If you are thinking of starting a business in Spain, no matter which is your activity field, one of the first decisions you must make is to choose the type of company that you should create.
Which is the most suitable legal form for the firm that I want to setup? Or in other words, what type of company should I choose?
The final decision should depend on several factors that the entrepreneur must clarify in advance. Among them is the size of the company, the number of owners or shareholders, the amount of initial capital, the division of responsibility and decision-making, in addition to financial and fiscal issues.
Currently, the Spanish Ministry of Industry, Tourism and Commerce lists up to 20 types of legal forms for companies, each with its own characteristics.
From the most common ones used by the self-employed, such as solo entrepreneur (autónomo, in Spanish) and Limited Liability Company (Sociedad Limitada), to the most complicated venture capital companies, there are many options to choose from.
Below you can read a list of the 6 most common business types in Spain and their characteristics.
1. Private entrepreneur or sole trader (Autónomo)
It is the most common legal form when an entrepreneur decides to start a small business with limited resources - for example a store - or to start working on their own providing services. When this formula is chosen, only one person is needed to start the activity under a company name and there is no minimum legal amount of capital required to set up the company.
Another advantage is that registering the business is less complicated and decision-making depends solely on the founder.
Private entrepreneurship is a very interesting option for professionals and trained people who want to do business on their own, or for people who already have a job but want to be part-time entrepreneurs.
The main disadvantage of this formula is that, in case everything goes wrong, all the liabilities fall on the founder of the company, and with unlimited liability.
In practice, this means that even if you go bankrupt, your responsibilities do not disappear and you will be liable for debts or other obligations contracted with your own assets.
In Spain, the self-employed pay taxes through Personal Income Tax (IRPF).
2. Limited Liability Company (Sociedad de Responsabilidad Limitada, S.L.)
This is a type of company of commercial nature in which the capital stock, which will be divided into shares, indivisible and accumulative, will be made up of the contributions of all the partners, who are not personally liable for the company debts.
The limited liability company needs at least one founding partner and 3,000 euros of share capital, which will be divided into shares, which can be freely transferred voluntarily.
The main advantage of this type of company is that the liability of the partners for the debts and obligations contracted by the company is limited to the capital contributed.
Among the disadvantages, the obligation to keep formal accounting stands out. You also have to pay taxes through Corporate Tax (Impuesto de Sociedades), which makes taxation more complex.
In terms of management, there are higher expenses than in the case of an individual entrepreneur or other formulas.
The partners are always identifiable.
This type of company cannot be publicly traded.
3. Stock Corporation or Public Limited Company (Sociedad Anónima, S.A.)
The minimum share capital required for its formation is 60,000 euros.
This is also a company of a commercial nature in which the capital stock, divided into shares, is made up of the contributions of the partners, who are not personally liable for the corporate debts.
There is no established condition regarding the number of partners, it can be sole proprietorship.
Its creation must be formalized by public deed and subsequent registration in the Trade Register.
The liability of the founders is limited to the capital contributed.
Taxation is done through corporate tax at the usual rate.
4. Worker-owned company (Sociedad Laboral)
The labour company can be of two types: limited liability labour company or public limited labour company.
If it is a limited liability labour company, the minimum capital required for its creation is 3,000 euros but if it is a public limited labour company this amount rises to 60,000 euros.
It requires a minimum of 2 partners for its foundation.
In this kind of company, the majority of the capital will be owned by the workers with a permanent work relationship with the company. As a general rule, no partner may have more than a third of the capital, although there are some exceptions, for example at the time of the foundation or for those labour companies which are participated by the government of the State or the Autonomous Communities or by associations.
Another important requirement is that the number of hours worked per year by workers hired for an indefinite period who are not partners, may not exceed 49% of the total hours worked per year by all working partners.
If the employment relationship between the company and a partner is terminated, the latter should put their shares up for sale. The shares of these companies always provide voting rights.
Taxation is done mainly through Corporate Tax.
5. Cooperative (Sociedad Cooperativa)
This is a type of company made up of people who associate, in a free membership regime and with voluntary withdrawal, to carry out business activities, aimed at satisfying their economic and social needs and aspirations, with a democratic structure and functioning.
The cooperative company has a marked social character. Its purpose is the creation, maintenance or improvement of jobs for its partners.
In this case, each partner has one vote, regardless of the volume of capital contributions of each of them.
The company will be constituted by means of a public deed that must be registered in the Registry of Cooperative Societies, with which it will acquire legal personality.
The minimum share capital will be established in the company's bylaws and must be fully paid up from the moment of its creation.
There are two types of cooperatives: first and second degree. The first degree have partners who are natural or legal persons. In the second degree cooperatives, the members are other cooperatives.
They pay corporate tax, but with certain tax advantages (Régimen especial).
6. General partnership (Sociedad Colectiva)
A type of company in which all partners, in collective name and under a company name, undertake to participate, in the proportion established, of the same rights and obligations, responding in a subsidiary, personal and joint manner to the corporate debts.
This formula is ideal for a business project with a small number of partners.
The general partner who contributes 'goods' to the company is known as 'capitalist partner,' and the one who only contributes 'industry' (that is, work, services or activity in general) is called 'industrial partner.'
All of them are involved in the management of the company, The company has patrimonial autonomy and is liable for its debts with its own patrimony, but the partners are also personally liable for the company debts and liabilities.
To establish a general partnership, a minimum of two shareholders is required. There is no minimum share capital for incorporation.
Taxation is done through corporate tax at the usual rate.