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Private limited liability company

 One further step in limiting the liability of an entrepreneur takes the form of a capital company, in which the shareholders put at risk only the assets invested in the company, but are not personally liable for corporate debts.

It should be added that this is ONLY PROVIDED that the shareholder does not stand as GUARANTOR of the company, in which case the shareholder would as such be liable in the event of non-payment by the company with all his assets.

1) What steps are needed to take to incorporate a limited liability company?

Spanish law governs various classes of company, requiring for their incorporation the execution of a public instrument before any notary freely chosen by the founding members, at which point the company will come into being and may begin to operate.

Ever since Royal Decree-Act 13/2010, in order to facilitate and simplify the creation of new enterprises by entrepreneurs, the remote electronic processing of the incorporation of capital companies has become widespread (in particular limited liability private companies, the corporate form most commonly used in practice), considerably reducing times and costs.

The current regulations are set out in the aforementioned Act 14/2013, of 27 September 2013, and its regulations of development, repealing the previous procedural structure.

The new system is based on the PAEs (Puntos de Atención al Emprendedor, i.e. Entrepreneur Service Points), which include notary offices. The PAE will use the remote electronic processing system of the CIRCE (Enterprise Creation Network and Information Centre).

The PAEs will produce the DUE (Single Electronic Document), containing all details required for the incorporation of companies and commencement of their economic activity.

The new law distinguishes between two procedures for the incorporation of limited liability companies, which in all cases require a notarial public instrument, depending on whether or not they use the "Standard Articles of Association".

a: Incorporation of a limited liability company WITH standard articles.

The phases are as follows:

  • The entrepreneur must go to a PAE (the notary office of his choosing) to begin the remote electronic processing of the incorporation of the company. To this end the notary must be provided with the details required to draw up the DUE and the instrument of incorporation of the company: the chosen company name (by which the company will be known) or a list of possible company names (preferably up to 5, as the chosen name may already have been registered), the personal details of the founders, the stake of each, those who will act as the director (or directors)… in addition to the references required for inclusion in the company's articles of association: registered office, capital stock, corporate purpose (the activity to be pursued by the company), chosen executive management structure… 
  • The notary will request reservation of the chosen company name, in order of preference, at the Central Companies Register, which will be required to issue a negative certificate (granting the reservation for the first name not registered) within a period of 6 working hours.
  • The date will be set for execution of the public instrument, once all the details have been provided, the established period being 12 working hours from commencement of remote electronic processing, depending on the availability of the shareholders to attend the notary office.
  • On the date agreed, the shareholders will sign the public instrument before the notary, to which end they must provide the bank certificate confirming the deposit of the capital stock in the company's account. However, and this is an important change made by the new Act, the bank certificate does not need to be presented if the shareholders declare in the public instrument that each and every one of them accepts responsibility that the contribution has been made.
  • From this point onwards, the notary handles the whole procedure: he will send a digital copy of the public instrument to the State Tax Office in order for a provisional NIF (tax identification number) to be assigned, another to the Regional Tax Office, along with settlement of Corporate Operations Tax (to which an exemption applies, which means no payment will be needed), and another copy, containing all the above, to the Companies Register for registration. If they so request, the shareholders may likewise obtain another electronic copy of the public instrument, for no additional charge.
  • The companies register must register the company with a period of six working hours of receipt of the documentation, submit the certificate of the registration performed and request the definitive NIF tax ID from the Tax Authority, which will in turn serve electronic notification via the CIRCE system.

This will allow you in record time to obtain a notarised copy of the instrument incorporating your company at the notary office, with all the details required for commercial dealings.

NOTE: Before using this procedure,you should bear in mind that you will be forfeiting the freedom to tailor the articles of association to the will of the shareholders, as they must comply with the standards set out in the template. Any future modification will require a further public instrument and registration with the Companies Register, with the corresponding time and cost involved.

b.  Incorporation of a limited liability company WITHOUT standard articles.

