Regulatory change in limited company set up in Spain
You have heard about a new law that allows a limited company (LLC) to be set up with just one euro of capital. But this is not the only thing that has changed. Take a look at the pros and cons of this new limited company incorporation regulation and in which cases it is in your interest to use it.
New rules in Spain on limited company setting up
The minimum initial capital for setting up a limited company (LLC) is reduced.
The new limited company setting up (LLC) – Sociedad Limitada SL in spanish – regulation Law in Spain aims to encourage the limited company set up , and to this end establishes mechanisms to speed up their incorporation.
Among other measures, and only in the case of Limited Companies, the requirement that the minimum capital must be 3,000 euros has been reduced to the symbolic amount of one euro, which facilitates the start-up of the business project (although the ideal is for the company to have a capital that reaches this figure).
Specifically, the law establishes that LLC in Spain may have a minimum share capital of no less than one euro. However, until the figure of 3,000 euros is reached, the following rules apply:
- At least 20% of the annual profits must be allocated to the legal reserve, until this reserve, together with the capital, reaches 3,000 euros.
- Thereafter, 10% of the profit must be transferred to the legal reserve until the legal reserve reaches 20% of the capital.
In the event of liquidation, if the company’s assets are insufficient to meet the company’s obligations, the shareholders are jointly and severally liable for the difference between the amount of 3,000 euros and the amount of the subscribed capital (in short, the shareholders may be liable for 2,999 euros).
As a result of the elimination of the minimum share capital, other forms of company have become unnecessary, so that with this new law:
- The Sociedad Limitada de Formación Sucesiva (SLFS) is repealed.
This was a similar regime to the one currently in force (endowment of a legal reserve and liability of the shareholders until the minimum capital figure was reached).
- The Sociedad Limitada Nueva Empresa (SLNE) is also repealed.
The SLNE was a simplified sub-type of SL which was intended to encourage the creation of companies, and which has hardly been used.
For their part, existing SLFS can choose to be subject to the new regime or to abide by the regime of the repealed legislation.
In practice, it is no longer necessary to deposit €3,000 in the bank. However, the liability of the partners is maintained.
Express limited company set up
Limited company set up Online
On the other hand, online Limited Company set up is promoted and some aspects related to it are improved. To this end, the procedures to be carried out before a notary are modified:
- Notaries must inform the founding partners of the advantages of using the Entrepreneur Service Points (PAE) and the CIRCE electronic office (creation of companies via the Internet) for the incorporation of the company and other formalities linked to the start of its activity (tax and labour obligations, licences…).
- Notaries must be available in a notarial electronic agenda and in a position to incorporate an SL through CIRCE. Furthermore, they cannot reject, except for justified reasons, any incorporation procedure initiated through the CIRCE system and the Single Electronic Document (DUE).
In practice, online limited company set up is rarely used due to its complexity.
Standard Memorandum and Articles of Association of a limited company
Although it was already possible to set up an SL by means of a public deed in a standardised form, with or without standard articles of association, the old legislation is amended as follows:
- With standard statutes . Apart from being able to use models in the co-official languages of the Autonomous Communities, the publication of the registration of the company in the BORME is exempt from fees.
- Without standard articles of association . In this case, the definitive registration must be made within five days of the filing entry or, where appropriate, of the correction (previously it was within the ordinary period of 15 days).
In addition, it is envisaged that each commercial register will set up a remote customer service to answer questions on the registrability of certain lawful clauses or agreements in the articles of association.
Remember, a limited company (LLC) is a Sociedad limitada (SL) in Spanish.
Advantages and disadvantages of this new limited company set up law
Reduction of deadlines and formalities
Traditional system of limited company set up
Compared to the traditional system of company incorporation (which requires all the formalities to be carried out in person or with the help of a third party – such as a consultancy or an agency), the new system eliminates bureaucracy and avoids the need for all the partners to coordinate to be in the same place to carry out certain formalities such as the signing of the deed.
Online limited companies set up
Thus, online set up revolves around the EAPs, including notaries, who guide future partners in terms of procedures and specific solutions for their particular case.
In addition, the use of standardised electronic formats such as the DUE saves time in the preparation of documents and the completion of administrative procedures.
All you have to do is fill in the DUE -which includes a multitude of forms-, and through CIRCE, all the necessary formalities for setting up the company will be carried out automatically, with communication to all the bodies involved (Tax Agency, Social Security, Companies Register, notary’s office…).
To set up a company through the CIRCE system, for the time being, you have to go in person to the notary’s office Yes or Yes.
Limited company setting up Cost
Beware of the additional costs of limited company setting up in Spain
Minimum capital of an LLC
However, as mentioned above, if the company is set up with an initial capital of less than 3,000 euros, it will be subject to additional legal reserve obligations (in addition to the fact that the partners will also be liable up to that amount). On the other hand, incorporating the company without capital has some additional disadvantages when it comes to starting up:
- The project will always need money to develop (payments for materials, supplies, staff costs…), so if it cannot count on the capital of the partners, it will have to get into debt. And if there is no equity to support the debt, it may be more difficult to obtain financing.
- In addition, in order not to be affected by the above-mentioned special obligations, it is advisable to increase the share capital to 3,000 euros as soon as possible. And this will entail notary and registration fees, so you will bear more costs in the long run.
Although the minimum capital of 3,000 euros does not allow for large investments, it may be sufficient for service activities, where the investment is limited and where it is possible to start the activity – and the turnover – immediately.
On the other hand, with just one euro it will be necessary for the partners or a third party to advance funds for initial expenses such as the costs of setting up their limited company (deposits for a rented premises if necessary, investment in a computer and telephone, etc.).
In our experience, it is not yet possible to set up a company 100% online in Spain
Standard articles of association of a limited company
The use of standard statutes can also be a drawback, as these may not reflect your specific situation.
Therefore, review them and discuss with the other partners what aspects they want to include in the statutes from the outset.
For example, the system of transfer of shares; or the system of administration or the remuneration of the persons occupying this body; or any other specific matter.
Although they can always change the articles of association in the future, this will entail additional costs that can be avoided.
When to set up a limited company with 1 euro
This way interest you if, you don’t have the €3,000 immediately, but you have a solid project with clear turnover prospects in the short term that needs to be launched immediately.
For example, if you have signed a contract for a work or service and need to meet specific deadlines that leave you no margin to act in any other way.
In any case, remember that you can always make non-cash contributions to reach the minimum capital.
Consequently, the option of incorporating the company with a capital of less than 3,000 euros should be residual.
Remember that new limited companies in Spain pay 15% corporate tax for the first two years.
How long does it take to set up a limited company in Spain?
In practice, the only good thing about this new law is that you do not have to deposit the €3,000 share capital in the bank and apply for the certificate of deposit. You can go to the notary to sign beforehand.
Regarding the time it takes to incorporate a company, in our experience, it has even taken longer. If you say by law that the registers take at most 5 working days, but we do not provide human resources, people are not machines.
In conclusion
If you set up an LLC in Spain with a capital of less than 3,000 euros, you must set aside 20% of the profit to a legal reserve and, in the event of liquidation, the partners will be liable for the debts up to a limit.
If you set up an SL with a capital of less than 3,000 euros, you must set aside 20% of the profit to a legal reserve and, in the event of liquidation, the partners will be liable for the debts up to a limit.
