Understanding Business Structures: Associations, Foundations, and Companies
Associations and Foundations
Associations and Foundations are non-profit legal entities with tax advantages.
- Associations: Founded on the personal element of their members.
- Foundations: Founded on the estate endowed by the founder.
Companies
- Civil: Civil purpose, governed by the Civil Code.
- Business: Commercial purpose, governed by the Commercial Code.
Undertaking/Firm
Individual entrepreneur or corporate entity, which can be civil or commercial.
- Personal:
- Collective
- Partnership
- Stock Companies:
- Limited Liability Company (LLC)
- Corporation
- Stock Partnership
- Others
Collective Companies
In a collective company, the name includes one or more partners’ names. Partners contribute either industrially (work) or capitalistically (money). Management can be by one or several partners (managerial partners), and all partners are liable for the debts.
Partnership
A partnership is similar to a collective company but includes Comanditarios (partners with limited liability who do not make decisions in management areas).
Stock Companies
Stock companies adopt a corporate structure where the role of members is irrelevant, capital is reinforced, an organizational structure is needed, and there is a separation of property and control.
Types of Stock Companies
- Corporations: Limited liability, minimum capital of 60,000 euros divided into shares. The name must include “JSC” (Joint Stock Company).
- LLC: Limited liability, minimum capital of 3,000 euros divided into parts (not shares).
- Stock Partnership:
- Collective partners have personal liability.
- Comanditarios have no personal liability.
- Minimum capital of 60,000 euros (25% paid up), divided into shares.
Incorporation of Stock Companies
Incorporation can be simultaneous or successive. It is done by Public Deed (Public Notary) and registered in the Trade/Mercantile/Commercial Registry. Companies must follow their bylaws.
If not registered:
- In formation: The company is incorporated but not yet registered by its partners.
- Irregular: Companies that have not applied for registration within one year after their formalization.
Contributions
Contributions can be assets or rights, but not labor.
- Cash: Valued in euros, with a bank certificate.
- In Kind: Assets of any kind.
- Corporations: Valued by third parties. Payment deadline is less than five years.
- LLC: Valued by shareholders.
Disbursement
- Corporations: At least 25% of the par value must be paid up by the formalization of the company.
- LLCs: 100% (fully subscribed) shares with the possibility of a capital increase.
Shares/Parts
- Shares: Securities in corporations.
- Stakes: Not securities, used in LLCs.
Shares and stakes are non-divisible, equal parts of the capital that may be accumulated. Par value is different from market value.
Bonds/Debentures
Bonds and debentures are a way of financing through borrowing, which is much more expensive because of interest. They are issued by Joint Stock Companies (JSCs). Spanish law establishes conditions, capacity to issue bonds, and the rights of bondholders.
LLC Specifics
Stakes are registered in the Shareholder’s (SH’s) registered book, which includes the name and address of the holder. Transferable stakes are recorded by public deed. The SH’s book shows the parts of the capital owned by each shareholder.
Corporation Specifics
Shares are nominative and are transferable securities. They are represented by a certificate (name and address, par value, free transfer, signature of directors) and a title (Bearer).
Directors’ Duties
Directors’ duties include due diligence, loyalty, prohibition to use the company name, prohibition to take advantage of business opportunities, avoidance of conflicts of interest, prohibition of competition, and secrecy.