If you want to do business in Spain, you will quickly realize that self-employment as a sole trader or the formation of a Spanish limited company are usually the simplest, cheapest and safest alternatives.

However, there are also numerous other company forms that are often justifiably disregarded, but which could sometimes have represented an interesting solution, if not the ideal solution.

So before rushing down the well-trodden path of the Sociedad Limitada, you should at least get to know and compare the other company forms.

Answer the following questions for yourself and then compare your needs with the characteristics described in the following overview:

• Will you carry out the desired activity alone?
• Are there more or less equal partners working alongside you, or are they staff?
• Do you need a special qualification to carry out the job?
• Is it a protected profession?
• Do your partners have the necessary qualifications?
• Do all partners contribute the same things, to the same extent?
• Are there partners who only act as investors?
• What resources will be available initially?
• Is it necessary to take out loans or subsidies?
• How important is a limitation of liability for your activity?
• What are the medium-term profit targets?

Anyone who can answer these initial questions roughly will quickly recognize the advantages and disadvantages of the companies described below:

“El autónomo” or the sole trader

Overview:

– The easiest, cheapest and quickest way to become self-employed is to carry out the desired activity as a sole trader.

– The self-employed person acts directly in his own name and for his own account.

– As a natural person, he is the direct contractual partner of his suppliers and customers.

– Invoices are issued stating your own tax number.[/tab]

Advantages:

– Prior registration with the Spanish tax office (AEAT, Agencia Tributaria) is required, which must be notified of the commencement of the activity, the object of the business activity and the place where it will be carried out.

– An insurance relationship must also be entered into with the social security or employers’ liability insurance association and the respective contributions must be paid.

– Beyond that, however, the obligations are manageable.

– This way of doing business is the least bureaucratic.

– With a low income, taxes are lower compared to other forms of self-employment, as the profit is taxed using income tax. This in turn is subject to progression and a number of allowances and concessions.

– In individual cases, if the self-employed person has a corresponding reputation or assets, working as a sole trader may appear more trustworthy.

– In some cases, operating as a trading company may even appear dubious or inappropriate due to the environment (artistic activities, etc.).

– As no information is provided to the commercial register, the turnover and other economic data cannot be viewed by third parties.[/tab]

Disadvantages:

– There is no limitation of liability towards third parties.

– The self-employed person is the direct contractual partner and owes all amounts and benefits personally.

– Cooperation with third parties cannot take place in a spirit of partnership.

– Sooner or later, organizational or administrative problems arise when scaling business activities, as it is not possible to appoint representatives, managing directors or other bodies in this way or comparable positions have to be more or less improvised.

– Financing may be more difficult because certain options, such as the sale of investments, are not possible.

– Operating as a sole trader can also create a negative image if operating as a trading company is common in the respective market segment.

– If the future customers also include public authorities or administrative bodies in general, it must be taken into account that they often issue invitations to tender that only allow companies.

– In some cases, the exercise of the activity also requires a certain company form due to legal requirements.

– The receipt of subsidies is often linked to the condition that the beneficiary is a company.

– If the profits are relatively high, the taxation of sole traders is often less favorable.

“La Comunidad de Bienes” or the community of assets

Overview:

– Like the so-called “Sociedad Civil”, it is comparable to the German “Gesellschaft bürgerlichen Rechts”, but the original difference to the “Sociedad Civil” is that the focus is on the joint assets of the partners. In practice, the boundaries between “Sociedad Civil” and “Comunidad de Bienes” are blurred, but the starting point of the “Comunidad de Bienes” is the economic use of joint assets, as would be the case with a community of heirs, for example.

– No minimum share capital is required and simple partnerships can also be formed by private deed.

– In some cases, such communities of assets also arise without the involvement of the parties concerned, for example when a majority of persons inherit assets.

– Due to the originally identical taxation of the “Comunidad de Bienes” and the “Sociedad Civil”, it remains to be seen whether Spanish tax law will not subject these companies to corporation tax.

– In particular, if the company’s activities are not limited to asset management, this could lead to stricter taxation in the future.[/tab]

Advantages:

– Simple foundation.

