Joint Ventures in Spain: Formation and Regulations
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Joint Ventures in Spain: Formation and Regulations

How to create a joint venture in Spain: an overview

Navigating the dynamic business landscape of Spain can be both exciting and complex, especially for international companies looking to explore new ventures. Joint ventures in Spain offer a strategic pathway for businesses to combine their strengths, share risks, and capitalize on opportunities within the Spanish market. In this article, we will delve into the intricacies of joint ventures in Spain, examining their definition, legal forms, regulations, and common usage among various types of businesses. Whether you are considering forming a joint venture or simply wish to understand their function within the Spanish commercial environment, this guide will provide you with a comprehensive overview of what you need to know about joint venture companies in Spain.

Business executive connecting puzzle pieces symbolizing the strategic partnership of a joint venture in Spain

What is a Joint Venture in Spain?

A joint venture in Spain is a collaborative enterprise where two or more parties come together to pursue a specific investment project for a defined period. This type of legal entity is particularly appealing for companies aiming to undertake a determined investment task within the Spanish market. The unique structure of a joint venture allows the involved parties to pool resources, share expertise, and distribute risks associated with the project, while being jointly liable for its outcomes and costs.

Types of joint ventures under Spanish law include:

  • A Temporary Business Association (Unión Temporal de Empresas or UTE), which allows companies to collaborate on particular projects without forming a separate legal entity.
  • An Economic Interest Grouping (EIG) and a European EIG (EEIG), which facilitate the operation of companies in different EU countries under a flexible legal structure.
  • A silent partnership arrangement peculiar to Spanish law (cuenta en participación), where one can invest in the business of another without becoming publicly known.
  • A Contractual Joint Venture
  • Joint Ventures through traditional corporate structures such as Spanish corporations or spanish limited liability companies.

International entities considering establishing a joint venture in Spain can benefit from expert guidance on these varied options. At Lawants, our team of company formation representatives in Spain is well-equipped to provide detailed insights into selecting the most suitable legal entity for your investment endeavors. Don’t hesitate to contact us for tailored legal advice.

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Forming a Joint Venture in Spain: Legal Forms

Let’s now unpack the characteristics of each legal form for joint ventures in Spain:

Temporary Business Association (Unión Temporal de Empresas: UTE)

A UTE is a collaborative framework designed for companies to jointly execute a specific project or service. It is particularly prevalent in sectors like engineering and construction. Although a UTE operates as a unified entity for the project, it does not possess legal personality and is not considered a corporation. It comes into existence through a notarial deed and must be registered with the Spanish Ministry of Economy’s Special Register of UTEs. Despite their non-corporate status, UTEs are subject to bookkeeping and accounting obligations similar to those imposed on corporations, ensuring transparency and accountability.

Economic Interest Grouping (Agrupación de Interés Económico: EIG) or European EIG (EEIG)

EIGs are conceived as non-profit entities that facilitate their profit-oriented members in achieving their business objectives. They provide support without replacing or acting on behalf of their members in their respective operations. Commonly utilized for centralized services like purchasing, sales, data processing, or administrative tasks, EIGs must adhere to specific Spanish legal requirements. They cannot influence member decisions regarding personnel, finance, or investments and are restricted from holding investments in other companies unless necessary for the EIG’s purpose. Formation of an EIG requires a notarial deed, and members are jointly responsible for the entity’s liabilities.

Partnership Agreement Known as Contrato de Cuentas en Participación

This form of partnership involves one or more non-managing participants contributing assets or funds to a venture managed by another entrepreneur. In return, non-managing participants are entitled to a proportionate share of the profits—and potentially the losses—of the project. Contributions made under this agreement do not constitute capital investment; hence, non-managing participants do not acquire shareholder status within the managing company and are unaffected by its activities outside the agreement’s scope. While there are no mandatory legal formalities for this agreement, parties often opt for a public deed to serve as proof for third parties if needed.

Contractual Joint Venture

Contractual joint ventures are established through agreements where parties pool resources for a specific business project without forming a separate legal entity. These arrangements maintain each party’s control over their assets, business, and employees while outlining cooperation terms within the joint venture agreement.

Hybrid Structures

The UTE represents a hybrid structure where members work together on specific projects or services without forming an entity with legal personality. This structure is commonly adopted for projects involving local or governmental authorities or concession businesses.

Incorporated Joint Ventures

In Spain, joint ventures are often formalized through incorporation, either as partnerships with unlimited liability for partners or as limited liability companies where liability is capped at the company’s share capital. The two primary types of companies used for this purpose are private limited liability companies (SL) and public limited liability companies (SA), with SLs being the most popular choice due to their simplicity and flexibility.

Two professionals discussing the strategic planning of a joint venture in Spain on a digital tablet in an urban setting

Regulation of Joint Ventures in Spain

Joint ventures in Spain, appealing to both local and international investors, are governed by a set of regulations that ensure their proper formation, operation, and dissolution. Investors can choose from various legal entities under Spanish law to register their joint ventures, with the public limited liability company (Sociedad Anónima: SA) and the private limited liability company (Sociedad Limitada: SL) being the most prevalent choices. The latter has seen a rise in popularity due to its lower capital requirements compared to an SA.

