Choosing the Right Business Legal Structure in Spain

Posted on Nov 25, 2024 in Law & Jurisprudence

Limited Liability Company (LLC)

Basic Characteristics

  • Limited to the capital closer to society.
  • Requires less formal rigor in the minimum capital organization (€3,005.06), less than required to form a corporation.
  • Governing bodies run democratically.
  • Can be formed with one partner (limited partnership, proprietorship).
  • Most preferred corporate legal structure.

Advantages

  • Lower minimum capital requirement.
  • Democratic governance.
  • Option for single-partner formation.

Disadvantages

  • Minimum capital requirement (€3,005.06).
  • Share transfer requires partner consent.
  • 25%-30% tax rate on certain profit levels may be disadvantageous compared to variable income tax rates.
  • No tax or employment benefits. 1% share capital tax upon constitution (Transfer Tax and Stamp Duty), plus legal costs.
  • Personal guarantees often required for lending, potentially exposing personal assets.
  • Mandatory audits in some cases.

Corporation (S.A.)

Basic Characteristics

  • Minimum capital is €60,101.21.
  • Members are not personally liable for company debts.
  • Contributions can be monetary or in-kind.

Advantages

  • Limited liability to contributions.
  • No minimum number of partners.
  • Democratic operation of internal organs.
  • Free share transfer.

Disadvantages

  • High minimum capital requirement (€60,101.21).
  • High establishment cost (notary and 1% share capital tax upon formation).
  • Formal rigor and complex organization, requiring annual shareholder meetings.
  • Mandatory account deposit in the Commercial Register.
  • Mandatory audits in some cases.

New Limited Liability Company (SLNE)

Basic Characteristics

  • Only individuals can be partners.
  • Maximum 5 members upon constitution; more allowed after share transfers.
  • Social capital between €3,012 and €120,202, disbursed through monetary contributions.
  • Liability limited to member contributions.

Advantages

  • Easy and fast setup (48 hours with single business registration).
  • Tax incentives (postponement of Transfer Tax and Stamp Duty, corporate income tax postponement for first two years, rescheduling of withholding tax, installment payment exemptions, R&D tax credit advice).
  • Company savings account option for new limited company establishment (minimum two years, one local, one employee; similar tax system to housing savings account).

Disadvantages

  • Suitable only for small businesses.
  • Maximum capital contribution limit.
  • No maximum partner limit.

Cooperative Society

Disadvantages

  • Minimum capital requirement.
  • Difficult management requiring strong organization.
  • Minimum number of working partners required.

Civil Society & Community Property

Basic Characteristics

  • Community property: contract where ownership of an asset or right belongs jointly to several people.
  • Minimum two partners, no maximum.
  • Unlimited personal liability for debts if property is insufficient.
  • No legal personality; each member acts in their own name.
  • Formation by oral agreement, private contract, or deed (written deed required for in-kind contributions with inventory).

Advantages

  • Simple establishment, no registration required.
  • No minimum initial capital.
  • Taxation based on individual earnings, profits allocated as agreed.
  • Shared business risk.

Disadvantages

  • Liability extends to personal assets.
  • Lack of legal personality.