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Limited and Companies

 This is a new concept regulated by Act 14/2013, of 27 September 2013, intended to encourage entrepreneurial activity by creating a framework that partially prevents a natural person entrepreneur from being liable for the results of his activity with all his assets (universal asset liability, which is the general rule).

Who can benefit from this regime?

Any natural person engaged in an economic business or professional activity and complying with the requirements established in the Act. It therefore applies to both business people and professionals who are self-employed. And it does not need to apply to a new activity, as this regime can be adopted by business people or professionals who were already engaged in their activity.

What benefits are achieved under this regime?

Exclusion of liability through debts originating from the activity performed as regards the entrepreneur's regular abode, subject to the limitation that the value may not be greater than 300,000 euros (450,000 in cities with more than a million inhabitants).

Does it protect the entrepreneur against all his debts?

No, only against those derived from the business or professional activity. Protection does not therefore extend to "private" or family debts outside the business or professional scope.

One important exception is that liability is not limited, even derived from business or professional activity:

- as a result of debts entered into prior to acquisition of the formal status of limited liability trade (which takes place by means of registration in the Companies Register).

- as a result of tax or Social Security debts.

This benefit is lost in the event of fraudulent or seriously negligent actions in performance of obligations before third parties, provided that this is accredited in a binding judgment or a culpable insolvency declaration.

What formalities must be fulfilled to benefit from this regime?

a) The entrepreneur must appear before a notary in order to formally declare his intention to acquire ERL (limited liability trade) status. The notarial act must also indicate:

- The business or professional activity to be undertaken, and the code (CNAE).

- Identification of the regular abode, which will be excluded from liability, and apparently at least a responsible declaration that it does not exceed the maximum legal value.

b) The notary will perform the relevant procedures for ERL registration in the Companies Register, and registration of the property in the Land Register, in accordance with the legal terms.

c) Following the registration, all documentation must include the register details and a reference to "Limited Liability Trader" (Emprendedor de Responsabilidad Limitada) status, or adding the abbreviation "ERL" after the individual's full name and tax ID.

d) He must present, and as applicable subject to auditing, the annual accounts corresponding to the business or professional activity, and file annual accounts with the Companies Register.

Attention: If more than seven months pass following the close of the financial year without the annual accounts having been filed with the Companies Register, the entrepreneur will forfeit the benefit of limited liability with regard to any debts entered into after the expiry of this period. The benefit will, though, be reinstated as soon as they are filed.

NOTE: By incorporating a single member private limited liability company, even with symbolic capital (contributed successively, as detailed below), AND PROVIDED THAT NO GUARANTEES ARE GIVEN, the entrepreneur can venture just 3.000 euros, and exclude from risks derived from his activity all personal assets, and not only his regular abode, with practically the same procedures as an ERL.

But that is not all:
the law provides that the notary office (PAE) can perform the procedures associated with the commencement and exercise of sole trader activity (likewise applicable to companies), by submitting the required details, contained in the DUE (Single Electronic Document) to the competent authorities to process:

- Social Security registration.
- Commencement of activity census declaration.
- Notification of opening of employment centre.
- Notification of the commencement of activity, responsible declaration of the enterprise or licence application, if these are requirements imposed by the autonomous region or local council.

The amount of the levies imposed must be paid together with the application to begin the procedures.

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