Spanish Companies Act (Ley de Sociedades de Capital)
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Spanish Companies Act (Ley de Sociedades de Capital)

Company Act in Spain: understanding spanish corporate law

Understanding the spanish Companies Act is crucial for foreign entrepreneurs aiming to establish or expand their business ventures within Spain. This comprehensive guide will delve into the key aspects of the Act, which serves as the cornerstone of corporate governance for privately owned companies in Spain. The Act outlines the procedures for company formation and incorporates regulations derived from the Commercial Code, the Corporations Law, and other pertinent legislations such as the Limited Liability Companies Law and the Mercantile Register Regulation. With recent updates, such as those from Law 19/1989, it’s essential to grasp these legal frameworks to navigate the Spanish corporate landscape effectively. Our specialists are equipped to provide detailed insights into these provisions, ensuring that your business complies with the Spanish legal system from inception to operation.

lawyer explains the spanish companies act to the ceo of a company

Spain Corporate Enterprises Act (Ley De Sociedades De Capital)

The Corporate Enterprises Act, known in Spanish as the Ley de Sociedades de Capital, is the fundamental legislation that governs the formation, management, and dissolution of corporate entities in Spain.

This Act is essential as it provides a structured legal framework for both joint stock companies (sociedades anónimas) and limited liability companies in Spain (sociedades de responsabilidad limitada). Created to consolidate and coordinate previously separate regulations into a unified legal body, the Act aims to simplify corporate governance and eliminate inconsistencies that had arisen over time. It also includes provisions for listed joint stock companies, aligning with the Securities Exchange Act (Ley del Mercado de Valores) on matters related to securities traded on official secondary markets.

Understanding this legislation is pivotal for any business operating or intending to operate in Spain, as it touches upon all aspects of corporate life from inception to dissolution. For a comprehensive understanding of the intricate details and latest amendments, consulting the full version of the Act is highly recommended. Here we will explore key extracts that encapsulate the essence of this crucial piece of legislation.

Embarking on a business venture in Spain requires a solid understanding of the Spanish Companies Act. At Lawants, we specialize in company formation services that align with this critical legislation, ensuring your business is built on a strong legal foundation from day one. Our team navigates the complexities of the Act, offering tailored advice and support to match your business objectives with the legal requirements. Start your business journey with confidence and compliance.

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What are the latest changes in the Spain Companies Act?

The Spain Companies Act has undergone significant revisions to modernize and improve corporate governance. One of the pivotal changes was introduced in 2010, which altered the minimum share capital requirements for company formation.

In 2014, another set of amendments came into effect, as published in the Official Gazette on December 3rd and implemented on December 24th of the same year. These changes focused on enhancing shareholder rights and company operations

Notably, certain corporate transactions, such as the acquisition, disposal, and transfer of shares, now require explicit approval from shareholders. Additionally, only those shareholders who were part of the company’s share capital before the adoption of resolutions can challenge company decisions, reinforcing the stability of corporate actions. The amendments also introduced new measures aimed at protecting minority shareholders, ensuring their interests are safeguarded within the corporate structure. 

Furthermore, there has been an increase in transparency regarding directors’ remuneration, ensuring that compensation is clear and justified to shareholders. These updates reflect Spain’s commitment to fostering a fair and transparent business environment that aligns with international best practices.

What does the Companies Act Regulate?

The Spanish Companies Act serves as the regulatory backbone for all types of companies within Spain, including the widely recognized stock corporations and limited liability companies. A key provision within the Act is the ability for a sole proprietorship to be registered as a company with a single owner. It’s important to note that in such cases, there is no legal distinction between the owner and the entity, which means personal assets may be at risk if the company encounters financial troubles. 

Our team can provide expert guidance on establishing any legal entity under national legislation. The Act stipulates that every business must obtain a Central Commercial Registry certificate, confirming its official name, and acquire a tax identification code before depositing initial capital in a local bank account. Following these steps, VAT registration becomes the subsequent mandatory procedure.

