Incorporating and managing a limited company in Spain
For many entrepreneurs, a limited company is the best alternative for setting up a commercial company, however, it is very important to know what a limited company is and the implications that this decision entails. Below, we tell you everything you need to know about limited companies in Spain.
What is a limited company (SL)
A Limited Liability Company (SRL or SL) in Spain is a type of legal entity that allows one or more partners to establish a company with limited liability, meaning that the partners are not personally liable with their assets for the debts and obligations of the company, but only with the capital contributed.
The creation of a Limited Company in Spain involves following a legal process and complying with certain requirements, such as the drafting of articles of association, the minimum contribution of share capital, the appointment of administrators, and its registration in the Mercantile Register.
Limited Companies are a popular choice for entrepreneurs and small and medium-sized enterprises due to their flexibility, lower administrative burden and limited liability, which offers security and asset protection to the partners.
What is involved in setting up a limited company in Spain?
Limited Liability Companies in Spain have various implications both in legal terms and in terms of their operation, the most important of which are as follows:
- Limited liability: One of the main advantages of an SRL is that the partners have limited liability, which means that they are not personally liable with their assets for the debts and obligations of the company.
- Liability is limited to the capital contributed by each partner.
Minimum share capital: To establish an SL in Spain, a minimum share capital established by law is required. This capital must be fully subscribed and paid up by the partners at the time of incorporation. - Tax regime: SRLs are subject to a specific tax regime in Spain, including the payment of taxes such as corporate income tax and VAT, depending on the activity they carry out.
- Registration and transparency requirements: SRLs must comply with certain registration and transparency requirements, such as registration in the Commercial Register (Registro Mercantil), publication of annual accounts and the filing of accounting books.
- Governing bodies: SLs are formed by at least one partner, who can be a natural person or a legal entity. The management and administration of the company may be carried out by one or more administrators, who may be partners or persons external to the company.
- Formalities and costs: The process of setting up an LLC involves certain formalities and costs, including the drafting of the articles of association, notary fees, registration with the Commercial Registry and professional fees.
- Flexibility in decision-making: In an SL, the partners can have greater flexibility to make decisions and adapt the company to their specific needs, compared to other more rigid legal forms such as limited companies.
- Legal responsibilities and obligations: The partners of a limited company must comply with certain legal responsibilities and obligations, such as keeping proper accounts, filing annual accounts, convening partners’ meetings, etc.
- Transfer of shares: In an SL, partnership interests (shares) may be transferable, but are generally subject to restrictions set out in the articles of association or agreements between the partners.
A Limited Liability Company in Spain offers advantages such as limited liability, flexibility in decision-making and a simpler and more adaptable structure for small and medium-sized companies. However, it also entails certain registration and transparency requirements, as well as legal and tax obligations that the partners must comply with.
What are the disadvantages of limited companies?
Although Limited Liability Companies (SRL) in Spain have advantages, they also have some disadvantages that are important to consider before forming an SL.
- Minimum share capital: To establish an SL in Spain, a minimum share capital established by law is required, which is currently set at €3,000. This can mean a significant initial investment for the partners, which can be a barrier for entrepreneurs with limited resources.
- Formalities and costs: The process of setting up an SL involves certain formalities and costs, such as notary fees, registration in the Commercial
- Register and professional fees. These costs can be higher compared to other legal forms, such as the self-employed or the civil company.
Joint and several liability: Although the liability of the partners in an SL is limited to the capital contributed, there is joint and several liability among the partners. This means that in the event of debts or defaults of the company, all partners are jointly and severally liable. - Limitations on the transfer of shares: The transfer of shares in an SL may be subject to restrictions set out in the articles of association or agreements between the partners, which may make it difficult for new partners to enter or leave the company.
- Legal and accounting obligations: SLs are subject to certain legal and accounting obligations.
- Less flexibility in structure: Compared to other legal forms, such as the self-employed or the civil partnership, SLs may have a more rigid structure and less flexibility in terms of decision-making and adaptation to changes in the company.
Self-employed vs limited company?
Asesoría Orihuela Costa, your consultancy for businesses
At Asesoría Orihuela Costa we offer you the best financial and tax advice for your company, and if you are setting up a Limited Company, we will help you from the very beginning so that you can make the best decision and protect your business from the moment of its incorporation.
