How to start an SME in Spain
Developing a company in Spain requires not only knowledge of the Spanish legal system and traditions, but also awareness of those applicable existing European directives and international conventions. Such a complex, two-tiered legal system calls for a thorough examination of how both Spanish and international laws will affect the beginning of a new business venture propelled by the optimistic foreign national.
Almost always where an international convention or European directive exists, those signatories (member states) develop their own national laws to further develop and apply those laws to which they have agreed to be bound. While it is important to keep in mind the overarching international and European laws when starting a business in a European country, it is also essential to remember that the national (in this case, Spanish) laws will be more helpful in guiding a foreign national through the process of developing a company and maintaining compliance with local laws. This is because the member states’ national laws tend to be more specific and concrete than the general European directives and international conventions. Thus, while the member states’ national laws can provide a better idea about how to begin business operations, they also require careful, special attention to start-up requirements.
Some of the most important international conventions that may affect a company’s beginning operations include the Rome Conventions and the Vienna Convention (United Nations Convention on the Sale of Goods). These agreements regulate the contractual relationships that develop between persons or entities in different countries where no country’s laws are identified in the contract as being applicable if a dispute were to arise. For example, for a foreign national who begins engaging in the sale of goods, it is important to note that the Conventions generally favor the seller. Thus, oftentimes it is wise to consider the contracting parties’ individual situations to determine which law should apply instead of relying on such default European and International Conventions. In light of such Conventions, it is recommended that a company beginning its operations communicate to its legal counsel whether it wishes to draft any contracts regarding its business activities including or excluding the application of such Conventions. Indeed, oftentimes contracting parties choose to substitute the application of such Conventions with one of the contracting parties’ national laws.
More locally, within the context of Spanish Business Law, and with the help of globalization and European directives, there exists a wide variety of various business organizations to consider when starting a company in Spain. The following analysis considers the main types of Spanish companies that may be most suitable to a foreign national’s prospective business planning. This article provides an overview of the various business forms that may be considered when beginning business in Spain. Additionally, this article includes an explanation of the optimum business organization choice for a foreign national who seeks to start up a small- to medium-sized business in Spain.
It is important to note that the Spanish legal system includes companies that have either a civil or commercial character, or perhaps a mix of both. The main difference between the civil entities and commercial ones is that the commercial ones are subject to the Spanish Commercial Code and carry out commercial and professional activities, while civil entities are subject to the Spanish Civil Code, and have more of a personal nature. For example, the Spanish partnership is civil in character, while the Spanish versions of the publicly and privately held companies and the limited liability company are commercial. The range of the most common Spanish commercial and civil corporate models include: various versions of partnerships (civil), limited liability companies (LLCs) (commercial), and publicly or privately held companies (commercial).
Additionally, the Spanish legal system recognizes two types of actors: physical persons and juridical entities. To have juridical status rather than personal status means that a juridical entity has its own name, address, and property separate from that of its owners, whereas having personal status refers to the relationship between a physical person and his or her property. The following list of various Spanish business organizations includes the most common business formations involving physical persons and juridical entities.
Physical persons (individual/personal form) (no juridical status)
Empresario individual (Sole proprietorship): One person is required for ownership. There is no minimum legal capital requirement, and the owner has unlimited responsibility for the debts and obligations of the sole proprietorship.
Sociedad civil (partnership): At least two partners are required for ownership. There is no minimum legal capital requirement, and the partners have unlimited responsibility for the debts and obligations of the partnership. The partnership may have for-profit objectives, and it is regulated by articles 1665 to 1708 of the Spanish Civil Code.
Comunidad de bienes (another form of a partnership): This form of the partnership is common among married couples because it is formed by those persons who share title to assets or rights in common. There is no minimum legal capital requirement, and its owners have unlimited responsibility for the debts and obligations of the partnership. It is regulated by articles 392 to 406 in the Spanish Civil Code.
The most common Spanish juridical entities include the LLC, the publicly or privately held company, and various versions of both. For those business organizations listed without an English translation, there exists no comparable well-known English common-law name.
Juridical entities (commercial form)
Sociedad colectiva: At least two partners are required for ownership. There is no minimum legal capital requirement, and the partners have unlimited responsibility. This business organization is one of the oldest in Spain, but it is slowly fading out because of its unlimited responsibility characteristic.
Sociedad de responsabilidad limitada (limited liability company): At least one partner is required to start the LLC. There is a minimum legal capital requirement of 3,005.06 Euros, and the LLC’s members enjoy limited responsibility according to the capital they invest individually.
