Types of companies in Spain
Before starting a new business in Spain, it is essential to understand your needs to be able to choose the legal form that best suits you. For example, the Sociedad Limitada and the Sociedad Anónima are the most common types of companies in Spain. However, it is necessary to take into account their main characteristics to ensure that they are appropriate for your activity.
In this post, we will explain the various types of companies in Spain and their main characteristics.
The different types of companies in Spain are regulated in the Corporations Law. (Royal Legislative Decree 1/2020, of June 2).
The most common types of business entities
What is a Limited Liability Company (S.L.)?
Limited liability companies in Spain are the most widely used legal form to carry out an economic activity. Due to its many advantages, it continues to be the preferred option for entrepreneurs (small and medium-sized companies) wishing to incorporate a company in Spain.
Its main characteristics are the following:
Minimum share capital of a limited liability company (LLC) – (EDITED OCTOBER 2022)
Since the recent amendment to the Companies Act, through Law 18/2022 the minimum share capital for incorporation is € 1.* The minimum capital stock is less than that required to incorporate a corporation, which is advantageous.
* The recent amendment to the Companies Act through Law 18/2022 of September 28, on the establishment and growth of companies, which, among other things, approves the incorporation of limited liability companies with a minimum capital of 1 euro. For this purpose, the following must be complied with: Companies with a share capital of less than 3,000 euros, in order to safeguard the interest of creditors, (i) the endowment of a legal reserve of at least 20% of the profit until the amount of the legal reserve and the share capital reaches the amount of 3,000 euros, and (ii) the joint and several liability of the shareholders with the company, up to the difference between the amount of 3,000 euros and the figure of the undersigned share capital if, in the event of liquidation, the company’s assets would be insufficient to meet the payment of the corporate obligations.
Limited liability
Secondly, another reason why it is one of the most used types of companies in Spain is the limited liability. The partners of a limited liability company are liable for corporate debts up to the amount of the capital contributed. However, it is always possible to include in the bylaws a greater liability, accessory benefits, or guarantees. Thus, in the event of losses to the company, the partners would not be personally liable with all their assets.
However, unlimited liability can never be established and the amount, duration, and modalities of this extension of liability must always be previously developed.
Minimum number of shareholders
For the incorporation of a limited liability company, it is sufficient for there to be only one shareholder. In this case, it will be a sole proprietorship LLC.
Functioning
The operating regime of a limited liability company is simpler than that of a corporation. This in turn makes it less costly to operate.
Transfer of shares
The shareholders have the right of first refusal to buy the shares if another partner proposes to sell them. This means that the law restricts partially the transfer. Bylaws may establish rules for such transfer, however, in no case, the transfer can be completely free.
What is a corporation? (Public limited companies)
It is the type of company that best suits large companies that need large amounts of capital. Together with limited liability companies, Corporations are the most commonly used type of company in Spain.
Before incorporating a public limited company in Spain, it is necessary to take into account its main characteristics.
Main characteristics of the Sociedad Anónima:
Minimum capital required to incorporate a public limited company
The minimum capital required to incorporate a Sociedad Anónima is 60,101 euros. At the time of incorporation, shareholders must pay up at least 25% of the minimum capital stock required by law.
Limited Liability
As in the case of the public limited company, the shareholders have their liability limited to their contribution to the capital stock. Some activities such as banking, insurance or pharmaceutical companies, for example, also require this type of legal form.
Minimum number of shareholders
Public limited companies in Spain can be sole proprietorships, i.e., have only one shareholder. However, there is no limit to the number of shareholders they may have.
Functioning
Public limited companies in Spain have a more complex operation and administrative management since they are subject to much stricter regulations than LLC’s.
Transfer of shares
In public limited companies in Spain, shareholders can freely transfer shares, unlike what happens in the LLC.
General Partnership
The general partnership is one of the simplest types of business structures within commercial companies in Spain. Unlike the LLC and public limited company, the general partnership is personal. Therefore, the partners play a fundamental role.
The partners contribute both labor and capital and are in charge of managing the company directly. In addition, there is the possibility that some partners only contribute work (industrial partners). Today, these types of business partnerships are hardly used anymore.
Share capital
You don’t need a minimum capital for incorporation.
General partnership: liability of the partners
The general partnership has patrimonial autonomy and is liable for its debts with its assets, although the partners are also liable for the partnership’s debts on a subsidiary, unlimited and joint, and on several bases. It is important to note that the partner who exclusively contributes work does not participate in the partnership’s losses.
Minimum number of partners
To form a general partnership, you need an additional partner. (Minimum 2 partners). The figures of the industrial partner, whose only function is his work, and the capitalist partner, who contributes capital, are provided for.
Functioning of the general partnership
The structure and operation are simple. However, it is not possible to delegate the management of the company to an outside professional. The corporate name must include the name of at least one of the partners plus the words “and Company”.
Transfer of company shares
The different types of companies in Spain have different rules for limiting or allowing the transfer of shares or participation. In the case of general partnerships, the status of a partner is not freely transferable.
Limited Partnership
Like the general partnership, this is a partnership of a personal nature. This type of business partnership shares similar characteristics to the general partnership. We can distinguish between two types of limited partnerships: simple and by shares. The latter is true that it shares many characteristics of capitalist companies since it gives much more importance to the formation of the share capital.
Share capital
Simple limited partnership: You don’t need a minimum share capital to form a limited partnership.
However, the limited partnership by shares does require a high minimum share capital. In this case, it is €60,101, as in the case of a corporation.
Liability in the limited partnership
Limited partnerships have general partners and limited partners. General partners are unlimitedly and jointly and severally liable for the debts of the partnership. They are also liable for the operations carried out by the partnership. In addition, general partners are responsible for the management of the partnership. In contrast, limited partners merely contribute capital and do not play a role in the management. They are only liable to third parties for the company’s debts, to a limited extent, up to the amount of the capital contributed.
Minimum number of partners
A limited partnership must have at least two general partners, who contribute work and, where appropriate, cash or other economic contributions.
On the other hand, a limited partnership by shares must be formed by two or more partners, at least one of whom must be a general partner. The capital corresponding to the limited partners is represented by shares.
Transfer of shares
It is important to note that the status of the general partner is not transferable.
Taxation
The aforementioned types of companies in Spain are taxed by corporate income tax. You can refer to said regulation in Law 27/2014, of November 27, on Corporate Income Tax.
Likewise, all types of companies in Spain must pay the Tax on Economic Activities (IAE). This is a tax in which those persons who carry out their professional activity in Spain must register. However, it is only payable on income over 1,000,000 euros.
There are also other types of specific tax obligations for the different types of companies in Spain and depending on the activity they carry out.
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