding the quality or quantity of the merchandise are visible (buyer can identify the
issue at the moment of the goods´ receipt), the buyer must denounce the defects or flaws in the delivery act.
 Otherwise, the buyer loses all rights to claim for this matter. The examination of the goods can be optional or
compulsory if the seller requires it (art.336.1 and art.4 CCom)
If the buyer does not check the goods in the delivery, as happens with packaged goods, there is a four-day deadline
from when the goods were received to denounce the mentioned defects (art.336.2 CCom).
Two:
If the defects are internal (cannot be recognized during the examination of goods at the moment of delivery) the buyer
has a deadline of thirty days from this date to denounce them (art.342 CCom).
The deadlines can be modified if parties decide so. The warranty regime for defects or flaws of the goods is considered
a default regime. In this sense, the regime established by the CC can be modified by means of contractual arrangements
between parties.

 Due to the insufficiency of legal regulation, the signing of warranty clauses between the parties to expressly
regulate the defects liability is very common.
o The seller undertakes to maintain the good status of the merchandise during a specific period,
undertaking to repair the goods or even substitute them in order to achieve this goal.
o The seller limits their liability to repair or substitute the object, but it excludes the possibility to terminate
the contract or to be awarded damages for the injuries suffered.

4.10 BUYER´S OBLIGATIONS

4.10.1 PAYMENT OF THE PRICE
The payment of the price is the buyer´s main obligation. The price must comply with the characteristics requested by
the CC (to be true, determined and consisting in money or any other sign that represents money – art.1445 CC).
In the absence of regulation in Ccom, the rules established in CC are applied, and the payment of price must be made
in the agreed currency, and in cash (art.339 CCom).

 Payment can be made in advance or deferred. In fact, there is a special law that regulates instalment payments
for sales of moveable durable goods: Act 28/1998 of 13th July.

 We also must consider regulating retail trade (comercio al por menor), which starts from the premise that the
trader can agree with his supplier the deadline that they consider adequate for the payment of goods.
o In absence of agreement, he should make the payment before thirty days from delivery date of goods.
4.10.2 RECEIPT OF THE GOODS
Regarding the receipt of goods, the seller has the obligation to make available the merchandise to the buyer. Given
that a delivery is a bilateral act, the buyer has the obligation to receive the contract´s object.

 A buyer must facilitate the delivery of the goods to the seller by receiving them. The scope of this obligation
will depend on the moment and place at which the seller makes the goods available to the buyer.
 o The buyer must cooperate, specifying the place chosen or which means of transport has he selected.
If there is not an agreement concerning these kinds of matters between the parties, the general rule determines that
the seller would make the goods available in his own establishment.

 In addition, if the buyer refuses without due cause the receipt of the purchased goods or delays it, art.332
establishes that the seller can judicially deposit the goods, the expenses incurred being borne by the buyer.

4.11 THE RISK TRANSFER

In matters concerning the risk transfer in a SPA, the problem lies in who must bear the risk between the perfection and
the consummation of the contract in fortuitous causes:

 Before perfection of contract – seller assumes risk. After its consummation – buyer. If any of the parties acts
with negligence, malice or in arrears (delay), this party will always assume the risk.
Once the SPA is binding, the goods can be destroyed, or can suffer deterioration by fortuitous causes, or by causes not
attributable to the seller.

 The transfer of risk issue is based on knowing when the buyer would be the unconditional debtor of the price,
even if he does not receive any benefit from the contract.
Code of Commerce provides a solution that can be summarized in three ways:
1. If the item sold is a determined object, the risk shall be borne by the seller until the object is available to the
buyer, from which moment the risk is transferred.
2. If the item sold is generic object, the risk is transferred to the buyer from the moment of the specification of
the goods.
3. If the buyer can check and examine the goods beforehand, or the agreement stipulates any conditions, the
risk will not be transferred until the goods are examined or have fulfilled the agreed condition.
The legal regime from the Ccom, is not mandatory can be modified if parties agree so. In fact, typical clauses for these
types of agreements tend to specify the place at which the goods will be available for the buyer, and so determine the
moment of risk transfer.

