Temporary Business Association or UTE, a method of incorporation in Spain

Collaboration between foreign and national companies is a common mechanism for accessing the Spanish market.

The outcome of this alliance gives rise to the commonly known UTE or temporary business association —a cooperative system between companies for a specific period to undertake projects or provide precise services. This implementation is a poorly known procedure in Spain.

An advantage of this legal structure is the combination of resources (human, financial, technical and other) to carry out large-scale projects that a single entity could not carry out on its own.

Another significant advantage is the reduction of costs and risks associated with entering a new market.

The temporary business association as a legal form receives brief regulation in Law 18/1982 of 26 May 1982. It defines, among other aspects, its functioning and main characteristics.

Features of the temporary business association

The main features of a UTE are as follows:

• It has no legal personality, so the member companies assume joint and unlimited liability for their acts and operations vis-à-vis third parties.
• The member companies, natural or legal persons resident in Spain or abroad, must be identifiable.
• The principal object may be the development or execution of a specific work, service or supply, inside or outside Spain, as well as complementary and ancillary works and services.
• The duration of the temporary business association must correspond to the project established in the main object, with a maximum term of 25 years. Exceptionally, public service contracts may have a span of 50 years.
• The administrative body will be the sole manager appointed by the member companies; it will have sufficient powers to exercise the rights and fulfil obligations accordingly.

Formation of the temporary business association

Regarding the incorporation of a temporary business association, the law mandates to carry it out through a public deed that includes the following points:

• The company name, representing all member companies, followed by the expression Unión Temporal de Empresas, Ley 18/1982 de 26 de Mayo
• The purpose of the alliance, expressed through a report or program that includes the activities and means to carry them out
• The duration and starting date of operations
• The tax residence, which shall coincide with that of the person exercising joint management
• The contributions to the shared operational fund and, where appropriate, the funding or allocation of costs to be shared
• The name of the sole manager and his address
• The proportion or method for determining the share of member companies in the distribution of profits, income, or expenses, as applicable
• The system of liability vis-à-vis third parties for acts and transactions for the common benefit
• The time criterion for the allocation of profits, income or expenses
• The agreements and other special conditions adopted by the member companies.

Registration of the temporary business association

There is a special register at the Ministry of Finance and Public Administrations to register temporary business associations. While registration is not mandatory, it is advisable because it enables member companies to take advantage of the special corporate income tax regime.

In practical terms this type of business alliance is formalized between the member companies by signing a collaboration agreement. This agreement sets out the decision to create the UTE structure and establishes the terms that will govern the internal collaboration and will not be included in the public deed.

For illustrative purposes, this agreement may include, among others, contractual and post-contractual non-competition clauses, aspects relating to industrial and intellectual property, contract termination regime, clauses on the competent jurisdiction in the event of disputes and the applicable law. In short, all those clauses that are typical and recommendable in international contracts .

Considering the above, we recommend seeking expert legal advice to regulate a satisfactory collaboration and implementation framework for the member companies of a temporary business association.

If you require additional information on the estabnlishment of a temporary business association or UTE in Spain,