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Private or public limited liability company

A doubt may on occasion arise as to whether the best option is a private limited liability company or a public limited liability company (SL or SA). The choice between incorporating as one or the other should, among other aspects, be based on the following issues:

  • The activity to be performed
  • The number of shareholders who will be involved in the company
  • The initial capital stock
  • The greater or lesser degree of formal rigour as to the incorporation and functioning of the company (in other words, if the preference is for greater flexibility and fewer controls over shareholders and directors, or vice versa).

Activity to be undertaken: A private limited liability company may engage in any type of activity, although some are reserved by law for Public Limited Liability Companies, such as banking and pharmaceutical companies, pension fund managers, leasing and insurance companies and others.

Companies wishing to list on the stock market must also be public companies. The first aspect to be taken into account, then, is whether the activity to be undertaken by the company requires a particular corporate form, because of its specific circumstances. Ask the notary, who will give full information in this regard.

Number of shareholders: A public limited liability company is above all a capitalist company, in other words greater consideration is given to the capital provided by each shareholder than their personal characteristics, and so this is the right type of company to perform activities in which a great many shareholders are expected to be involved, together with greater mobility of capital.

A private limited liability company, while still a capitalist company, has the characteristics of a personal company, or contracts executed 'intuitu personae', in other words those where, although the capital provided by each shareholder is important, importance is likewise given to the personal qualities of the constituent shareholders, making it more appropriate for activities in which few shareholders are expected to be involved, for family or professional companies, and to undertake forms of business requiring a limited initial disbursement.

With a private limited company the identity of the shareholders is important, and it is less so at a public company.

Minimum capital. Spanish law establishes a minimum capital required at limited liability public and private companies.

A private company must have a minimum capital stock of €3,000, which may but need not be fully paid up (deposited in the company's account) when the public instrument of incorporation is signed. There is no maximum capital.
If the initial capital is lower than the legal minimum (€3,000), then until this figure is reached it is subject to a special regime known as a "company under the successive formation regime", as referred to previously above.

A public limited liability company must have a minimum capital stock of €60,000, of which at least 25% must be paid up, in other words €15,000 is sufficient to incorporate a public company, for which there is likewise no maximum capital. The remaining capital, known as passive dividends, must be subsequently deposited in the company's account, within the period established in its articles of association.

To incorporate a public limited liability or a private limited company the requirements are essentially the same, comprising the public instrument executed before a notary freely chosen by the founders, who must be presented with:

  • Company name certificatea certificate issued by the Central Companies Register is required, accrediting that the chosen name is not being used by any other company.The certificate may be requested by any of the founding shareholders, a third party acting at their behest, any PAE or the notary himself, once the chosen names have been provided. The Central Companies Register will issue the corresponding certificate, in the stated order, within a maximum period of 6 working hours of receipt of the application.

To be taken into consideration:

The person applying for the certificate must be one of the founding shareholders.
If the aim is to set up a company quickly, ask for the notary to provide the service of obtaining the company name certificate via the remote electronic channels.
It can also be presented a hard copy of the certificate, in which case it will be needed to inform the notary that he will not be required to perform the service. Obtained it electronically, the notary will check its authenticity using the CSV (secure verification code) on the document. If is has been received it by mail, the applicant must present the original to the notary.
The negative certificate is valid for three months from the date of issue, and so may only be used for the instrument of incorporation of the company if it remains valid. However, following expiry of the certificate, a new certificate may be requested for the same name, up to the maximum duration period of the reservation, namely six months.

  • Contributions :

o Cash: if the initial contribution that will establish the capital stock is in cash, then a certificate of the deposit of the amount contributed is required, issued by the legal representative of the corresponding financial institution. The date of deposit may be no more than two months prior to the instrument of incorporation.

  • One specific aspect as regards private limited liability companies is that the company may be incorporated without presenting the certificate, with each and every one of the founding shareholders assuming joint and several liability before the company and before creditors, confirming that the money has been contributed to the company.

o Other assets: if no monetary contributions are to be made to the capital of the company, then at public companies (but not private) an independent expert must issue a report as to the value to be contributed, said expert necessarily being appointed by the Companies Register, all of which will represent a delay in the time required to set up the company. However, this report will not be required if the contribution comprises movable securities listed on an official secondary market or another regulated market or money market instruments, or otherwise if it comprises other assets the fair value of which was established within the preceding six months by an independent expert with professional competence and not designated by the parties.

  • Public instrument of incorporation: once the above certificates are held (and, where applicable, the independent expert report), they will be presented to the notary for him to draw up and notarise the corresponding public instrument of incorporation, requiring an indication of the requirements that must be included within the instrument, such as the personal details of the founders, the director or directors, and all other requirements to be included in the articles of association of the company, such as its registered office, capital stock and corporate purpose, chosen executive management system, etc.

The notary will advise both with regard to the content of the articles of association and the specifications to be included in the instrument of incorporation, to ensure that the legal requirements are fulfilled, as he will otherwise not be able to notarise the instrument. Following presentation of all these details to the notary, the public instrument will be prepared to be signed, normally on the following day, and in urgent cases, on the same day.

In summary:

It would be advised to set up a private limited liability company:

  • If the plan is to establish the company with capital of less than €60,000, in all cases.
  • If the company will not include a large number of shareholders.
  • If desired to found a family company or one made up of trusted individuals.
  • If the wish is to reduce the company's operational costs.

It would be advised to set up a public limited liability company:

  • If it is needed to obtain funds from a great many people, without the personal characteristics of the shareholders being important.
  • If it is expected a considerable capital mobility.
  • If, as a shareholder who will not be involved in the management of the company, the company wish a particularly formal rigour in the execution of the company's acts, which could have a greater impact on the investment (for example: winding up, calling of the General Meeting, reduction of capital, non-monetary contributions, change of registered office, etc.)
  • If the company will be engaged in any activity reserved by law for this class of company.

A private limited liability company is the appropriate corporate structure for small and medium enterprises, and by far the most common in commercial dealings in Spain. More than 90% of companies founded in Spain are of this type. The procedures required for the incorporation are simple and inexpensive, above all if the express procedures explained above are employed.

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