4.12 BREACH OF CONTRACT

In commercial trade, delivery deadlines are essential, and that is the reason why art.329 Ccom has a very strict regime
regarding sellers’ breach of contract. In the absence of a delivery in the fixed date, the buyer has various options:

 Termination of contract and refusal to receive the merchandise if the seller offers it after the deadline.
 Fulfillment of contract and require the seller to deliver the merchandise even if delayed.
In both cases, the buyer is entitled to the damages caused. The seller must deliver the agreed quantity and quality of
merchandise:

 Art.330 Ccom
o If seller does not deliver the agreed quantity of goods in the fixed delivery time, and he only delivers part
of them, the buyer is not bound to receive the mentioned part of the goods even if there is a promise of
delivery of the rest.
o If the buyer accepts the partial delivery, the sale is considered consummated in what concerns the
received goods, although he keeps his right to request the missing goods, the contract fulfillment, or its
termination.

 Art.328 Ccom
o With respect to the quality of the merchandise, the CCom establishes that the buyer reserves its right
to examine the goods at the delivery moment, with the possibility of terminating the contract, unless the
goods can be classified according to a specific quality known to the trade.

4.12.1 BREACH OF PAYMENT OBLIGATION

Art.341 CCom establishes that a delay in payment, does not give right to terminate the SPA, but only to claim for the
legal interest.

 If the payment obligation is in cash, the seller can refuse to deliver the goods (art.335 CCom), terminate the
contract, or require its fulfillment (art.1124 CC).

 If it is an installment payment obligation and the seller has already delivered the goods, he can just resort to
the two options set in art.1124 CC, which state fulfillment or termination of contract.
4.12.2 BREACH OF RECEIPT OBLIGATION
Art.332.1 CCom states that the buyer´s breach of receipt obligation may take place in two situations:
1. When, without due cause he refuses the receipt of the purchased goods.
a. The seller can claim fulfillment of the contract (judicially depositing the goods) or termination
(art.332.2 CCom).
b. Buyer must cover the deposit expenses in both cases, except if he refuses the goods or if the delay
in its reception is imputable to the seller (art.332.3 CCom).
2. When he delays taking charge of the goods.
a. Should the seller choose contract termination when the buyer refuses merchandise without due
cause, the buyer should pay out the damages caused.
6. BLOCK 4. EXPANSION STRATEGIES
5. EXPANDING DOMESTICALLY AND OVERSEAS
The internationalization processes not new, however, the market situation in many countries have highlighted the need
for many companies to go abroad, with the aim of increasing income, mainly.

 The jump abroad is presented to continue growing. There is no doubt that international business offers
numerous opportunities, however, it is necessary to consider that these processes are complex.
It is essential to carry out an economic and financial feasibility study of the internationalization project. Likewise, the
environment and the markets in which the company intends to expand its activity must be analyzed.
When planning, the company must assess the "intensity" with which it wants to approach the foreign market.

 It is at this point that the analysis of the different legal figures through which the company can expand its
business becomes especially important.

 In this sense, there are different alternatives that range from a mere collaboration with third parties based in the
target market, to the complete implementation of the company in it.

5.1 DIFFERENT DEGREES OF IMPLEMENTATION THAT A COMPANY CAN HAVE IN THE FOREIGN MARKET

1st DEGREE: INTERNATIONAL 2nd DEGREE: JOINT VENTURE AND 3rd DEGREE: MERGERS AND
CONTRACTS OTHER FORMS ACQUISITIONS

Collaboration contract. Company obtains
an ally which introduces our brands and
products in the market. Relatively low
cost, no permanence or continuity.
Legal independence is maintained, no
type of labor or corporate relationship.
Alliances or associations. Regulation of Acquisition of companies. Cases in which
certain issues (non-competition, a company acquires other one,
exclusivity, partnered contribution, established in the market in which it
decision-making procedures…) intends to undertake business.
This alliance requires greater financial Alternatively, there is also the option of
outlay and dedication of the parties. integration with another company.

Agency, Distribution, Franchise and the Joint Venture, Economic Interest Mergers and Acquisitions.
so-called Piggy-back. Grouping, Temporary Union.

For all above, in addition to the business or financial factors, it is important that companies also value the legal aspects
and taxes related to the process.

5.2 FIRST DEGREE: INTERNATIONAL CONTRACTS

1. Agency agreement
2. Distribution agreement
3. Franchise agreement
4. Supply agreement
5. Piggy-back agreement
5.2.1 AGENCY AGREEMENT
Act 12/1992, of 27th May, on agency contracts. Art.1 sets the definition of a mercantile agency agreement:

“By means of an agency agreement, a natural or legal person (agent) binds himself before another, in a
continuous or stable manner and in exchange of a remuneration, to promote commercial acts or transactions
on behalf of third person, as an independent intermediary, without assuming the risk of such transaction”.

