Guide to incorporate a business in Spain
Different alternatives for different business models
It is time to get down to work. We will have to choose an appropriate legal form to carry out our business activity, knowing the consequences that such activity may have on our own assets.
1. Self-employed professional (Sole Trader)
An entrepreneur can be a natural person who carries out a commercial activity on his own or through representatives.
The simplest and quickest way to start exercising a business activity is to register as a self-employed person. The self-employed, as such, is considered as a trader or entrepreneur for the purposes of the Commercial Code.
The self-employed person is liable with all his assets for the obligations incurred in the exercise of his activity.
His liability is therefore unlimited.
He must register with the tax authorities and social security. He/she must keep accounting records.
The income from the activity is imputed to his personal income.
2. Community of property / Civil partnership
Sometimes, several persons decide to exercise a business activity through a community of goods or civil society. In these cases, the partners put together a series of goods and work that are destined to obtain certain yields or profit.
The civil partnership is defined in article 1.665 of the Civil Code as a contract by which two or more persons are obliged to put money, goods or industry in common, with the intention of splitting the profits between them. The community of goods, on the other hand, consists only in the fact that an asset or set of assets belong to several persons.
In the case of the community of goods, if the owners of the goods exploit them in an organized economic manner and with the intention of obtaining profits, we find ourselves before a form of association that can become a legal entity if the agreements between the co-owners are not kept secret. The same happens with the civil society.
In these cases, there is no need for a public deed or registration in the commercial register, which lowers the costs of incorporation of this type of business. In case of having a separate legal personality, it will be necessary to register the community of goods or the civil society with the tax authorities and the Social Security, obtaining the corresponding identification numbers.
This can be an interesting way to start a business with very limited start-up costs.
The main problem with this form of partnership is that the community of goods or the civil partnership is liable with all its assets, but, in addition, the partners or co-owners are liable in a subsidiary manner with all their present and future assets.
Once again, there is no limited liability in the exercise of their activities.
3. Companies
Social entrepreneurs (of the associative type) are the most frequent in our economic reality.
We find several types of companies according to their particular characteristics
a) Personalistic
They have a personal basis. This means that there are certain persons or partners who are personally liable for the debts of the company.
In this section we find partnerships, based on bonds of trust among the partners. All partners are jointly and severally liable for the debts of the partnership (Art. 127 Commercial Code).
Limited partnerships (‘sociedades comanditarias simples’), on the other hand, are those in which in addition to general partners (unlimited liability) there are also limited partners, who are liable only up to the maximum limit of their capital contributions (Art. 148 Commercial Code).
b) Capitalist
Capitalist partnerships/companies are the most common in our legal practice.
The capitalist company par excellence is the corporation. Total limitation of liability for the partners, regardless of their circumstances. They are liable only up to the limit of the capital contributions made to the company. Its capital is divided into shares and is more open than other companies, which facilitates the transfer of shares.
The limited liability company, closed company par excellence and the most abundant in our commercial traffic. Lower capital stock requirements. Its partners are also liable up to the limit of their contributions, so it also enjoys the protection mechanism of the limited partnership.
Lastly, and now in disuse, we find the limited partnership by shares (‘Comanditaria por acciones’). In this case, at least one of the partners is personally liable for the debts incurred during the period in which he/she manages the company (articles 1.4 and 252 Companies Act).
Ignacio López-Hermoso
Corporate M&A Lawyer
➡️For more info you can contact us on 0034 91 415 74 62 or send us an email to info@lopezhermoso-abogados.com