MAIN CHARACTERISTICS OF A PRIVATE LIMITED COMPANY IN SPAIN (S.L.)

Would you like to start a business in Spain?
Would you like to acquire property in Spain through a Newco? 

There are several types of companies in Spain, but the most popular type of company for local and foreign investors is a private limited company, which in Spain has the legal form of “Sociedad de Responsabilidad Limitada (S.L.)” (hereinafter, the “SL”). This type of company is ideal to start up a small or medium business and to structure the acquisition of property through a new incorporated company. In this post, we will briefly sum up the main characteristics and the pros and cons of an SL.

1. Share capital and quotas

   An SL’s minimum share capital is EUR 3,000. The money is put directly into the new bank account of the company. You may withdraw this money from the account as soon as the bank account is fully set up.

   The capital is divided in quotas (participaciones sociales). If there are several shareholders, the quotas shall have attached a preferential acquisition right in favour of the co-shareholders in case of transfer of quotas towards third parties.

2. Shareholders

   There is no limitation on the maximum number of shareholders but an SL must be owned by at least one shareholder (either a company or an individual person). There are no restrictions on the nationality of the shareholders (foreigners can own 100% of the quotas in an SL). 

3. Directors

   The management of the company shall be entrusted to one of the following three types of management bodies:

   • A sole director. One director serving the company at any given time.

   • 2 or more joint and several directors. In this case, any director may perform his functions individually without having to act jointly with other directors.

   • 2 or more joint directors. In this case, the directors need to act together to perform their duties in the company.

   • A Board of directors, formed by a minimum of 3 and a maximum of 12 directors. In this case, a Chairman and a Secretary (and a Vice-Secretary if necessary) of the Board must be appointed. A proxyholder should be appointed to allow directors act on behalf of the company vis-á-vis third parties.

   Non-resident foreign directors must obtain a foreigner's identification number (N.I.E.). The application for the N.I.E is a procedure that can be carried out through the Spanish Consulate or Embassy in a foreigner’s home country or at the local police station in Spain. This procedure can be carried out personally by the interested party or can be delegated to your local lawyer through powers of attorney. 

   If the directors do not live in Spain and want to avoid unnecessary trips, we recommend the appointment of proxies in favour of a resident in Spain (by granting the appropriate power of attorney) who may be responsible for raising the company’s resolutions to public deed before a Notary.

4. Financial statement requirements

   SLs in Spain must submit annual financial statements. These must be filed within seven months after the end of the financial year: (i) formulated by the directors within 3 months; (ii) approved in a shareholders’ meeting within 6 months; and (iii) filed in the Commercial Registry within 1 months as from the shareholders’ approval.

5. Official books obligations

   SLs have the obligation to keep tax and accounting books such as the following:

   • Journal ("Libro Diario").

   • Inventories and the Annual Statements Book ("Libro de Inventario y Cuentas Anuales").

   • Invoice Books (“Libros de Facturas”). 

   • Minutes Book (“Libro de Actas”).

   • Shareholders’ Registry Book/Registry Book of Shares (“Libro Registro de Socios”/”Libro Registro de Acciones Nominativas”). 

   • If applicable, Registry Book of Agreements with the Sole Shareholder (“Libro Registro de Contratos con el Socio Único”).

   These must be legalized with the Commercial Registry within 4 months following the end of each financial year.

6. Incorporation timing

   Registration of the incorporation deed in the Commercial Registry can take up to 3 to 4 weeks. If the timing is tight, there are other possible solutions such as directly purchasing a ready-made shelf company. Please get in contact with us for further details on the advantages and steps to acquire shelf companies. 

7. Pros of an SL

   i. Limited liability

   The best know advantage of an SL is that shareholders are not personally liable for the business debts of the company. Shareholders risk the amount invested in the company and nothing else. Exceptionally, in extreme cases which include fraud or wilful misconduct, shareholders can be liable for negligence or corporate debts as per the doctrine “piercing of the corporate veil”. 

   ii. Flat taxation

   SLs pay a Corporate Tax (Impuesto de Sociedades) which is a standard flat tax rate fixed on 25% on the profits the company makes. In addition, losses can be compensated with future profits.

   iii. EU membership

   As a member of the European Union (EU), SLs may engage with other EU members.

8. Cons of an SL

i. Double taxation

SLs pay company tax on profits. When dividends are distributed to shareholders, these must pay income tax on the dividends received.

ii. Excessive formalities

Not only the abovementioned official book obligations must be kept but other numerous formalities must be registered in the Commercial Registry such as appointments and registrations of directors. 

iii. Complex winding up process

Winding up procedures are complicated. Liquidation procedures are established by law and are usually expensive.

Do not hesitate to get in touch with Carlander to walk you through the necessary steps for the incorporation of an SL by emailing info@carlanderlaw.com.