Agent´s independence is a distinctive element between agency and employment agreement. Art.2 states that people
linked by a labor relationship are not sales agents.
Act 12/1992 protects the weaker party. Therefore art.3.1 establishes that its provisions have an imperative character
unless provided otherwise. Concerning exclusivity (from agent´s point of view), art.7 provides that:

“Unless agreed otherwise, agent may perform professional activity for the account of various entrepreneurs.
In any case, he will require the consent of the entrepreneur with whom he has entered an agency to be able
to perform for his own account of for another´s a professional activity.
REMUNERATION
A remuneration can be given in three ways:
• Fixed amount
• Commission
• Combination of two systems
If the remuneration is not expressly agreed, it will be determined pursuant to the usage in trade of the place where
the agent performs his activity.

 Failing such usage, agent will receive a compensation. Act 12/1992 regulated only the commission, and states
it as: “any element of remuneration which varies according to the volume or value of the acts procured and,
concluded by the agent”.
The agent is entitled to receive a commission for acts or transactions concluded or promoted after the expiry of the
agency agreement in two cases:

 When the act or transaction is the result of the activity performed by the agent during the term of the agreement,
if it is concluded within three months following its expiry.
 When the principal or the agent has received the order or request prior to the expiry of the agreement, provided
that the agent would have been entitled to the said commission during the term of the agreement.

OBLIGATIONS OF THE PRINCIPAL (ENTREPRENEUR) OBLIGATIONS OF THE AGENT

Act loyally and in good faith in his relationship with the agent Act loyally and in good faith, taking care of the interests of the
principal for whom he is acting.

Pay agreed remuneration Promote and conclude with the diligence of a dutiful trader the
acts or transactions entrusted to him.

Place, sufficiently in advance all the documents necessary for Communicate to the principal any information he has, which is
the performance of the agent´s professional activity. necessary for the proper negotiation of the acts or transactions,
the promotion, and its conclusion.

Provide the agent with all the information necessary to perform Carry out his activity pursuant to the reasonable instructions
the agency agreement. received from the principal, provided that these do not affect his
independence.

Inform the agent, within 15 days of the acceptance or rejection Receive, on behalf of the principal, any kind of claim from third
of the transaction reported. parties relating to faults or quality defects in the goods sold and,
in the services, rendered because of the transaction promoted,
even when they might not have been concluded by him.

Inform the agent, within 15 days of the acceptance or rejection
of the transaction reported.
Refrain from exercising for his own account or for the account
of a third principal, without the principal's consent, any
professional activity relating to goods or services of a similar
nature, or which may compete with those he has agreed to
promote.

Keep independent accounts for the acts or transactions relating

to each principal for whom he is acting.

NON-COMPETITION AFTER TERMINATION

Art.20.1 of Act 12/1992 establishes that the parties may agree upon a restriction or limitation of the professional
activities to be conducted by the agent after the expiry of the agency agreement.

 However, this act also sets out some time limitations and a series of requirements for the non-competition
clause to be valid.
o The clause must be established in writing.
o The non-competition clause may only affect the geographical area involved or the geographical area
and group of persons entrusted to the agent.
o The non-competition clause may only affect the goods and services subject of the transaction or of the
acts promoted or concluded by the agent.
  All the requirements should be fulfilled

 The non-competition clause may not exceed two years from the expiry of the agency agreement. If the agreed
term was for less than two years, the term of the limitation of non-competition clause may not exceed one.
5.2.2 DISTRIBUTION AGREEMENT
This agreement can be defined as that whereby an entrepreneur (distributor) agrees, in a regular and continuous
manner, to acquire in his own name and under his risk, the product/s of another entrepreneur (supplier), for reselling it.
Doctrine has set out the characteristics of this agreement
1. No specific legislation
2. Adhesion agreement. To the extent that, very frequently, agreement forms or patterns prepared by the supplier
are used.
3. Time conditions. The agreement involves duration, since it entails a performance over a period, either fixed
or unlimited.
4. Consensual agreement. Consummated by the consent of the parties.
5. Economic dependence. By both parties.
The legal applicable system to distributorship agreements is made up of three regulations categories:

 General regulations on agreement, present in the CC and the CCom

 Spanish and EU rules on competition
 UN Convention on Contracts for the Inter. Sale of Goods. Therefore, provisions contained in the
Convention, may also apply to distributorship agreements, subject to Spanish Law.
For a distributorship agreement to be exclusive (understanding as an agreement where the distributor has exclusivity
of sale), it must be expressly agreed between the parties. Moreover, the parties are free to establish the territory
where it has effect, but it cannot be unlimited.

