For our last newsletter of 2024, we will discuss Article 107 of the General Companies Law (hereinafter, the "LGS"), which regulates the usufruct of shares, directly addressing the rights that correspond to each subject involved in the legal act of granting usufruct, in accordance with the agreement between the parties, thus leaving the regulation of the content of the usufruct to the private autonomy of the participants.
However, in order to understand the usufruct of shares, we must first understand the concept of usufruct, for which we must necessarily refer to article 999 of the Peruvian Civil Code, which states that "he “Usufruct confers the power to temporarily use and enjoy another’s property (…)”. Meanwhile, ownership of shares representing a company's capital stock confers political and economic rights on its holders. In this case, usufruct grants the beneficiary the right to use some of these rights, as strictly agreed upon by the parties.
While the regulation of the LGS does not indicate a formality for the constitution of usufruct over shares, we must refer again to the Civil Code, which in its article 1000, indicates that usufruct is constituted by (i) law, (ii) contract or unilateral legal act or (iii) will, the last two being that they must comply with formal requirements established by the Civil Code referring to the legal act and the rules related to testamentary succession, respectively.
Once the conceptual preamble of usufruct has been defined, as well as the formal details of its constitution, we will proceed to comment on article 107 of the LGS, which expressly establishes the following:
“In the usufruct of shares, unless otherwise agreed, the owner has the rights of a shareholder and the usufructuary has the right to dividends in cash or in kind agreed upon by the company during the term of the usufruct.
It may be agreed that the usufructuary will also receive dividends paid in shares of his own issue that are due to the owner during the term of the usufruct.”
As can be seen, the rule establishes that the shareholder has the rights, that is, the political rights regulated in the LGS, such as (i) the right to attend meetings, (ii) the right to vote and (iii) the right to challenge agreements, as well as (iv) the right to information about the company, among others, to the owner of the shares and, on the other hand, the usufructuary has the economic right to receive the dividends distributed by the company, in cash or in kind, during the term of the usufruct.
However, it should be noted that the rule includes an "unless otherwise agreed upon", in this sense, it opens the possibility that the usufructuary also enjoys the aforementioned political rights, since, for example, the second paragraph of article 90 of the LGS expressly establishes that “(…) If a pledge or usufruct has been granted over the shares and the voting right has been transferred with respect to part of them, such shares may be represented by the corresponding person according to the title constituting the pledge or usufruct (…)”In this regard, according to the act constituting the usufruct, if the usufructuary can attend meetings and vote, he or she could also challenge agreements that harm, for example, the economic rights derived from the shares subject to the usufruct.
Likewise, Article 107 of the LGS states that the usufructuary is also entitled to dividends paid in shares issued by the company itself, which correspond to the owner of the shares (subject of usufruct), during the term of the usufruct.
Finally, it should be noted that, in order for the rights of the usufructuary to be enforceable against the company and third parties, the company must be informed of the content of the act constituting the usufruct and it must be recorded in the company's Share Registration Book.
Conclusions:
- The usufruct of shares is the use of the rights derived from said shares by a third party beneficiary called a usufructuary.
- The formalities for establishing the usufruct of shares are regulated by the relevant provisions of the Civil Code relating to the legal act and testamentary succession, as appropriate.
- The LGS establishes that, in principle, in the usufruct of shares, the shareholder's rights (political rights) are vested in the owner of the shares, and the economic rights to receive dividends are vested in the usufructuary. However, the same law stipulates that the parties may agree otherwise, allowing individuals to regulate the granting of usufruct as they deem appropriate, within the legal parameters contained in the LGS.
- In order for the usufruct of shares to be enforceable against the company and third parties, the company issuing the shares must be informed and the usufruct must be recorded in the respective Share Registration book.
As this is the last newsletter of 2024, we say goodbye and wish all readers a Happy New Year 2025!
Kind regards,
Johanna Rossi and the Corporativo 2 team