Moreover, the Companies Act intersects with Employment Law in Spain. Employment contracts in Spain are rigorously regulated, requiring employers to register employees with the Social Security General Treasureship. 

Furthermore, all employment contracts must be filed with the Spanish Institute of Employment. Understanding these regulations is essential for compliance and smooth operation within Spain’s business framework. As we proceed, we will explore these key extracts in detail to provide a clearer understanding of how they impact company operations and responsibilities.

team of a company analyzes all the requirements of the spain company act

Company Formation

The formation of corporate enterprises in Spain is a process that can be initiated either through a mutual agreement between two or more parties or via a unilateral instrument in the case of single-member companies. Furthermore, joint stock companies have the unique option of being formed successively through public share offerings. Regardless of the method, it is imperative that the formation of these enterprises is documented in a public instrument. This legal document must then be registered with the Mercantile Registry to ensure the company’s legal standing. The Companies Act mandates these steps to create a transparent and legally recognized framework for the establishment of businesses in Spain, providing a clear pathway for entrepreneurs to bring their corporate visions to life.

Company Name

Choosing a name for a corporate enterprise in Spain is a critical step that must comply with specific legal requirements outlined in the Companies Act. For limited liability companies, the name must include either the full designation “Sociedad de Responsabilidad Limitada” or “Sociedad Limitada,” or their abbreviations “S.R.L.” or “S.L.” In contrast, joint stock companies are required to feature the words “Sociedad Anónima” or the abbreviation “S.A.” within their name. Limited partnerships have the flexibility to incorporate the names of one or more of their general partners in their corporate name, but it must include the phrase “Sociedad Comanditaria por Acciones” or the abbreviation “S. Com. por A.”

Moreover, it is prohibited for a company to adopt a name that is already in use by another existing company, ensuring uniqueness and preventing confusion in the marketplace. Additional regulations may be set forth regarding the composition of corporate names to further refine this process. These naming conventions serve to clearly indicate the type of corporate entity and its liability structure, which is essential information for stakeholders and the public at large.

Deed of Incorporation

The deed of incorporation is a foundational legal document that is mandatory for the establishment of corporate enterprises in Spain. It must be executed by all founding partners or shareholders, who are responsible for subscribing to all stakes or shares of the company. The content of the deed must include the identity of the partners or shareholders, an explicit intent to form a corporate enterprise with its specified type, and detailed information on the contributions made by each party, along with the stakes or shares allocated in return.

Additionally, the deed must outline the company by-laws, which govern its operations. These by-laws should address critical elements such as the company’s name, corporate purpose, registered office, capital structure including stakes or shares details, and governance arrangements including directorships and their remuneration. In cases of limited liability companies, specific management structures must be defined if multiple options are provided in the by-laws. For joint stock companies, an estimation of the total start-up expenses up to registration must also be included.

The deed of incorporation ensures that there is a clear and legally-binding record of the company’s foundational structure and governance, serving as a guide for its operation and management. It is a vital step in creating a transparent and accountable corporate entity in accordance with Spanish law.

Registered Office

The registered office of a corporate enterprise in Spain plays a critical role in establishing its legal presence and serves as the main point of contact for administrative and legal purposes. According to the Spanish Companies Act, the registered office must be situated at the location within Spain where the company’s central administrative and management activities occur, or where its principal business establishment or operations are based.

The legislation stipulates that if a company’s primary business activities are conducted on Spanish soil, it must maintain a registered office within the country. This requirement ensures that there is a definitive location that can be used for official communications and legal notices.

In instances where there is a discrepancy between the registered office recorded in the Mercantile Registry and the actual headquarters as described, third parties are entitled to consider either address as valid for legal purposes. This provision offers flexibility and protection for third parties engaging with the company.

