1. What is a Spanish Limited Liability Company?
A Spanish Limited Liability Company (LLC) is a type of legal entity that offers limited liability protection to its shareholders.
It is a popular choice for those who want to open business in Spain or, indeed, setup a company in Spain.
A Spanish LLC is a separate legal entity from its shareholders, with its own assets and liabilities, meaning that partners are not personally responsible for the company's debts.
As a distinct legal entity, an SL provides robust asset protection through a clear separation between personal and business liabilities. This legal framework ensures that natural persons (individual shareholders) and legal persons (corporate entities) who invest in the company have their personal assets protected beyond their capital contribution.
The structure offers both administrative simplicity and enhanced market credibility, making it particularly attractive for foreign entrepreneurs entering the Spanish market.
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2. Spanish SL's
For anyone starting a business in Spain, the structure of a Spanish SL is the equivalent of a UK limited company and afford director/owners the protection of the corporate veil.
Limited liability companies in Spain are governed by a comprehensive legislative framework that regulates their formation, management, and dissolution. It is the appropriate corporate vehicle for anyone setting-up a business in Spain who requires either limited liability protection or a more complex corporate structure than is possible with the simpler structure used by those self-employed in Spain.
This can be contrasted with self-employment. One of the major drawbacks of registering as self-employed is that you will be personally liable for any debts or losses incurred by your business and any personal assets could be at risk if your business is in financial trouble - either as a result of damages owed to a client or failure to pay due taxes and social security contributions.
Given the elevated levels of bureaucracy and red-tape in Spain, despite more recent efforts to address the issue, it makes sense to have English-speaking business and tax experts available to assist you with your business plans in Spain - from the start-up phase through to ongoing tax-compliance and HR matters such as processing new employees and Social Security obligations.
3. Company Formation Requirements
Minimum Share Capital and Corporate Bank Account
- For those interested in starting business in Spain, the minimum share capital required to form a Spanish LLC is €3,000.
- A corporate bank account is required to deposit the minimum share capital and to manage the company’s finances.
- The corporate bank account must be opened in a Spanish bank and must be in the name of the company.
The €3,000 minimum share capital requirement serves multiple purposes:
- Demonstrates financial commitment to potential business partners
- Provides initial working capital for operations
- Establishes a baseline for creditor protection
Partners' rights in relation to this capital include:
- Voting rights proportional to share ownership
- Profit distribution rights
- Right to transfer shares (subject to company statutes)
- Priority rights in capital increases
Founders and Shareholders
A Spanish LLC can be formed by one or more shareholders, who can be individuals or legal entities.
Shareholders can be local or foreign investors, and there is no requirement for a local partner. When establishing a branch office in Spain, it is crucial to understand the relationship between the branch and its parent company, including the dependency on the parent company abroad and the need to maintain the same trading name.
The liability of shareholders is limited to their capital contribution.
4. Company Registration Process
Company Formation Steps in Spain
- The first step is to choose a unique company name and check its availability with the Spanish Tax Agency. Confirmation of a successful application is provided by the issuing of a ‘Certificado de Denominación Social’. Once the certificate has been issued, it is valid for two months and then must be re-issued before being used to incorporate the company.
- The next step is to obtain a provisional Tax Identification Number (NIF) for the company.
- The company’s articles of association must be drafted and signed by the shareholders.
- The company must be registered with the Commercial Registry and obtain a definitive NIF.
The incorporation deed (escritura de constitución) must be executed before a public notary, who verifies:
- Identity of founding members
- Legal capacity to form the company
- Authenticity of documents
- Compliance with legal requirements
This notarial process is crucial for:
- Validating the company's formation
- Ensuring legal certainty
- Protecting shareholders' interests
- Facilitating registration with authorities
5. Company Registration Number
On the same day that the company deeds have been signed by the owners and witnessed by the notary, a provisional company number is requested by the notary. This provisional company number is converted to a permanent number when the deeds of incorporation are lodged at the commercial registry.