OBLIGATIONS OF THE SUPPLIER (ENTREPRENEUR) OBLIGATIONS OF THE DISTRIBUTOR

BASIC OBLIGATIONS BASIC OBLIGATIONS

Supply the products to the distributor, pursuant to agreed terms. Pay for the acquired products.

Abide by the exclusivity granted which includes both prohibition Commercialize the products pursuant to agreed terms.
of appointing other distributors and prohibition of effecting direct
sales in the territory.

OPTIONAL OBLIGATIONS OPTIONAL OBLIGATIONS

Conduct promotion campaigns on the products. Follow instructions of the supplier in promotion and sale.

Acquire a minimum number of products.

Provide products for demonstrations. Achieve a minimum sales quota

Purchase the complete range of products

Provide information and technical assistance to the distributor, Not appoint sub-distributors
facilitating the sale of products.
Not compete with the supplier after expiry of agreement.

NON-COMPETITION AFTER TERMINATION

Non-competition clauses are permissible if requirements laid down by Commission Regulation of the Treaty on the
Function of the European Union to categories of vertical agreements and practices are met.
When the relevant non-competition clause is permissible under such Regulation, it must not exceed one year.
5.2.3 FRANCHISE AGREEMENT
The franchise agreement is regulated in Act 7/1996, of 15th January, regulating retail trade which defined a franchise
as:

Commercial activity under an agreement to which the franchisor transfers to the franchisee the
right of exploiting his own marketing system of products and services.

The kind of activities that fit under a franchise agreement are:

 “Activities of the performance of the agreement, according to which an entrepreneur (franchisor) transfers to
another (the franchisee) in exchange for economic compensation, the rights to use the franchise, regarding a
business or commercial activity that the franchisor has carried out with enough experience and success to put
his products or services into the market, and includes at least (Act 7/1996)
o use of a name or label or other intellectual property rights, as well as a similar distribution in the
franchise premises or transportation aim of the agreement.
o disposal of the specific, fundamental, and unique knowledge or the know-how by the franchisee.
o regular technical and economic assistance, carried out by the franchisor during the performance of the
agreement, without disregarding its potential supervision, which can be agreed in the agreement”.
PARTIES´ OBLIGATIONS
Parties may stipulate terms and conditions they consider appropriate if those terms are not contrary to Spanish law or
public policy.
Franchisor obligations
 Paragraph 3 of Art. 62, Act 7/1996 indicates that a franchisor must disclose to a prospective franchisee before
agreement, pre-agreement or before the franchisee pays the franchisor any amount prior to the agreement:
o Obligations and identity details
o Description of the business
o Content and characteristics of the franchise and its exploitation
o Network structure and extension
o Essential elements of the franchise agreements
Franchisee obligations

 Duty of compliance with the manual procedures provided by the franchisors (to achieve maximum uniformity
in the exploitation of the business in different franchised centers).

 Supply of goods or products is not essential

o In fact, suppliers being other enterprises selected by the franchisor, and having manufactured the
products according to his designs and specification is usual in these agreements.
5.2.4 SUPPLY AGREEMENT
A supply agreement can be defined as:

 “Agreement whereby a party (supplier) undertakes to carry out deliveries of a certain thing in favor of another
(supplied) for a certain period of time”.
Purpose: to obtain not only a certain good, but also that security is provided periodically and regularly.
Concerning the legal regulation of this agreement, it is like the sale-purchase agreement.
They differ in the intentions of each agreement. The sale-purchase agreement is intended to a single tract agreement,
while the supply agreement is intended to establish a stable and lasting relationship between the parties.
5.2.5 THE PIGGY-BACK AGREEMENT
This contract facilitates access to foreign markets for companies (mainly small to medium).
It is a collaboration agreement between two companies from the same country, by which a company not established
abroad takes advantage of the structure of another company that does have a presence in the target market or country.

 The product to be exported must be compatible with the products already marketed by the established
company.

 They are usually complementary products, so that the use of the commercial network is greater.
The advantages for the company without establishment abroad are reduced costs, access to the market and taking
advantage of the commercial notoriety and commercial contacts of the established company.

 In short, it obtains quick access to an already existing and functioning marketing network.
The already established company obtains a remuneration on sales, as well as a fixed amount that it receives. It also
expands its product offer.