Moreover, companies have the option to open branches in Spain or internationally in various locations. The decision to create, close, or transfer branches typically falls under the purview of the company’s governing body, unless specified differently in the by-laws. Establishing branches allows for expansion and operational flexibility while maintaining a clear legal connection to the registered office.

Directors

The role of directors within corporate enterprises in Spain is governed by specific provisions under the Spanish Companies Act, ensuring that individuals or corporate bodies appointed to these positions meet certain subjective requirements. Directors may be appointed regardless of whether they are partners or shareholders, unless the company’s by-laws state otherwise.

When a corporate body is appointed as a director, it must designate a natural person to carry out the directorial duties. Any changes in this representation must be recorded in the Mercantile Registry, and the appointment of directors is not considered effective until their acceptance.

Eligibility for directorship excludes minors, legally incompetent individuals, those disqualified under the Insolvency Act, persons convicted of certain crimes, and anyone with legal incompatibilities. Public officials with conflicting responsibilities, judges, magistrates, and others bound by legal incompatibility are also ineligible.

The general meeting holds the authority to appoint directors, who may be required to provide security as stipulated by the by-laws. The appointment of directors and any powers granted to them for company representation must be registered in the Mercantile Registry within ten days of acceptance.

Deputy directors can be appointed to fill vacancies and their terms are aligned with the remaining term of the director they replace. Recent amendments to the Act have introduced greater transparency in director remuneration policies, which are now approved by shareholders for a three-year period and must align with company parameters such as income and size.

The election term for directors has been reduced from six to four years; however, they retain the right to be re-elected. For listed companies, there is an emphasis on gender diversity in board appointments. The Act also introduces the “business judgement rule,” which demands increased diligence and loyalty from directors towards achieving company objectives and requires them to abstain from voting in situations where conflicts arise within the company. Our team can provide further details on these regulations and their implications for company formation in Spain.

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Share Capital

Share capital is a fundamental element in the formation and financial structure of companies in Spain, as outlined in the Spanish Companies Act. For limited liability companies (LLCs), the minimum required capital is set at three thousand euros. This capital must be fully subscribed and paid up at the time of incorporation, ensuring that the company has sufficient resources to commence its operations.

However, there is a provision that allows for the formation of an LLC with less capital than the legal minimum, subject to specific conditions detailed in subsequent articles of the Act. This flexibility can be beneficial for small business owners or startups that may not have immediate access to the standard minimum capital.

In contrast, joint stock companies (Sociedades Anónimas) have a higher threshold for share capital, with a minimum requirement of sixty thousand euros. This larger sum reflects the potential scale and economic impact of joint stock companies, which often have more extensive operations and can raise capital by issuing shares to the public.

It is important for entrepreneurs and investors to understand these capital requirements as they plan to establish a corporate enterprise in Spain. Adhering to these regulations is crucial for legal compliance and for providing a solid financial foundation for the company’s future growth and stability.

Shareholders

The Spanish Companies Act defines the rights and privileges of shareholders, ensuring their ability to actively participate in the company’s affairs. Shareholders are entitled to a set of fundamental rights, including:

  • Participation in the distribution of the company’s profits and the assets remaining after liquidation.
  • The right to acquire new stakes or subscribe to new shares or convertible bonds with preferential terms.
  • The ability to attend and vote at general meetings and to contest company resolutions.
  • Access to adequate information regarding the company’s operations and decisions.
  • Shares may confer different rights, and those with identical rights are categorized into the same class or series. Any creation of stakes or issuance of shares that confer privileges over ordinary stakes or shares must adhere to by-law amendment procedures.

Specific privileges may include preference dividends, which must be paid before any profit distribution among other stakes or shares. The company is obligated to distribute these dividends when there are distributable earnings unless stated otherwise in the by-laws. These by-laws also determine the implications of non-payment of preference dividends, whether they accumulate over time, and define the rights of privileged stakeholders relative to other shareholders.