– low administrative costs.

– favorable taxation as long as the profits are lower.

Disadvantages:

– No limitation of liability.

– all the disadvantages that result from not being a trading company (see exercising activities as a sole trader).

“La Sociedad Civil” or the Spanish company under civil law

Overview:

– Comparable to the German Gesellschaft bürgerlichen Rechts, the Sociedad Civil is one of the simplest forms of company.

– No minimum share capital is required and simple partnerships (a distinction is made between partnership companies) can also be formed by private deed.

– Due to the tax reform that came into force in 2016, the form of taxation of these companies has undergone an important change, as taxation is not only differentiated according to the type of company, but in particular according to the purpose of the company:

– If the company operates under commercial law, it is subject to corporation tax, which can be a major economic disadvantage for the shareholders, as they must first pay corporation tax on the company’s profit and then pay income tax on the respective shareholder’s pro rata profit.

– It is therefore particularly important to know what is meant by a commercial activity.

– According to the Spanish tax authorities, it is a commercial activity if it is aimed at the production, exchange or provision of services.

– This expressly excludes, among other things: Agriculture, forestry, livestock farming and fishing.

– IMPORTANT: If the company operates under commercial law in this sense, it is subject to disadvantageous taxation because it is subject to corporation tax AND ultimately income tax WITHOUT having the advantages of a commercial company or those of operating as a sole trader. As a result, the weaknesses of both forms of activity without the respective advantages of one or the other form.

Advantages:

– Simple foundation.

– Low administrative costs if the company is not a commercial company.

– Favorable taxation if the company does not operate under commercial law.

Disadvantages:

– No limitation of liability.

– all the disadvantages that result from not being a trading company (see exercising activities as a sole trader).

“La Sociedad Civil Profesional” or the Spanish partnership company

Overview:

– This form of company is initially subject to the regulations of the “Sociedad Civil”, and is therefore comparable to the German civil law company, but it can only be founded to exercise a professional activity, which requires a higher university degree and leads to a protected professional title. In addition to the general regulations for the “Sociedad Civil”, there are special regulations for the so-called “Sociedades Civiles Profesionales”. This is the Spanish equivalent of the German partnership company. Typical examples of application can be found in mergers of doctors, lawyers or architects, i.e. medical practices, law firms and architectural offices.

– No minimum share capital is required.

– A public deed and entry in the commercial register are required for incorporation.

– An entry must also be made with the relevant chamber.

– Unlike simple “Sociedades Civiles”, Spanish partnership companies are not also subject to corporation tax, which is why this leads to more favorable taxation.

– At least 3/4 of the shareholdings and voting rights must be held by professionals.

Advantages

– Simple foundation.

– favorable taxation as long as the profits are manageable.

– Opportunity to communicate professional qualifications to the outside world.

– In principle, the transfer of shareholdings requires the consent of all partners, which protects against a partner granting a third party access to the company against the will of the other partners.

Disadvantages:

– No limitation of liability.

– Obligation to take out professional indemnity insurance.

– Management requirements are comparable to those of a Sociedad Limitada, i.e. a Spanish limited liability company.

– Obligation to file annual financial statements with the commercial register.

– Disadvantages of not being a trading company (see also the information on operating as a sole trader).

– In principle, the transfer of shareholdings requires the consent of all shareholders, which makes it less flexible.

“Sociedad Colectiva” or general partnership under Spanish law

Overview:

– A general partnership under Spanish law is a legal entity that must have at least two partners.

– It is not necessary for the shareholders themselves to be active in the company.

– For example, a distinction is made between those who may merely be investors or contribute assets (silent partners, investors) and those who are active in the company themselves, i.e. who perform work.

– The former are referred to in Spain as “socio capitalista” (i.e. capital-giving shareholder), while the latter are called “socio industrial” (operating shareholder).

– The profits of these companies are subject to corporation tax.

Advantages:

– There is no minimum share capital.

– There is no upper limit on the number of shareholders.

– The entry of third parties is easier to control or prevent.

