S.L company in Spain (Sociedad Limitada): set up a limited liability company
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S.L company in Spain (Sociedad Limitada): set up a limited liability company

Spanish Limited Limited Company (Sociedad Limitada): characteristics and formation

Setting up a company in Spain is a significant step that requires a thorough understanding of the various business structures available. One of the most popular options is the Limited Liability Company (S.L.), which comes with a set of specific advantages and liabilities. Understanding the different options is crucial for making an informed and strategic choice.

building of an sl company in spain

SL company in Spain

The Sociedad Limitada (S.L.) in Spain is the most commonly used business structure, offering a flexible and cost-effective way to establish a company. This type of entity is particularly suitable for entrepreneurs looking to develop a business with a modest initial capital investment, as it requires a minimum share capital of just 3,000 EUR. Additionally, the S.L. structure generally involves lower ongoing management costs, making it a popular choice for both domestic and international business owners. 

Looking to set up an S.L. in Spain? Contact Lawants for expert legal assistance and ensure your business starts on a solid legal foundation. Let us guide you through every step of the process.

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What is an SL? Definition and meaning

An SL, or Sociedad Limitada, is a type of limited liability company in Spain. It is designed to engage in commercial activities and can operate in various sectors. One of the defining features of an SL is its “autonomía patrimonial perfecta,” which translates to perfect asset autonomy. This means that shareholders are not personally liable for the company’s debts; their financial risk is limited to the amount they have invested as share capital. This structure provides a protective layer for investors, allowing them to engage in business activities without jeopardizing their personal assets, making the S.L. one of the most advantageous types of company in Spain

Liability

When it comes to understanding the liability structure of a Sociedad Limitada (SL) in Spain, it’s imperative to emphasize the limited liability nature of this business entity. Shareholders are not personally liable for the company’s debts, losses, or any other financial obligations. This limited liability feature is one of the key advantages that make the SL a highly attractive option for both domestic and international investors. It provides a secure framework for business operations, allowing shareholders to invest in various commercial activities without exposing their personal assets to financial risks. This level of asset protection is particularly beneficial for small to medium-sized enterprises (SMEs) and individual entrepreneurs who are looking to establish a strong business presence in Spain while mitigating personal financial risks. 

Minimum share capital

One of the most appealing aspects of establishing a Sociedad Limitada (SL) in Spain is the relatively low minimum share capital requirement. The law stipulates that an SL must have a minimum share capital of 3,000 EUR. Interestingly, this amount does not necessarily need to be fully paid up before the company’s formation. Shareholders have the option to subscribe to the share capital without immediately disbursing the funds. However, it’s crucial to note that if the share capital is not fully paid up, the shareholder becomes personally liable for the company’s debts up to the amount of the unpaid share capital. This flexibility in capital requirements makes the SL a versatile and accessible option for investors in Spain, but it also comes with its own set of responsibilities that should be carefully considered. 

Shareholders

When it comes to shareholder requirements for a Sociedad Limitada (SL), the LLC in Spain, the regulations are notably flexible. There is no minimum or maximum number of shareholders mandated by law, making it an adaptable structure for various business needs. Importantly, there are no restrictions on who can be a shareholder; both individuals and legal entities are eligible to hold shares in an SL. This inclusive approach allows for a diverse range of investors to participate in the company. However, it’s essential to consult with a legal advisor before forming the company, especially concerning the remuneration structure for shareholders and managing directors. In most cases, it is not possible to establish an employment contract between the shareholder and the company, which could have implications for how profits are distributed and taxes are calculated.

Transfer of the Shares

Transferring shares in a Sociedad Limitada (SL) in Spain is a relatively straightforward process. The transaction is formalized through a notarial deed, making it a public act. However, one unique aspect of Spanish corporate law is that the deed of sale is not registered in any public registry. As a result, the identity of the shareholders in an SL does not appear in the Commercial Register. This lack of public record adds a layer of privacy but also underscores the importance of maintaining accurate internal records for the company. 