6. Inscription in the Commercial Registry
Once the deeds of incorporation have been properly constituted, it next becomes necessary to register them with the relevant local commercial registry, known as the 'Registro Mercantile'.
This can be done either physically, or the notary may do so electronically. A charge is levied by the registry for the registration of the deeds and subsequent publication in BORME (the official publication of the Registry). These charges are normally around €175.
7. Tax and Accounting Obligations
Taxation and Accounting Requirements
- A Spanish LLC is subject to corporate income tax, which is currently 25%. For the first 2 years, a special rate of 15% is applied.
- The company must file annual financial statements with the Spanish Tax Agency.
- The company must also file quarterly tax returns and make advance payments of corporate income tax.
- The company must maintain accurate accounting records and prepare annual accounts.
Spanish SLs must maintain:
- Daily ledger (libro diario)
- Inventory and annual accounts (libro de inventarios y cuentas anuales)
- Corporate agreements record (libro de actas)
- Share registry book (libro registro de socios)
Value Added Tax (IVA) Obligations:
- Quarterly IVA returns
- Annual IVA summary
- Intrastat declarations when applicable
- Special requirements for certain business sectors
8. Management and Governance
Company Bodies and Decision-Making
- A Spanish LLC must have a management body, which can be a single director or a board of directors.
- The management body is responsible for making decisions and managing the company’s affairs.
- The company must also have a general meeting of shareholders, which is the supreme decision-making body.
Corporate Governance
Corporate governance in a Spanish Limited Liability Company (LLC) is a cornerstone of responsible and transparent business operations. At the heart of this governance structure is the General Meeting, the supreme governing body of the company. The General Meeting holds the authority to make pivotal decisions, such as appointing and removing directors, approving annual accounts, and setting the company’s strategic direction.
The day-to-day administration and strategic decision-making fall under the purview of the management body, which can be a single director or a Board of Directors, depending on the company’s size and complexity. These directors are tasked with ensuring that the company adheres to all relevant laws and regulations, including tax, labor, and environmental laws.
In addition to the General Meeting and the management body, a Spanish LLC may establish other governing bodies like an audit committee or a remuneration committee. These committees focus on specific aspects of the company’s operations, ensuring that management practices are both responsible and transparent.
Overall, corporate governance in a Spanish LLC is designed to ensure fair, transparent, and accountable management, benefiting all stakeholders, including shareholders, employees, customers, and the broader community.
The General Meeting of shareholders holds specific powers including:
- Appointment and removal of administrators
- Approval of annual accounts
- Modification of company statutes
- Decisions on share transfers
- Authorization of significant asset transactions
Share transfer procedures must follow specific protocols:
- Written documentation requirement
- Notarial intervention when required
- Pre-emptive rights of existing shareholders
- Registration in the company's share registry
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9. Registered Office and Dissolution
Registered Office and Winding Up
- A Spanish LLC must have a registered office in Spain, which is the address where the company can be contacted.
- The company can be dissolved voluntarily or involuntarily, and the process must be carried out in accordance with Spanish law.
The registered office (domicilio social) must be located within Spanish territory and serves as the company's official address for:
- Legal notifications
- Tax communications
- Administrative proceedings
- Shareholder meetings
Dissolution procedures may be initiated through:
- Voluntary agreement by shareholders
- Achievement of company's purpose
- Legal mandate
- Judicial decision
The dissolution process requires:
- General Meeting resolution
- Appointment of liquidators
- Asset liquidation
- Creditor satisfaction
- Final balance sheet approval
- Commercial Registry cancellation
10. Benefits of a Spanish Limited Liability Company
Advantages of a Limited Liability Company
- A Spanish LLC offers limited liability protection to its shareholders, which means that their personal assets are protected in case the company incurs debts.
- A Spanish LLC is a flexible and adaptable legal entity that can be used for a wide range of business activities.
- A Spanish LLC can be used to attract foreign investors and to establish a presence in the Spanish market.
- Reliable tool for businesses looking to establish a presence in Spain and to attract foreign investors.