 It is recommended that all contracts include clauses that specifically regulate issues such as:
o Obligations of exclusivity and non-competition
o Rights to use trademarks
o Confidentiality
o Liability against third-party claims for the marketed product
o Penalties for cases of non-compliance
o Consequences derived from the termination of the contract (rights to compensation…)

5.3 SECOND DEGREE: JOINT VENTURE AND OTHER FORMS

1. Joint Venture (sociedad conjunta)
2. Economic Interest Group (AIE)
3. Temporary Company Unions (UTE)
5.3.1 JOINT VENTURE
We can define Joint Venture Contract as that commercial collaboration agreement between companies that may have
various common objectives.

 This associative figure has been internationalized due to its growing use in the cross-border activity of large
multinational companies.
o However, the Joint Venture Contract has also become an instrument at the service of small and
medium-sized companies that wish to expand their businesses, both at national level as well as abroad.

 Minimum content to cover:

o Object of the collaboration
o Contributions to perform by each of the parties
o Form of organization and administration
o Procedure for decision-making and for the distribution of profits and losses
o Means of resolving disputes that may arise during the development of the relationship (e.g., ADR)
5.3.2 ECONOMIC INTEREST GROUPING
The Economic Interest Grouping (AIE) is a non-profit commercial company whose purpose is to facilitate the
development or improve the results of the activity of its members, which does not have to be uniform.

 Therefore, a series of activities will be carried out, jointly or separately, which may consist, among others, of
common study services, common brands and labels, or market prospecting.
Its objective will be limited exclusively to an auxiliary economic activity and not a substitute for that carried out by its
partners, who will respond subsidiary, personally and jointly and severally to each other for the Group's debts.
5.3.3 TEMPORARY COMPANY UNIONS
The Temporary Union of Companies is considered the system of collaboration between entrepreneurs "for a certain,
determined time, for the development or execution of a work, service or supply".
Its purpose is business collaboration to achieve a result that, due to its importance or volume, could hardly be achieved
with just one of the companies separately.

 The members of the UTE must be entrepreneurs and their liability for the debts of the UTE will be joint, several
and unlimited.

 It is an appropriate vehicle for the collaboration of several companies for a determined period (maximum of 10
years) with the aim of developing a specific work, service, or supply.

 Although it has traditionally been a typical figure in public procurement, there is no impediment to its use in the
private sphere.

5.4 THIRD DEGREE: MERGERS AND ACQUISITIONS

There are operations used when the objective of the company is its total implantation in the destination market.
These operations consist of corporate restructuring and there are two types:

 Cross-border merger of companies of different nationalities.

 Transactional acquisition operations.
In practice, cross-border mergers are very rare. However, it cannot be denied that in recent years, and because of
globalization there has been an increase in international merger operations between large companies.
5.4.1 PARTIES OBLIGATIONS
Process by which two or more commercial companies are integrated into one through the transfer of assets and the
attribution to the partners of the shares, participations, or quotas of the resulting company, which may be newly created
or from one of the merging companies.
In Spain, the regulation applicable to domestic mergers is Act 3/2009 on structural modifications of commercial
companies.
5.4.2 CROSS-BORDER MERGER WITHING THE EU
“One in which capital companies incorporated in accordance with the legislation of a State part of the European
Economic Area and whose registered office, headquarters or activity center is within the European Economic Area,
when, involving at least one of the merging companies is subject to Spanish legislation”.
Specific rules contained in Chapter II of Act 3/2009, with the remaining provisions of the regulation being applicable in
a supplementary manner.
5.4.3 CROSS-BORDER MERGER OUTSIDE THE EU
“In accordance with the provisions of art.27.2 of Act 3/2009, the merger will be governed by the provisions of the
respective national laws”.
This means that the operation can only be carried out when there is no incompatibility between Spanish law and the
law of the correspondent country.
5.4.4 ACQUISITION OF SHARES OF FOREIGN COMPANIES
The acquisition of shares in foreign companies is more common than cross-border merger. Phases of Acquisition:
1. Planning the operation
2. Due diligence. Investigation process prior to the process to find out the situation of the company and its assets,
as well as the potential risks that may affect them.
3. Formalization by signing a Share Purchase Agreement with a fundamental aspect: regulation of the sellers´
liability regime for the object of sales.
The Share Purchase Agreement contains the Representation and Warranties that is a series of statements made
by the seller about certain facts related to the object of purchase (e.g.: financial situation of the transferred company,
the non-existence of claims by third parties, validity of permits or licenses…) and the buyer declares that he makes the
purchase on the basis that these statements are true and accurate.
Consequently, in case that any of them were not correct, the seller´s liability regime would go into effect.