Company bylaws

While company bylaws may not hold as much significance in Spain as they do in other jurisdictions, it’s always advisable to consult with a professional law firm such as Lawants when drafting them. This is especially true for foreign companies looking to establish a subsidiary in Spain. Utilizing generic templates may not adequately address the specific needs of the business. Key elements to consider include whether the role of the managing director is paid or unpaid, the procedures for calling a shareholders’ meeting, and the option to organize universal general meetings via video conferencing. Consulting with experts ensures that the bylaws are tailored to the unique requirements of your business, thereby avoiding potential legal pitfalls down the line. 

office of an sl company in spain

Key requirements of a Limited Company in Spain

Understanding the key requirements for establishing a limited liability company in Spain is crucial for any prospective business owner. These requirements set the foundation for your company’s legal and operational structure. Let’s delve into the specifics: 

  • Certificate of Corporate Name: The first step involves obtaining a certificate of corporate name from the Central Commercial Register (Registro Mercantil Central) to secure your trading name. 
  • Tax Identification: Shareholders and directors must be identified with a tax identification code in Spain, ensuring legal compliance. 
  • Company Bylaws: Drafting the company bylaws is an essential step, providing the governing document for your SL. 
  • Bank Account: While not mandatory at this stage, you have the option to open a corporate bank account for financial transactions. 
  • Deed of Incorporation: The company becomes legally formalized when you sign the deed of incorporation before a notary. 
  • Provisional NIF: A provisional tax identification number (NIF) must be obtained for tax compliance purposes. 
  • Commercial Register: The company must be registered with the Commercial Register to apply for a permanent NIF from the Spanish Tax Agency. 
  • Corporate Bank Account: Finally, a corporate bank account should be opened to manage your company’s finances. 
  • Registered Office: A registered office address in Spain is required for legal correspondence and official notifications. 

Each of these steps contributes to the legal and functional framework of your SL, ensuring that your company operates within the bounds of Spanish law. 

Advantages of an SL in Spain

The advantages of establishing a Sociedad Limitada (SL) in Spain are numerous and can offer significant benefits for both domestic and international business owners. Let’s explore some of these key advantages: 

  • Professional Management: One of the primary benefits is the ease of management, especially when overseen by a professional law and economics firm, as opposed to a local consultancy. 
  • Tax Deductions: All expenses are tax-deductible, providing financial flexibility and optimizing operational costs. 
  • Corporate Tax: The only tax levied is the Corporate Tax, which is uniform across Spain, except in the Canary Islands, which benefit from a special tax regime to encourage economic development in the region. Read our article on corporate tax in Spain.
  • Double Tax Treaties: Spain boasts the highest number of double taxation treaties in Europe, offering significant tax advantages for international businesses. 
  • Limited Liability: An SL in Spain allows shareholders to limit their liability, ensuring they are not personally responsible for the company’s operations. 

These advantages make the SL an attractive option for entrepreneurs looking to establish a robust and flexible business structure in Spain. 

If an S.L. company is not the right option for you you might be interested in seeing if your company can benefit from the measures under the Startup Law in Spain.

Disadvantages of an SL in Spain

While the advantages of setting up a spanish SL are numerous, it’s essential to consider some potential drawbacks as well. However, it’s worth noting that these disadvantages are often situational and may not apply to every business. Here are some points to consider: 

  • Unnecessary for Small Operations: For small-scale or freelance activities, establishing an SL may be an unnecessary legal and financial commitment. 
  • Complexity in Management: While generally easier to manage, an SL still requires a certain level of administrative and legal oversight, which may be cumbersome for some business owners. 
  • Limited Scope for Raising Capital: The structure of an SL may limit your options for raising capital compared to other types of business entities. 
  • Regulatory Changes: Like any jurisdiction, Spain has its own set of commercial laws and regulations that are subject to change, potentially impacting your business operations. 

Despite these potential disadvantages, many find that the benefits of establishing an SL in Spain far outweigh the drawbacks, especially when the business is managed by a professional legal and economic team. 

Types of company in Spain: SA vs SL

In Spain, the two most common types of companies are the Sociedad Limitada (SL) and the Sociedad Anónima (SA). Both have their merits, but they serve different business needs and come with distinct regulatory frameworks. Understanding the differences between these two can help you make an informed decision on which is more suitable for your business venture. 

