Company Formation in Spain: Which One is Right for Your Business?
When starting a company in Spain, you should first be aware of the types of business entities that exist. Since there are many different forms of company structures, it’s important to pick the model that suits your activity and expected income level.
In this article, we’ll breakdown the 10 main company structures, to help you decide which one is right for you and your business in Spain.
An unincorporated company is the cheapest way to set up a business, with no initial investment required. This type of business does not have a legal personality, with no distinction made between company assets and personal assets. Therefore, the owner is responsible for any debt acquired.
This option is best for those who won’t expect a high annual income (generally under €60,000). When you earn above this threshold it may be advantageous to incorporate the business due to an increase in the rate of Personal income tax (Impuesto sobre la Renta de Personas Físicas or IRPF), which will need paying quarterly.Unincorporated companies can take one of the following three forms:
- A self-employed (autónomo) is the most simple entity. This is a single person carrying out work under their name, and who is in complete control of the business. Being an autónomo suits traditionally freelance occupations, such as writers or web-developers, and is one of the most popular types of business structure.
For more information about becoming autónomo, see our article Registering as a Freelancer in Spain.
- A jointly-owned company (Comunidad de Bienes) is largely the same as the self-employed individual, however, the business is owned by more than one person with each partner paying IRPF on their income. The only difference is that the formation of the company requires a constitution contract to determine the agreement between the partners.
- A partnership (sociedad civil) is a private agreement between two or more people that enter into a contract together, each making an investment in exchange for a share of any profits. Their investment is not necessarily in monetary form as it can be hours worked, or any other type of asset. Although this type of company has not been incorporated it does have a legal personality and, since 2016, must pay corporate tax instead of IRPF.
Incorporated companies have their own legal personality, and are distinct from the physical personality of the owners or partners.
They must be formalized by public deed and registered with Spain’s Mercantile Registry (Registro Mercantil Central or RMC). This company type usually requires an initial investment, which varies depending on the type of structure.
Corporate tax (impuesto de sociedades) must be paid, which generally equals 25% of company profits. However, this does vary depending on company type and activity, and there are various reductions you may be able to benefit from.A corporate company can be one of the following seven types:
- A Limited Liability Company (Sociedad Limitada or SL) is by far the most common business structure in Spain, seen in SMEs (PYMES), higher-earning companies of one person, those with few partners, or family-run businesses. There is a minimum initial investment of €3000 and liability for any debt is limited to the capital contributed.
For more information about setting up this type of company, see our article How to Set Up a Company in Spain: The 2021 Guide.
- A New Enterprise Limited Liability Company (Sociedad Limitada Nueva Empresa) is a simplified form of SL and is generally quicker to set up. Similarly, the minimum initial investment is €3000, but with a maximum of €120000.
At the time of formation the maximum number of partners is five, none of which can be legal individuals. After this new partners can become involved by transferring shares in the company capital.
- A Public Limited Company (Sociedad Anónima or SA) is intended for larger companies or one where the partners are expected to change. However, they can still be started by one person. For this type of business, initial capital stock of at least €60000 is required, and - upon company formation - an initial payment of at least 25% must be made.
Partner liability is limited to capital investment. Any listed company must be set up as an SA and, generally, its shares can be traded openly.
- A Worker-owned Company (Sociedad Laboral) can take the form of an SL or an SA, with some additional considerations. The main difference is that the shares are held by two different groups; the workers - who must own at least 51% - and those who do not work at the company.
There must also be at least four partners when the business is formed, with a minimum of three of those partners being employed at the company.
- A General Partnership (Sociedad Colectiva) is a company that is personally managed and owned by its partners. This business type is incorporated as a separate legal entity. However, the partners are personally liable for any company debt. There is also no minimum capital investment required.
- A Limited Partnership (Sociedad Comanditaria) is a company that can be made up of both general partners and limited liability partners. For general partners, the same situation is similar to the General Partnership, with them managing the company and being liable for debts. The limited partners would not be involved in the management of the company, or be subject to any liability.
The formation of this type of company is similar to the process of an SA and there must be at least one of each partner type involved.
- A Cooperative (Sociedad Cooperativa) is formed around non-profit activity with a common social or economic purpose, and it is made up of both legal and non-legal persons. Once costs are business costs covered, any surplus is distributed among the members, after 30% is reserved for educational and promotional activity. Certain tax deductions can be available for this type of business.
Cooperatives can be Grade One, which consists of at least three individuals or companies, or Grade two, which is made up of at least two cooperatives. Liability is generally limited to the initial contribution, and the capital investment varies depending on the number of partners.
Need Help Deciding Which One is Best for You?
While we hope this overview of company structures in Spain has helped you understand the options more clearly, you may still be unsure exactly which one best suits your situation. Or you may be interested in other ways to enter into the Spanish market, such as setting up a Joint Venture.
Whatever your situation, we’re here to help. For further assistance and information, please contact us and one of our specialist team of business lawyers will be in touch to provide further guidance.