Inclusion of regulated and unregulated activities in the object of the business
A court ruling issued by the Department of Legal Affairs on March 18, 2021 settled an appeal against a registrar’s refusal to allow the inclusion of regulated credit and financing activities in the object of a liability company limited (LLC).
On November 24, 2020, a private one-member company was incorporated by means of a public deed, which was duly filed for registration with the Madrid Companies Register on November 30, 2020. The Companies Registrar refused to register the company , invoking a fault in the clause concerning the object of the company.
The object of the company included the National Classification of Economic Activities (CNAE), the classifications 6492 (“Other lending activities”) and 6499 (“Other financial services, except insurance and other pension funds not included elsewhere “).
The notary who had granted the deed appealed against the clerk’s decision.
The general management ruled in favor of the applicant for two of the three reasons given.
The general management ratified the first ground of appeal, namely the absence of errors in the object of the company with regard to the main activity, classified under the CNAE 7022 classification (“Other consulting and management activities commercial ”).
Likewise, the general management ratified the second plea, confirming that the use of a CNAE classification is sufficient for the purposes of qualification of the register with regard to the definition of the object of a company.
However, the general management partially rejected the third plea, which concerned the lending and financing activities included in the company’s object. In this regard, senior management agreed with the Registrar that it is necessary to make an express distinction between regulated and unregulated activities when lending and financing activities are included in the object of a corporation.
Although the articles of association of the company provided for an exclusion in this sense, it was not specific and stipulated that “all activities subject to special rules requiring compliance with specific requirements which are not covered by the company will be excluded “. However, the general management maintained that the definition of the object of a company in its articles of association determines the application of particular rules which provide for the respect of certain requirements due to the defined scope of action. Accordingly, the company must comply with these requirements from the moment it is incorporated, regardless of whether or not it will carry out such activities in the future.
The CNAE 6492 classification (“Other lending activities”) covers several economic activities, including:
provision of consumer credit; financing of foreign trade; providing long-term funds to industry through industrial banks; monetary loans outside the banking system; the granting of credit for the purchase of housing from specialized institutions which do not receive deposits; pawn shops and lenders.
However, it also covers, in accordance with the description provided by the Registrar, real estate loans that fall under Law 5/2009 and the conclusion of loans or credit contracts with consumers or brokerage services, as provided in the law. 2/2009, for which certain requirements must be met by companies offering these services. The same goes for the CNAE 6499 classification where financial services subject to the Securities Market Act must be differentiated from those subject to other special laws.
The position of the general management is clear and indicates that financial activities which cannot be carried out due to legal limitations should be expressly excluded from the object of the company when they are included therein by reference to a CNAE classification which covers this economic activity.
This decision underlines the need to differentiate between regulated and unregulated activities in the object of a company in order to avoid any potential conflict between the activities subject to legal limitations and the freedom to determine the object of the company apart from said perimeter.
Nonetheless, the requirement to comply with all requirements from the time of incorporation may be impossible to meet because these requirements could be reserved for future acts (eg, obtaining permissions). Thus, doubts could arise as to whether commercial registers can insist that companies meet the requirements set out in special laws relating to regulated activities from the moment of incorporation, as stated in this decision, when the control of these activities correspond to supervisory bodies such as the Bank. of Spain, the General Directorate of Insurance and Pension Funds or the National Securities Market Commission.