  • Sociedad Limitada (SL): This type is ideal for new projects involving one or a few shareholders who do not anticipate the entry of additional partners. SLs are agile, easy to manage, and generally incur lower administrative costs. They do not allow for shares with preferential rights, making them less flexible in terms of capital structure. 
  • Sociedad Anónima (SA): This type is more comprehensive and better suited for projects requiring significant financial investment. SAs are often the choice for companies seeking external financing, as they allow for different types of shares with varying rights. They are generally more expensive to manage and come with more stringent regulatory requirements. 

In summary, if you’re looking for a simple, cost-effective business structure in Spain and don’t anticipate needing complex share arrangements, an SL is likely the better choice. On the other hand, if your project requires substantial financial investment and you’re considering going public or bringing in multiple types of investors, an SA may be more appropriate. 

Steps to set up an SL in Spain

Setting up a Sociedad Limitada (SL) in Spain involves a series of steps that must be followed to ensure legal compliance and successful business operations. Below are the key steps for starting a spanish SL, each accompanied by a brief explanation: 

  • Choosing a Company Name: The first step is to select a unique name for your company. This name must be approved and registered with the Central Mercantile Registry to ensure it is not already in use. 
  • Registering with the Mercantile Registry: Once the company name is approved, you must register your business with the Mercantile Registry. This formalizes your company’s existence and provides it with legal recognition. 
  • Obtaining a Tax ID Number and Registering for Taxes: After registration, you will need to obtain a provisional Tax Identification Number (NIF) for your company. This is essential for tax compliance and must be converted to a permanent NIF once the company is fully registered. 
  • Drafting and Signing the Articles of Association: The articles of association outline the rules governing your company and must be drafted and signed by all shareholders. These articles are then notarized for legal validity. 
  • Opening a Business Bank Account: A business bank account is necessary for managing your company’s finances. This account will be used for transactions such as the deposit of the minimum share capital. 
  • Obtaining Necessary Licenses and Permits: Depending on the nature of your business, you may need various licenses and permits to operate legally. These could range from local business licenses to industry-specific certifications. 

Each of these steps is crucial for the successful establishment and operation of an SL in Spain. Failure to comply with any of these requirements could result in legal complications and potential setbacks for your business. For more details read our guide on how to start a business in Spain.

Discover also how to obtain an EORI number for Spain.

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How long does it take to incorporate a company in the form of an SL in Spain?

Setting up an SL in Spain is a process that usually can be completed within a few days. However, when a partner resides overseas, opening a current account can sometimes be a lengthy process, occasionally stretching to several months. At Lawants, our methodology allows us to establish an S.L. according to client specifications in just 48 hours, securing the Tax Identification Number (Número de Identificación Fiscal, NIF) and enabling work to begin promptly. After completing the commercial register entry, which usually takes about three weeks, our team takes further steps: we open the current account, manage the sale of company shares, and operationalize the business for the client.

Can I register the company without going to Spain?

The question of physical presence in Spain during the company registration process is a common concern for international entrepreneurs. The good news is that it is entirely possible to register a Sociedad Limitada (SL) in Spain without being physically present in the country. The only exception to this rule is if you wish to be appointed as the company’s administrator. In that specific case, your personal identification will be required for opening the company’s bank account, necessitating your presence at the bank’s office in Spain. Therefore, the need for physical presence is conditional and largely depends on your role in the company’s management. 

two people rolling two gearwheels as a symbol of successfuly opening a sl in spain

Director and management requirements in an SL

The management structure of a Sociedad Limitada (SL) in Spain is a critical aspect that requires meticulous planning and consultation with legal advisors. The law provides for various options when it comes to the management of an SL, offering flexibility to suit the specific needs of the business. 

The most common form of management is a sole director, known as “Administrador Único.” However, other options include joint directors (“Administradores Solidarios”), joint and several directors (“Administradores Mancomunados”), and a Board of Directors (“Consejo de Administración”). Each of these options comes with its own set of legal requirements, responsibilities, and obligations. 

The appointment and removal of directors are generally outlined in the company’s articles of association and must be registered with the Mercantile Registry. Directors have a fiduciary duty to act in the best interests of the company and are subject to various legal obligations, including compliance with tax regulations and corporate governance standards. 