Sociedad limitada nueva empresa (simplified version of the LLC): At most five members (physical persons) are allowed for ownership. There is a minimum legal capital requirement of 3,012 Euros and a maximum legal capital allowance of 120,202 Euros. The members have limited responsibility according to their capital invested. There exist fewer administrative requirements to start the company because the company can be formed electronically with the help of electronic forms, and the company can be created within 48 hours.
Sociedad anónima (regular corporation): At least one shareholder is required. There exists a minimum legal capital requirement of 60,101.21 Euros, and the shareholders enjoy limited responsibility according to the capital they invest.
Sociedad anónima laboral (regular corporation with the special characteristic that at least 5.1% of 100% of the capital of the company belongs to the employees that have indefinite employment contracts and work full-time for the company): At least four shareholders are required to maintain this company, and among these persons three must be employees. The minimum amount of capital must be 60,101.21 Euros, 51% of which must be in the hands of the employees. This company is very employee-centered, and can also be formed using the LLC version.
Sociedad comanditaria por acciones (shares involved): At least two shareholders are required for start-up. Two classes of shareholders exist: one with rights and obligations like in the sociedad colectiva, and others, limited shareholders (comanditarios,) that have limited rights and obligations. The minimum legal capital requirement is 60,101.21 Euros. The first set of shareholders have unlimited responsibility, while the limited shareholders have limited responsibility.
Sociedad europea (EU supranational company): This corporate form allows the parent company and its subsidiaries, if they wish, to become a network of companies with supranational status.
Sociedad profesional: A corporate form that allows a company to provide professional services to clients; these companies are typically small or medium-sized and specialize in providing a professional service (i.e. a law office).
A commercial entity would best match the interests of a foreign national wishing to start up a small- to medium-sized business in Spain because of its for-profit and professional objectives. Likewise, commercial entities tend to be larger than their partnership counterparts. The main Spanish commercial business forms that may interest a foreign national wishing to begin business in Spain are either the publicly or privately held company (regular corporation) or a version of it, or the LLC, or a version of it.
As in the United States legal system, the Spanish regular corporation also involves capital that is divided into shares. The shareholders of the corporation are not personally liable for the debts and obligations of the company, barring any willful negligence. Nor do such shareholders have the right to intervene in the management and administration of the regular corporation. The shareholders can only be liable up to the total amount of their purchased shares. This lack of personal liability means that creditors can only attack the property of the company to satisfy their debts, not the personal property of the shareholders.
The Spanish limited liability company, on the other hand, operates by selling rights of participation instead of shares. The members of such a company are not liable for the debts and obligations of the company, and in theory, they do not have the right to direct the management or administration of the company’s business activities.
A version of the LLC, the LLC — one person (sociedad limitada unipersonal) — allows the company to have only one member who can be a physical person or a company. This type of company is common in situations where a company starts with various partners, but ends up with one person acquiring all of the participation in the capital of the company.
In summary, the partnership and other variations of the regular Spanish corporation may be of interest to a foreign national seeking to start up business in Spain, but they would not likely fit such person’s objectives because of their size, nature, and the uniqueness of the foreign national’s purpose in starting up a small- to medium-sized business in Spain. The partnership is likely too small, and not sufficiently commercial. Likewise, the various forms of a regular Spanish corporation may require too much initial capital to be initially invested, and may present too many reporting requirements; such corporate forms may also be too cumbersome where a foreign national seeks to start as relatively small and without too many employees or obligations to employees.
Therefore, it is recommended that a foreign national seeking to begin business in Spain contrast the various requirements of forming each available business entity. The regular corporation forms or a LLC form are highly suggested, however, for the foreign national who desires to establish a modest business presence in Spain.
1. United Nations Convention on Contracts for the International Sale of Goods (CISG) (`Vienna Convention’), 1980.
2. In-person interview with Almudena Álvarez, Lawyer, Mariscal Abogados (June 2009).
3. Guillermo J. Jiménez Sánchez, Derecho Mercantil (Ariel Derecho 2006).
4. Rodrigo Uría & Aurelio Menéndez, Lecciones de Derecho Mercantil (Thomson Civitas, Fourth Edition 2006).
5. CÃDIGO CIVIL [C.C.] [Civil Code] (Spain).
6. In-person interview with Karl Lincke, Lawyer, Mariscal Abogados (June 2009).
7. Iberinform, Information of Value: Types of Spanish Companies, (2008), http://www.iberinform.es/Noticias/informes-comerciales/FormasJuridicas.htm.
8. Manuel Broseta Pont, Manual de Derecho Mercantil (Editorial Tecnos, Ninth Edition 1991).
9. Royal Legislative Decree 1564/1989, of December 22, which contains the text of the Law of publicly and privately held companies (R.D.L. 1989) (Spain).
This article is not considered as legal advice