– The lack of limitation of liability can also be interpreted as increased creditworthiness in the case of a correspondingly high number of shareholders or wealthy shareholders, as the shareholders are liable for the company’s debts.

Disadvantages:

– No limitation of liability.

– Unusual type of company, with relatively high administrative expenses.

– Comparatively more complicated formation requirements and higher formation and operating costs, due to the requirement of formation in public deed and entry in the commercial register (compared to the Sociedad Civil).

– The need for a majority of persons, as this type of company cannot have just one shareholder. If individual shareholders were to leave successively, a conversion or dissolution would have to take place, unlike with a Sociedad Limitada.

– No easy transfer of shares to third parties possible.

“Sociedad Comanditaria (simple o por acciones)” or limited partnership (simple or on shares)

Overview:

– The Sociedad Comanditaria is the Spanish equivalent of the German limited partnership.

– It has its own legal personality.

– It must have at least two shareholders.

– It is not necessary for the shareholders themselves to be active in the company.

– The Sociedad Comanditaria provides for the coexistence of two types of shareholders.

– The essence of the Spanish limited partnership, just like limited partnerships in general, is that there are two types of partners. The so-called limited partners (socios comanditarios), who are only liable for their contributions, and the so-called general partners (socios colectivos), who have unlimited liability.

– In this way, individual shareholders can benefit from a limitation of liability.

– Formation requires a public deed and subsequent entry in the commercial register.

– The profits of this company are subject to corporation tax.

– There are two types of limited partnerships. The simple limited partnerships, known as Sociedades Comanditarias Simples, and the limited partnerships limited by shares, known as Sociedad Comanditaria por Acciones in Spanish.

– While there is no minimum share capital for the first form, the Spanish partnership limited by shares requires a share capital of around EUR 60,000.

Advantages:

– In addition to each other, partners with unlimited liability and partners with limited liability.

– Clear division of responsibilities between limited partners and general partners.

– Possibility of a partnership limited by shares.

Disadvantages:

– No limitation of liability for the general partners.

– The limited partners only have a very limited say.

“Sociedad Limitada” or Spanish limited liability company

Overview:

– This is the most common form of company.

– Own legal personality because it is a legal entity.

– The wide distribution ensures broad acceptance.

– Thanks to its widespread use, all processes and obligations can be determined quickly and clearly.

– Liability towards third parties is limited to the deposits.

– The minimum share capital is only around 3,000 euros.

– No upper limit on the share capital.

– A shareholder can be active in the company as well as merely a financial backer.

– A Sociedad Limitada requires only one shareholder and is then called Sociedad Limitada Unipersonal, or S.L.U. for short.

– The Sociedad Limitada is subject to Spanish corporation tax (Impuesto de Sociedades).

Advantages:

– Distribution.

– Limitation of liability.

– Can also have only one shareholder.

– Low minimum share capital of 3,006 euros.

– No upper limit for the share capital.

– Favorable foundation.

– Fast foundation.

– Manageable administrative effort.

– Only one shareholder required.

Disadvantages

– Commercial companies regularly have more obligations towards the tax office than sole traders.

– The transfer of shares is subject to the provisions of the articles of association and the law, which is why it is usually more difficult and less flexible.

– The co-shareholders usually have a pre-emptive right to the investments.

– Publication requirement vis-à-vis the commercial register, which is why the business figures can be viewed by third parties.

“Sociedad Limitada Nueva Empresa” or Spanish start-up limited liability company

Overview:

– It is a limited liability company optimized for start-ups.

– The same information therefore applies as for the normal Sociedad Limitada.

– However, there are deviations in six key points.

– The foundation is carried out using pre-printed forms, which is why the foundation of an S.L.N.E. is quicker, easier and cheaper.

– There can be a single shareholder (the company then bears the abbreviation: S.L.N.E.U.; “U” for unipersonal, i.e. one-person company), but only a maximum of five shareholders are permitted.

– Shareholders can only be natural persons, not legal entities.

– The share capital must amount to at least EUR 3,000 and can reach a maximum of EUR 120,202.

– There are tax benefits for this type of company.

– However, the company must convert after a maximum of three years, so it cannot benefit from the tax breaks beyond this period.