Given the complexities involved, it is highly advisable to consult with a specialized advisor to determine the most appropriate management structure for your SL in Spain. This ensures that you are not only compliant with Spanish law but also have a structure that aligns with your business objectives. 

Company annual accounts and reporting

Compliance with accounting and reporting requirements is a fundamental obligation for Sociedad Limitada (SL) companies operating in Spain. These companies are mandated to maintain regular accounting in accordance with the Spanish General Accounting Plan. This involves filing quarterly VAT returns using Form 303 and withholding tax settlements through Form 111. Additionally, annual tax declarations, including corporate tax, must be submitted. 

The company’s management body is responsible for preparing the annual accounts within three months following the close of the fiscal year. For instance, if a company’s fiscal year ends on December 31st, the annual accounts must be prepared by March 31st of the following year. These accounts must then be approved by the general meeting within six months of the fiscal year’s end. Once approved, the accounts must be filed with the Mercantile Registry within 30 days. 

It’s worth noting that there may be other tax obligations specific to the company’s line of business. Therefore, it is advisable to consult with specialized advisors to ensure full compliance with all accounting and reporting requirements. 

Taxation of a SL company in Spain

Taxation is a critical aspect to consider when operating a Sociedad Limitada (SL) in Spain. The company is subject to various types of taxes, each with its own set of rules and rates. 

  1. Corporate Income Tax: The standard corporate tax rate in Spain is 25%. The tax is calculated on the company’s net income, which is revenue minus allowable deductions. 
  1. Value-Added Tax (VAT): Companies are required to charge VAT on goods and services. The standard VAT rate is 21%, although reduced rates may apply to certain categories. Quarterly VAT returns must be filed using Form 303. 
  1. Withholding Tax: When it comes to dividends, it’s worth noting that if a Spanish SL receives dividends from another company, the tax rate is only 1.24%. Withholding tax also applies to other types of payments like interest and royalties. 
  1. Tax Incentives and Deductions: Spanish SL companies can benefit from various tax incentives and deductions, depending on regional aid and the sector of activity. Our firm is strategically located in key regions across Spain, enabling easy access to these forms of financing if the requirements are met. 

Understanding the tax landscape is essential for the effective management of an SL in Spain. Therefore, it is advisable to consult with specialized tax advisors or to hire a spanish tax and fiscal representation service to ensure compliance and take advantage of available incentives.

If setting up a SL company is not the right choice for you, you might also consider starting a non-resident company in Spain.

Dissolution

The dissolution of a company in Spain, in particular of a Sociedad Limitada (SL), is a formal process that requires meticulous planning and execution. The company must first cease all its activities, settle any outstanding invoices, and collect all payments due from clients. Once these prerequisites are met, a liquidation balance sheet is prepared. 

A liquidator is then appointed to oversee the dissolution process. The General Meeting of Shareholders must approve the dissolution, which is then formalized through a notarial deed. Following this, the dissolution is registered with the Mercantile Registry, leading to the closure of the company’s registration page. From this point on, the SL is considered to have ceased to exist. 

It is crucial to adhere to these steps to ensure the dissolution is conducted in compliance with Spanish law, thereby avoiding any legal complications. 

Conclusion

In conclusion, the Sociedad Limitada (SL) stands as a highly flexible and widely used business entity in Spain, offering a range of advantages such as limited liability, tax benefits, and ease of management. It serves as an excellent vehicle for both domestic and international entrepreneurs looking to establish or expand their business operations in Spain. 

Choosing the right business structure is paramount to the success of your venture. An SL is particularly beneficial for small to medium-sized enterprises due to its low minimum capital requirement and simplified governance structure. However, it’s essential to consult with legal and financial experts to tailor the entity to your specific needs and objectives. 

At Lawants, S.L., we specialize in providing comprehensive legal, fiscal, and accounting services to national and international clients. At Lawants, our team of seasoned lawyers and economists are committed to offering personalized solutions that align with your business goals. Trust us to be your one-stop shop for all your legal and fiscal needs in Spain. 

Your success is our priority, and we look forward to becoming your most trusted partner in your entrepreneurial journey. 

Starting a business in Spain

As a leading law firm in Spain, with international, experienced and expert professionals, we understand how important it is for […]

Read More… from Starting a business in Spain

Find out more

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