The legislative framework for corporate joint ventures in Spain is primarily provided by the Spanish Corporate Law and the Capital Companies Act. These laws stipulate the requirements for the establishment, governance, and management of joint ventures structured as corporate entities.

To incorporate a joint venture, a joint venture agreement must be drafted. This foundational document outlines the terms of cooperation between the parties involved and can be written in any language preferred by the investors. However, for corporate joint ventures, it is mandatory to register key statutory documents with the Commercial Registry. These include the public deed of incorporation and the articles of association, which serve as the legal backbone of the joint venture.

It is crucial for investors to navigate these regulatory waters with precision and care, as adherence to Spanish corporate legislation ensures not only legal compliance but also sets a solid foundation for the success of their collaborative enterprise.

Our legal experts specializing in company formation in Spain can provide invaluable assistance in selecting the most suitable legal entity and ensuring that all regulatory requirements are met.

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What Types of Businesses Commonly Use Joint Ventures in Spain?

In Spain, joint ventures are a versatile business model adopted across various sectors due to their flexibility and strategic advantages. They are particularly prevalent in fields where collaboration can lead to enhanced expertise, shared risks, and pooled resources. Sectors that commonly employ joint ventures include real estate, where multiple parties may join forces for development projects; infrastructure or engineering, where the scale and complexity of projects necessitate combined capabilities; and telecommunications, which often requires significant capital investment and technical know-how.

Additionally, the insurance and financial sectors in Spain frequently utilize joint ventures to expand their market reach or develop new products through partnerships that leverage the strengths of each entity. These collaborative efforts not only help companies to innovate but also to navigate regulatory landscapes and competitive markets more effectively. The adaptability of joint ventures makes them a strategic choice for businesses aiming to achieve specific objectives while minimizing individual risk.

Setting up a Joint Venture Company in Spain

The process of establishing a joint venture in Spain is a tailored affair, meticulously designed to align with the cultural, tax, legal, and regulatory preferences of the parties involved, as well as their objectives and respective contributions to the venture. It’s crucial to identify these factors early in the negotiation phase to determine the most effective structure for the joint venture. While each joint venture is unique, there are common considerations that influence its structuring.

Investment and Nature of the Partners

A pivotal aspect of structuring a joint venture is defining each partner’s stake and their rights regarding share transferability. The complexity of a 50:50 incorporated joint venture differs significantly from that of non-incorporated, contractual ventures or companies with minority partners. The nature of the partners—whether they are industrial entities or financial investors—will affect the distribution of responsibilities and liabilities, potential deadlocks, the duration of the venture, and the terms of its dissolution. This aspect can also trigger competition concerns, such as issues related to vertical and horizontal integration.

Location and Operation, and Nationality of the Partners

The structure will vary if the joint venture operates on a domestic or cross-border basis and will depend on the nationality of the partners. Domestic ventures typically encounter fewer cultural challenges and have simpler tax structures. In contrast, cross-border ventures necessitate meticulous structural analysis and planning or negotiation on various fronts including choice of law, dispute resolution mechanisms, location of the joint venture, and tax considerations.

Purpose and Duration

The objectives and scope of the joint venture, the nature of business activities to be undertaken, partner contributions, and the anticipated lifespan are all critical in shaping both the structure of the joint venture and the agreements among partners. It’s essential that these elements are clearly outlined to ensure that all parties have a mutual understanding of their roles within the joint venture and its intended outcomes.

For more information read our detailed guide on the different types of companies in Spain.

Handshake against a city backdrop, representing a successful agreement on a joint venture in Spain.

Joint Venture Companies in Spain: Taxation

When establishing a joint venture in Spain, taxation is a critical factor that varies significantly depending on the type of legal entity chosen for the joint venture. Entities with legal personality, such as incorporated joint ventures, are subject to spanish corporate income tax. In contrast, unincorporated entities, which lack legal personality, operate on a flow-through basis where income and expenses are allocated directly to their partners for tax purposes.

Specifically, when a Unión Temporal de Empresas (UTE) has a non-resident partner, the UTE itself is liable for corporate income tax on the income attributable to that non-resident member. Any subsequent profit distribution to this partner is then treated as a dividend, which may have further tax implications.

The taxation of partner contributions to the joint venture, as well as services provided by the partners, must be carefully evaluated. This includes considerations of capital gains tax for direct taxation and value-added tax (VAT) or other indirect taxes for contributions and services.

Furthermore, it’s essential to strategically plan for the eventual exit of partners from the joint venture. The distribution of accumulated earnings should be structured with foresight, taking into account potential capital gains tax and any specific waterfall arrangements that may apply upon dissolution.

In conclusion, tax considerations for joint ventures in Spain are multifaceted and require thorough planning from the outset. It’s advisable for parties to consult with experienced tax professionals such as our seasoned lawyers at Lawants who can provide guidance tailored to the specific circumstances of their joint venture.

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