Advantages:

– All the advantages of Sociedad Limitada.

– Tax concessions during the first three years.

– Fast, light and cheap foundation.

– Simplified accounting.

Disadvantages:

– All the disadvantages of Sociedad Limitada.

– Obligation to convert after three years at the latest.

– Restriction on the choice of name, as this must bear a code in addition to the name of one of the founders.

“Sociedad Limitada Laboral” or employee-managed limited liability company

Overview:

– It is an adaptation of the normal Sociedad Limitada, which is aimed at favoring the collective exercise of an activity by way of self-employment.

– The company has its own legal personality.

– The minimum share capital is around 3,000 euros.

– Liability is limited to the deposits vis-à-vis third parties.

– A distinction is made between shareholders who are active in the company and those who are merely investors, i.e. silent partners.

– At least 51% of the shares must be held by shareholders active in the company.

– However, each individual shareholder may not hold more than 1/3 of the shares.

– As far as employees are concerned, it should be noted that in companies with up to 24 shareholders, the number of employees may only increase to a maximum of 25 % of the shareholders; in other words, at least 75 % of the positions must be filled by shareholders.

– If the company has more than 24 shareholders, the employees may only account for 15%.

– With regard to the annual number of hours worked, it should also be noted that employees may only work a maximum of 49% of these hours. The partners involved in and working for the company must therefore perform at least 51% of the work or hours.

– The shareholders working in the company can choose whether they wish to be insured in accordance with the regulations for employees or self-employed persons with regard to their social insurance.

– With this type of company, profits are subject to corporation tax.

Advantages:

– Limitation of liability towards third parties.

– Social, economic activity, as the company essentially belongs to the employees.

– Tax benefits when setting up, as up to 99% of stamp duty, land transfer tax and property transfer tax are exempt.

– Advantages when receiving subsidies and assistance.

– Options for structuring vis-à-vis social insurance.

– A reserve fund is provided for by law, which opens up the possibility of self-financing in the event of profits.

Disadvantages

– At least three shareholders are required, two of whom must be employed in the company.

– More complex incorporation process and increased requirements to fulfill the requirements in the respective Comunidades Autónomas, in which special registers exist for such companies, in which the corresponding entries must be made in compliance with local requirements.

– Overall higher requirements and conditions, due to participation limits, relationship between employees and active shareholders, etc.

“Sociedad Anónima” or the Spanish stock corporation

Overview:

– This type of company has its own legal personality.

– A minimum share capital of around 60,000 euros is required.

– At least 25% of the share capital must be in cash when the company is founded.

– There may be a single shareholder. In this case, the company bears the abbreviation S.A.U. after its name.

– As far as the number of shareholders is concerned, there is no upper limit.

– This type of company is particularly suitable for a large number of shareholders.

– Liability is limited to the company’s contributions or assets.

– The profits of Sociedad Anónima are subject to corporation tax.

– The formation requires the establishment in a public deed and subsequent entry in the commercial register.

Advantages:

– Limitation of liability.

– There can be a single shareholder. Which is why a one-person company is conceivable.
– Reputation due to the high minimum share capital.

– Only 25% of the share capital must be in cash.

– The ease with which shares can be transferred.

– Simplified inclusion of investors.

– Particularly suitable for high investment volumes and a high degree of shareholder diversification, in this case shareholders: Shareholders.

– Otherwise the usual advantages of a trading company.

Disadvantages:

– High minimum share capital of around 60,000 euros.

– Costly and administratively intensive foundation and equally costly ongoing administration.

– Otherwise, the usual disadvantages of a trading company.

“Sociedad Anónima Laboral” or employee-managed stock corporation

Overview:

– This type of company has its own legal personality.

– A minimum share capital of around 60,000 euros is required.

– At least 25% of the share capital must be in cash when the company is founded.

– There may be a single shareholder. In this case, the company bears the abbreviation S.A.U. after its name.

– As far as the number of shareholders is concerned, there is no upper limit.

– This type of company is particularly suitable for a large number of shareholders.