11. Why Choose a Spanish SL?
For those who want to set up a business in Spain, this business structure proves ideal for:
- Medium-sized companies
- International expansion
- Professional services
- Retail operations
- Property investment
The Spanish SL combines reasonable formation costs, straightforward management requirements, and solid liability protection. With proper planning and professional support, you can complete the company formation process efficiently and start operating your business in Spain.
12. Tips for Foreign Investors
- Work with qualified professionals during the start-up phase
- Understand local tax regulations
- Consider special tax regimes available
- Keep up with reporting requirements
- Maintain proper documentation
13. Business Liabilities and Risk Mitigation
Understanding business liabilities is crucial for:
- Operational planning
- Risk assessment
- Asset protection strategies
- Compliance management
Key risk management considerations include:
- Insurance requirements
- Contract management
- Regulatory compliance
- Financial controls
- Emergency funds allocation
14. Other Steps
Finally, once the company has been properly constituted and officially registered, it is required to register for the purposes of taxation, VAT, social security and any other relevant licences that may be required as a result of the nature of the business.
15. Paying Over the Odds For Services In Spain
All too often, foreign (i.e. non-Spanish) business people pay too much for services in Spain. This has been the case since Spain first became an attractive destination for Northern Europeans to settle down, and unfortunately continues today.
Attempts have been made to justify this by arguing that to provide the same service in English should give the service provider the right to charge a premium.
At Advocate Abroad, we completely disagree with this attitude and work hard to ensure that our clients pay only the standard market rate for the provision of legal and accountancy services in Spain.
A typical practice is to offer low set-up costs, but then charge a monthly retainer that is well over the standard rate. Sometimes clients are told that they need to create a limited company when becoming a sole-trader is much more appropriate - -and cheaper!
However, often clients are simply over-charged for basic services, and it is not uncommon for there to be a variation of more than 100% in the quotations provided for carrying out the exact same service.
Our mission at Advocate Abroad is to support English-speakers trying to build businesses and work and live in Spain. While there are plenty of mercenaries in Spain willing to relieve you of your cash, there are many more solid professionals who can provide you with the support you need to make your business in Spain prosper over the long term.
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16. Sole Trader v Limited Company
If you are unsure whether you require a limited company in Spain or if registering as an 'autonomo' (sole trader) is more appropriate, the main advantages and disadvantages of each form of business are described in the following article: Limited Company or Sole Trader in Spain?
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17. Frequently Asked Questions
What is a limited company called in Spain?
A limited liability company in Spain is called a Sociedad Limitada (SL). This business structure is popular among entrepreneurs due to its flexibility, limited liability protection, and straightforward administration. An SL is particularly suited for small and medium-sized enterprises (SMEs) and is an excellent option for foreign investors looking to establish a presence in Spain. The SL structure safeguards personal assets while offering a streamlined way to manage operations.
How much does it cost to set up an SL in Spain?
The cost of setting up a Sociedad Limitada (SL) in Spain typically starts at around €1,000 for the preparation of legal documents. Additional expenses include approximately €500 for notary services, company registration, and activation fees. These costs may vary depending on the complexity of the setup and specific regional requirements.
What is a Spanish SL company?
A Spanish SL company, or Sociedad Limitada, is a type of private limited company commonly used by small and medium-sized businesses (SMEs). It is designed for a small group of shareholders, offering limited liability protection to its owners. This business structure is ideal for entrepreneurs seeking a straightforward, flexible, and cost-effective way to operate in Spain, as it limits personal liability to the capital invested in the company.
What is the difference between SL and SLU in Spain?
In Spain, a Sociedad Limitada (SL) is a private limited company requiring at least one shareholder. If the company is owned by a single shareholder, it is classified as a Sociedad Limitada Unipersonal (SLU). While both structures offer limited liability protection, the key difference lies in ownership: an SL can have multiple shareholders, while an SLU is exclusively owned by one person or entity. Additionally, an SLU must explicitly state its unipersonal status in official documentation and company registration.