However, certain prohibitions exist to maintain fairness and proportionality within the company. For instance, stakes or shares that entitle holders to collect interest regardless of performance are invalid. Additionally, issuing shares that could disrupt the proportionality between par value and voting or preemptive rights is not permitted.

Article 97 emphasizes the principle of equal treatment, stating that all partners or shareholders with identical relationships to the company must be treated equally. This provision ensures a fair and just environment for all investors and maintains the integrity of corporate governance within Spanish companies.

Certificate of Good Standing

In Spain, while a Certificate of Good Standing as known in other jurisdictions is not available, the equivalent document is called a Nota Simple. This document is a crucial instrument for verifying the legal status of a Spanish company, confirming its existence and registration with the Spanish authorities. The Nota Simple provides a snapshot of the company’s current standing and includes essential details such as:

  • The official name of the company.
  • Identification of the relevant Mercantile Registry (Registro Mercantil Central) where the company is registered.
  • Specific registry information, including the company’s registration number and tax identification number.
  • The date on which the company was incorporated.
  • The corporate purpose of the company, which is particularly significant in Spain to determine if a contract is ‘ultra vires’ (beyond the powers) or subject to special regulations.
  • Information regarding the issued and paid-up capital of the company.
  • The names of the Directors (Administradores) or individuals holding Powers of Attorney, provided that such powers are registered.

Additionally, the Nota Simple outlines any published data that is legally required, such as records of incorporation, filing of accounts, changes in directorship, and other significant corporate events. This document serves as a testament to the company’s compliance with Spanish corporate laws and is often required for legal or business transactions to ensure that the company is in good standing.

Registration in the Mercantile Registry

Registration in the Mercantile Registry is a mandatory step for the formal establishment of a corporate enterprise in Spain. According to the Spanish Companies Act, founding partners, shareholders, or directors are endowed with the authority to file the deed of incorporation with the Mercantile Registry, and if necessary, with the Property and Moveable Estate Registries. This process includes the responsibility to settle and pay any related taxes and expenses.

The deed of incorporation must be submitted for registration within two months from its formalization date. Founding members and directors bear joint and several liability for any harm caused by neglecting this duty. Additionally, registration can only occur after proof of payment for all pertinent taxes is provided, or after application for such payment has been made.

Once registered, the company attains its legal personality according to the chosen type of company structure. It’s important to note that until registration is complete, stakes or shares associated with the company, or any capital increase decisions, cannot be delivered or transferred.

Finally, public notice of the company’s registration will be published in the Official Journal of the Mercantile Registry. This publication will include legally specified details from the deed of incorporation, thereby informing the public and potential stakeholders of the new entity’s legal formation and status.

Company Restoration

Company restoration, as per the Spanish Companies Act, is a mechanism that allows for a dissolved company to resume its activities under certain conditions. The general meeting of the company has the power to agree on reactivating the dissolved entity, provided specific criteria are met. Firstly, the reason for dissolution must have been addressed and resolved. Secondly, the company’s book equity must be equal to or exceed its registered capital. Additionally, any surplus from liquidation must not have been distributed to partners or shareholders.

However, reactivation is not permissible if the dissolution was initiated by a legal mandate. The process of restoring a company must adhere to the same regulations that apply to amending the by-laws of the company. Shareholders or partners who do not support the decision to reactivate the company have the right to withdraw from it.

Furthermore, corporate creditors retain the right to challenge the decision of reactivation. They may do so under identical conditions and with the same potential outcomes as those applicable in cases of capital reductions within the company. This provision ensures that creditors’ interests are considered and protected during the process of restoring a company to active status.

For ore information read our article on company dissolution in Spain.

Set your business on the right path under the spanish Companies Act

Starting a business in Spain? Make sure you’re on solid ground with the Spanish Companies Act. Lawants is here to guide you through every step, ensuring your company formation is compliant and strategically sound. Our dedicated team provides the expertise and support you need to navigate the complexities with ease.

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

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