– Liability is limited to the company’s contributions or assets.

– The profits of Sociedad Anónima are subject to corporation tax.

– The formation requires the establishment in a public deed and subsequent entry in the commercial register.

– It is an adaptation of the normal Sociedad Anónima, which is aimed at favoring the collective exercise of an activity by means of self-employment.

– Liability is limited to the deposits vis-à-vis third parties.

– A distinction is made between shareholders who are active in the company and those who merely hold shares.

– At least 51% of the shares must be held by shareholders active in the company.

– Each individual shareholder may not hold more than 1/3 of the shares.

– As far as employees are concerned, it should be noted that in companies with up to 24 shareholders, the number of employees may only increase to up to 25 % of the shareholders. In other words, at least 75% of the positions must be filled by shareholders.

– If the company has more than 24 shareholders, employees who are only salaried employees may only account for 15%.

– With regard to the number of hours worked per year, it should also be noted that salaried employees may only work a maximum of 49% of these hours. The shareholders participating in and working for the company must therefore perform at least 51% of the work or hours.

– The shareholders working for the company can choose whether their social insurance is taken out in accordance with the regulations for employees or self-employed persons.

– With this type of company, profits are subject to corporation tax.

Advantages:

– Limitation of liability.

– Reputation due to the high minimum share capital.

– Only 25% of the share capital must be in cash.

– Social, economic activity, as the company essentially belongs to the employees.

– Tax benefits when setting up, as up to 99% of stamp duty, land transfer tax and property transfer tax are exempt.

– Advantages when receiving subsidies and assistance.

– Options for structuring vis-à-vis social insurance.

– A reserve fund is provided for by law, which opens up the possibility of self-financing in the event of profits.

– Otherwise the usual advantages of a trading company.

Disadvantages:

– High minimum share capital of around 60,000 euros.

– Cost- and administration-intensive foundation and management.

– At least three shareholders are required, two of whom must be employed by the company.
– More complex incorporation process and increased requirements to fulfill the requirements in the respective Comunidades Autónomas, in which special registers exist for such companies, in which the corresponding entries must be made in compliance with local requirements.

– Overall higher requirements and conditions, due to participation limits, relationship between employees and active shareholders, etc.

– Otherwise, the usual disadvantages of a trading company.

“Sociedad Cooperativa” or Spanish cooperative

Overview:

– This company has its own legal personality.

– However, this form of company makes sense primarily for those shareholders who also work in it.

– There must be at least three shareholders (in Germany, the term “member” is commonly used. However, since in Spain the term “SOCIEDAD Cooperativa” and “Socios” are used, the term “shareholder” will be used here for the sake of simplicity).

– A distinction is made between shareholders who are active in the company and those who merely act as investors, i.e. who have only provided financial resources.

– No shareholder may hold more than 1/3 of the shares.

– Those shareholders who are not active in the company may only hold a minority interest in total.

– Of the total number of employees working in the company, no more than 30% may be non-shareholders. In other words, at least 70% of the positions must be filled by shareholders.

– If these figures are exceeded, the non-participating employees must be offered participation.

– No minimum share capital is required.

– There is a limitation of liability towards third parties.

– This type of company pays corporation tax on its profits, albeit at a reduced rate.

– The shareholders can choose whether they are insured as employees or shareholders vis-à-vis the social insurance.

– Each shareholder has only one vote, regardless of the size of their shareholding. This means that all shareholders have equal rights in the decision-making process.

Advantages:

– Limitation of liability.

– practical grassroots democratic decision-making.

– Social, economic activity, as the company essentially belongs to the employees.

– Tax benefits when setting up, as up to 95% is exempt from stamp duty, land transfer tax and property transfer tax.

– More favorable tax rates for corporate income tax.

– Advantages when receiving subsidies and assistance.

– Options for structuring vis-à-vis social insurance.

– A reserve fund is provided for by law, which opens up the possibility of self-financing in the event of profits.

Disadvantages:

– At least three members required.

– Due to the more democratic decision-making process, it is often more difficult to steer or even bring about decisions.

– Higher administrative costs.

The following is a brief graphic overview: