Corporations and LLCs: Formation and Features

Posted on Feb 5, 2025 in Law & Jurisprudence

Corporations (SA – Sociedad Anónima)

In a corporation, capital is divided into shares. Shareholders are not personally liable for the company’s debts.

Features:

  • Limited liability for partners.
  • Capital contributions from partners.
  • Shares with a nominal value. The sum of the nominal value of all shares represents the total capital.
  • It is a legal person with the legal capacity to act and a profit motive.

Formation of a Corporation

There are two ways to form an SA:

1) Simultaneous Foundation

The founding partners contribute capital (or assets). A public deed is granted, and bylaws are approved. The company must be registered in the Commercial Register. Once registered, it has legal personality. The costs of setting up the company can be recovered by the partners and will be accounted for by the company. It is possible to have an SA with only one founding member. The minimum capital for an SA is 60,101 euros, and a certificate from the bank is required.

2) Successive Foundation

Designed for companies with a large amount of capital and shareholders.

An SA is created through various stages. It must be communicated to the Comisión Nacional del Mercado de Valores (National Securities Market Commission). A foundation program must be issued, including the statutes (a draft, as they have not yet been approved), a technical report demonstrating the viability of the company, and an information project.

The deed includes:

  • Name(s) and details of the founders (which can be natural or legal persons).
  • The express will of the partners to establish a corporation in the form of an SA.
  • Contributions, which may be monetary or non-monetary.
  • The ownership of the shares of each partner and their number (depending on their input).

The statutes include:

  • The name of the SA.
  • The object and length of the SA (indefinite or with an agreed-upon end date).
  • The registered address, agencies, branches, and subsidiaries.
  • The share capital.
  • The number of shares (specifying their nominal value).
  • Whether the shares are registered or bearer.

Limited Liability Company (LLC – Sociedad de Responsabilidad Limitada)

A limited liability company is a trading company with a capital of no less than 3,005.06 euros, divided into cumulative and indivisible shares, which cannot be incorporated into negotiable instruments or called shares. Members are exempt from personal liability for debts.

Characteristics

  • It has a purely commercial purpose.
  • Its name may not be identical to that of another existing company.
  • It must bear the name “Limited Liability Company” or “Sociedad Limitada”, or the abbreviations “LLC” or “SL”.
  • The minimum number of founders is one, under the so-called “Sociedad de Responsabilidad Limitada Unipersonal” (Single-Member Limited Liability Company).
  • The capital cannot be less than 3,005.06 euros and must be fully paid up at the time of incorporation.
  • The company’s capital is divided into equal, cumulative, and indivisible shares.
  • Contributions must be valued economically; in no case can work or services be contributed.
  • The company is liable with all its assets; the partner only risks the amount of their contribution.
  • The company is constituted by a public deed that must be registered in the Commercial Register. Upon registration, the company acquires legal personality.

Incorporation and Registration

Unless otherwise stated in the statutes, corporate operations will commence on the date of the deed of incorporation. The company is created by a deed that must be entered in the Commercial Register of the registered office within two months following the date of the grant. Upon registration, the company acquires legal personality. For it to be effective against third parties, the company must be published in the Official Gazette of the Commercial Registry.