Article 106.1 of the Capital Companies Law states that “the transfer of shares must be recorded in a public document”.

What is the value of a transfer of shares in a private contract, or, better still, is a sale and purchase of shares in a private document valid?

Most legal operators, notaries, managers or lawyers will tell you that it is essential to sell in public deed “because the law says so”, and they are telling you the truth: the law says so.

But -there are always buts- law is not an exact science, it is not even a science, despite what some argue, so you always have to see what interpretation is given to the laws by the judges who are the ones who really know the laws because they apply them.

The judgment of the 1st Section of the Civil Chamber of the Supreme Court Supreme Court 258/2012, of January 5, 2012, in appeal 931/2008, argues that the public deed is not an essential requirement for the validity of the sale, it only serves as a means of proof against third parties. In the same sense, sentence 234/2011, of April 14, 2011, appeal 1147/2007.

This means that a sale and purchase of shares in private document is valid between the parties and before the Company, if the latter agrees to register the private document in the register book of partners. The lack of a deed if we sell later the shares that we have bought in private contract can be replaced with a certificate issued by the administrator of the Company that says that in the register book of partners the shares that you are going to sell are registered in your name. The certificate can be substituted by the exhibition to the notary of the register book of partners in which the participations that you want to sell are registered.

The reason for the Supreme Court to consider a private document valid is the principle of freedom of form that governs the legal system and is expressed in Article 1278 of the Civil Code of the Kingdom according to which: “contracts shall be binding, whatever the form in which they have been concluded, provided that they meet the essential conditions for their validity”, a principle ratified by countless case law (among others, STS 133/2004, of February 19; STS 182/1999, of February 27; STS 441/2007, of April 24). Another reason is that Article 1225 CCR states that “the private document shall have the same value as the public deed between those who have signed it.”

To avoid the inconvenience that, according to article 1227 CCR, the date of a private document has no effect against third parties, it is advisable to present it to liquidate the Transfer Tax as not subject, that will give certain date to the document and it will be valid also against third parties.