Spain Company Formation
Spain, officially the Kingdom of Spain is a sovereign state located on the Iberian Peninsula in southwestern Europe, with two large archipelagos, the Balearic Islands in the Mediterranean Sea and the Canary Islands off the North African Atlantic coast, two cities Ceuta and Melilla in the North African mainland and several small islands in the Alboran Sea near the Moroccan coast. With an area of 505,990 km2, Spain is the largest country in Southern Europe, the second largest country in Western Europe and the European Union, and the fourth largest country in the European continent. By population, Spain is the sixth largest in Europe and the fifth in the European Union. Spain’s capital and largest city is Madrid; other major urban areas include Barcelona, Valencia, Seville, Bilbao and Malaga.
The official and spoken dialect of Spain is Spanish.
Spain has a strong economy, with industries playing an important role on the European market, so those who are interested in opening a company here are advised to set their operations on the Spanish market. Besides, international trading and tourism are also of great importance in terms of economy in Spain.
The Spanish economy began to make important steps towards a fast development, especially since 2015.
Spain is ranked on the seventh place in terms of receiving foreign investments. Over 10,000 foreign companies have been incorporated in Spain and the government is still looking for different incentives in order to attract even more investors from abroad. The main investors willing to open companies in Spain so far have been from the Netherlands, France and UK.
The main fields on which the Spanish economy is built are: processing foods, textiles, footwear, petrochemicals, electronics, steel and automobiles, aerospace industry and tourism. Foreign investors starting companies in Spain tend to be attracted by the construction sector, which has reported important results at the level of 2016. Other investors arrive in Spain with the intention to set up companies that activate in sectors such as manufacturing, finance and insurance, scientific activities or electrical energy supply. Madrid and Catalonia attract the most foreign investments in Spain.
It is important to know that, in 2014, the foreign direct investment in Spain were situated at a level above the average one met throughout the European Union.
Another important aspect of the local economy is that most of the companies set up here, more exactly, 90%, are small companies, with less than 10 employees. The Spanish small and medium companies are very important for the local economy, as they provide three quarters of the jobs available in the private sector.
Business Entities and Formation of Company in Spain
The type of business entity you’ll need is an important consideration when starting a business in Spain. Each one has a different set of legal and fiscal responsibilities. Below are legal types of businesses in Spain:
Sole Trader (empresario individual)
If you want to begin small and don’t have much capital, you can set up as a sole trader (empresario individual). The main advantage of this option is that it’s the simplest legal business entity. Your only fiscal obligations are to register for tax, VAT and social security as a self-employed worker and also for tax on your business activities. A further advantage of being a sole trader is that you aren’t obliged to make a specified investment in your company; it can be whatever amount you can afford.
The main disadvantage of setting up your business in this way is that you’re personally liable for all the debts of the company and, if anyone decides to sue you or your company, it could be a financial disaster for you and your dependents. If you aren’t prepared to take on this kind of risk and have a reasonable amount to invest, it may be worth setting up a limited liability company.
Jointly Owned Company
The Jointly Owned Business in Spain, or Comunidad de Bienes, is almost identical to the Sole Trader (Empresario Individual) business, except that the business is composed of more than one individual and these members share ownership of a common property or right to something. The members or owners of the Comunidad de Bienes are personally liable for debts, but there is no minimum financial investment and tax is reported on each individual’s IRPF tax form.
Limited Liability Company
A limited liability company is known as a Sociedad de Responsabilidad Limitada (SL), which is similar to a British limited company or an American limited liability company (LLC). It’s the most common form of small and medium-size company. The reasons for its popularity are its simplicity, the relatively small investment it requires and, as the name suggests, the fact that your liability is limited if anything goes wrong or someone sues you. The disadvantage, compared with operating as a sole trader, is that you’re liable for corporation tax and VAT as well as your personal tax and social security contributions.
If you start an SL, you must invest a minimum capital of € 3,005.06 (an exact conversion from the former peseta figure!) and have at least one shareholder (the maximum is 50). You should work with a lawyer and a financial adviser to ensure that your company is legally incorporated and you’ve gone through all the required procedures before starting business.
