The Spanish Sociedad Limitada (S.L.) is by far the most commonly used type of company in Spain. It is comparable to the German GmbH and can be incorporated with a share capital of just €3,000. This apparent simplicity, however, often leads to insufficient corporate planning and, in many cases, can ultimately contribute to the failure of the company.
To avoid costly problems and irregularities later in the life of the company, it is advisable to regard corporate planning prior to the incorporation of an S.L. not as an obstacle, but as an opportunity. In order to avoid the most common mistakes, particular attention should be paid to the following points:
1. Choosing the Appropriate Legal Form
Although the S.L. is by far the most commonly used type of company in Spain, it is not always the most suitable option. In many cases, an S.L. is incorporated in order to limit liability to the company's assets. However, it is often overlooked that, particularly during the initial stages of the company, the shareholders are frequently also directors and/or shareholders actively working for the company. In both cases, the shareholder may still incur personal liability and may therefore be liable not only with their interest in the company, but also with their personal assets.
Another aspect that is frequently overlooked is the tax treatment of the chosen corporate structure. If, for example, real estate is contributed to the company as share capital, donations, contributions in kind, sales to the company and other transactions may have significantly different tax consequences. Existing tax benefits may also quickly be lost if the wrong type of transaction is chosen.
2. Checking and Obtaining Permits and Licences
In addition to the tax consequences, important administrative and regulatory requirements are often overlooked. Depending on the company's intended activities, various permits or licences may be required, without which the company may be unable to commence its planned business activities or may only be able to operate subject to certain restrictions.
If administrative requirements are not taken into account during the planning stage, the chosen corporate structure may prove incompatible with the intended business activity. The activity may also be subject to a maximum limit per company, meaning that the desired market volume cannot be achieved through a single company, or a particular licence may require a specified minimum amount of capital. A prior analysis of the applicable legal and regulatory framework can help to prevent such problems.
3. Do Not Incorporate Without a Shareholders' Agreement
As articles of association must in any event be drawn up when incorporating a company, a shareholders' agreement (pacto de socios) is often regarded as less important or simply overlooked by the future shareholders. If, for example, the intention is to sell the company at a later date, such a transaction can quickly be blocked by even a very small minority shareholder in the absence of an appropriate shareholders' agreement. If the company is a start-up, the shareholders' agreement should clearly establish whether the shareholders will provide services to the company, under what conditions, at what cost or remuneration, and how any failure to fulfil these obligations will be dealt with. These personal contributions and services of the shareholders are not generally regulated by law and are normally not included in the articles of association. It is therefore strongly recommended that they be expressly regulated in a separate agreement. As a shareholders' agreement can, within the scope of contractual freedom, regulate virtually all aspects of the relationship between the shareholders, careful preparation of such an agreement before incorporation is highly advisable.
4. Protect Your Ideas and Business Name from the Outset
Particularly in the start-up sector, appropriate corporate legal advice is often avoided due to limited financial resources during the initial stages. However, it is precisely in these companies that the business idea, company name or new technologies are often among the most important assets and should therefore be protected from the outset. In practice, attempts are unfortunately often made to register important patents, trademarks, domain names and other intellectual property rights only when it is already too late. Such delays can result in substantial legal costs or may even make the intended business activity impossible. Protecting ideas, names and trademarks as part of the planning process before the company is actually incorporated is therefore an increasingly important and essential step, particularly for start-ups.
5. View Corporate Planning as an Opportunity
Although many new entrepreneurs regard appropriate legal advice as an unnecessary complication and prefer to postpone it until a later stage, proper corporate planning at the beginning of the company's life can prevent the majority of subsequent problems. Appropriate legal advice can be crucial to the success of the business not only during the planning phase prior to incorporation, but also during the company's initial stages. For example, when negotiating with investors, business partners, competitors or other parties, it may be necessary to include appropriate non-compete clauses in the relevant agreements, enter into confidentiality agreements and take other protective measures.
Particularly in the case of a Spanish S.L., the relatively low minimum share capital often creates the mistaken impression that a smaller company requires less corporate and legal planning. Regardless of the size of the company at the time of incorporation, the rules concerning the need to obtain licences and patents, shareholders' agreements and the potential personal liability of shareholders remain the same and should therefore be taken into consideration from the outset.
Your PAE: Recht - Spanien
As a PAE (Punto de Atención al Emprendedor – Entrepreneur Service Point) authorised by the Spanish Ministry of Economy, our firm has direct access to the relevant public authorities, the Spanish Tax Agency and the Social Security authorities. This enables us to complete the most important administrative procedures electronically, thereby accelerating the registration and incorporation process and avoiding unnecessary visits to public authorities.
Company incorporation within 5 working days and without the need to visit public authorities. Further information.
As lawyers, tax advisors and a registered PAE, our firm will be pleased to analyse your specific situation, carry out the necessary administrative procedures on your behalf and prepare and file the required tax returns. Further information about our services can be found in the section Company Formation.
If you are interested in our services or have specific questions regarding this topic, please do not hesitate to contact us by email or telephone.
Author:
Christoph Sander
Lawyer and Tax Advisor
CEO, Partner, Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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