Sociedad Limitada Nueva Empresa
In April 2003, a modified version of the SL was introduced, called a Sociedad Limitada Nueva Empresa (SLNE). The idea behind it was to encourage the incorporation of small and medium-size businesses, and the fact that its fiscal requirements are simpler than those of an SL should make it an increasingly popular option. An SLNE also differs from an SL in terms of the number of shareholders and permissible company names. The maximum number of shareholders allowed with this type of company is five, a move intended to keep SLNEs small. The company name must comprise one of the founder’s names, a registration number and the letters SLNE. The minimum capital required is virtually the same as for an SL (€3,012 – all of which must be in cash) but the maximum is €120,202.
The Partnership in Spain, or Sociedad Civil, is a business relationship formed by two or more people who contribute money, equipment and/or labor and divide the profits amongst themselves as they have agreed. Accordingly, any debts or financial obligations will also be divided amongst the parties. It’s good to keep in mind that anything not expressly agreed upon, either publicly or privately, will be governed by Spain’s Civil Code. An “official” Sociedad Civil in Spain must create a partnership agreement for the business (contrato de constitution) that is then signed before a notary, and be registered to pay IAE tax (Impuesto de Actividades Económicas), though in some cases the Sociedad Civil may not be required to pay it. Consult with your regional Spanish government (comunidad autonóma) and a legal advisor for further details on the obligations of starting a Sociedad Civil in Spain.
Public Limited Company
A Sociedad Anónima (SA) is the Spanish equivalent of a British public limited company (plc) or an American corporation and is the next most widely used type of business entity in Spain. An SA requires a much larger investment than an SL so it’s usually the choice of big businesses working on major projects that wish to make an investment in Spain. The minimum investment required to form an SA is € 60,101 and at least 25 per cent of that must be paid into the company bank account before incorporation. The company bylaws must then state what will happen to the remainder, including when and how it will be paid. There can be any number of shareholders in this type of company and they can be of any nationality and don’t need to be resident in Spain, although they (or their professional representatives) must sign the necessary documents before a notario.
The main advantages of an SA are the exemption from personal liability for its shareholders, and the option to float the company, as shares in an SA may be quoted on the Spanish Stock Exchange (Bolsas de Valores). The disadvantages are the large investment and the complicated accounting required. Annual auditing is also mandatory, and the administration of an SA is more strictly regulated than that of an SL. If you’re starting a small or medium-size business, it’s unlikely that an SA will be the best option.
New Enterprise Limited Company
The New Enterprise Limited Company in Spain, or Sociedad Limitada Nueva Empresa, is considered to be a simplified form of the Limited Liability Company (Sociedad de Responsabilidad Limitada) and as such is an autonomous legal entity, but the Sociedad Limitada Nueva Empresa has its own set of requirements, including a set of particular naming requirements: the company name must include a registration number, one of the founders’ names and the words Sociedad Limitada Nueva Empresa or S.L.N.E. At the beginning, there may only be from one to five founders or shareholders, yet by transfer, the company may incorporate new shareholders as long as they are actual, physical people and not legal persons, i.e. other companies or corporations.
In addition, a Sociedad Limitada Nueva Empresa requires an available investment of between €3,000 and €120,000 and must pay Corporate Income Tax.
The Worker Owned Company
The Worker-Owned Company in Spain, or Sociedad Laboral, is a special type of Public Limited Company (Sociedad Anónima) OR Limited Liability Company (Sociedad de Responsabilidad Limitada). The shares are held by A) workers, in this case the Clase Laboral, and B) those who do not work for the business, the clase general. Workers who directly contribute their labor to the business must own at least 51% of the shares. Workers who do NOT own shares must not work more than 15% of the total hours worked each year, or not more than 25% if the company has less than 25 workers with shares.
The Worker-Owned Company (Sociedad Laboral) is created and governed as either a Public Limited Company (Sociedad Anónima) or Limited Liability Company (Sociedad de Responsabilidad Limitada), but with a few exceptions. Before registering with the Commercial Registry in Spain, the company must be registered at the Registro de Sociedad Labor ales Del Ministerio de Trabajo y Asuntos Socials. According to its base entity type, the company’s name must also include Sociedad Anónima Laboral (or S.A.L.) or Sociedad de Responsabilidad Limitada Laboral (or S.L.L.).
Company Formation of Spain
In general terms, to acquire legal status and start any economic activity in Spain, the following procedural formalities are necessary (in some cases additional steps may be required):
Incorp International will serve you in each and every step of Incorporation and so you will not get any complications.