This procedure allows an entrepreneur to found a company with "tailored" articles of association drawn up by the notary in accordance with his instructions or needs, while likewise drawing on the experience and advice that the notary can offer.

It is more flexible than the previous method, as it can follow the same procedure, using the DUE and the CIRCE computerised system, or you can opt for electronic processing by the notary outside this system (as has so far been the case, proving very successful), or you can even appear in person to perform the procedures using hard copies, as was previously the case.

The distinctive aspects as regards the previous procedure (SL with standard articles) would include the following:

  • The shareholders may request themselves certification of the company name, or request this in the notary office or the PAE. An appointment may likewise be arranged with a notary for signature of the public instrument.
  • The notary will in any event send the same notarised copies to the Tax Office (national and regional) as stated above, and to the Companies Register.
  • The deadline of six hours granted to the companies registrar for registration is limited to the essential details of the company (name, registered office, corporate purpose, capital stock and chosen executive management body). With this initial registration, the company is deemed to be legally incorporated. As regards the other details, a period of 15 days is granted for registration, as a modification of the articles of association.
  • Once all registration has been performed, the companies registrar will notify the Tax Office in order for it to issue the definitive NIF tax code.
  • The shareholder may request that the registrar issue an electronic or paper certificate in accreditation of the (initial or definitive) registration of the company and its officers.

c.  Limited liability company of successive formation.

One of the most notable aspect incorporated by Act 14/2013, of 27 September 2013, is the possibility of incorporating limited liability companies with a capital stock less than the legal minimum (3.000 euros), referred to legally as "Limited liability company under the successive formation regime", with the following specific features:

  • Incorporated with a capital stock less than the 3.000 euros representing the legal minimum, although the amount apparently cannot be 0 euros. It could therefore be incorporated, for example, by means of each stockholder contributing one eurocent.
  • Until the minimum figure of 3.000 euros is reached, it is subject to a special regime intended to endow or cover this capital figure, either through an allocation of a part of the profits, or limitations on the distribution of dividends, or limitations on the remuneration of shareholders or directors.
  • For as long as this situation remains in place, it must be expressly stated in the articles of association that it is subject to this regime.
  • If the company is wound up and does not have the assets to pay its debts, each of the shareholders and directors will be liable with their personal assets until the limit of 3.000 euros is reached.

Meanwhile, another important addition applied to all limited liability companies is that it is no longer necessary to provide a bank certificate confirming that the capital stock has been deposited in the company's account. Instead, personal and joint and several liability is established on behalf of each of the founding shareholders, and those subsequently acquiring their stakes, before the company and before creditors, confirming that the money has been contributed to the company.

2) What details do I need to clarify to incorporate a limited liability company?

In order to begin the processing of a limited liability company, the notary will ask for a series of fundamental details needed in order to draw up the public instrument: the company name, the personal details of the shareholders who are to incorporate the company, the amount of the capital stock and the contribution to it by each shareholder, the way in which this capital stock will be contributed, the chosen administration system and those who are to hold the position of director or directors, in addition to all other details that must be recorded in the articles of association, such as the registered office or the corporate purpose (the activity that the company is to pursue). These are here discussed separately.

a) The company name.

In order to incorporate a company, you must provide proof to the notary who is to execute the public instrument that the chosen name is not being used by another company or has not been requested for a new company. This is performed by means of the name certificate issued by the Central Companies Register. It has a huge computerised database including the names of all companies incorporated in Spain, known as the Names Section of the Central Companies Register, of which there is just one covering the whole of Spain.

In order to facilitate the obtaining of an original social denomination (not previously registered) can be used a "bag of reserved social names" created in 2010 for these purposes.

The company name may:

  • Refer to an activity, in which case this activity must be included within the purpose of the company. The company is not allowed to include within its name an activity lying outside its purpose, which would give rise to confusion in commercial dealings.
  • Contain a name or pseudonym identifying a specific person, who must give his consent, which is presumed to have been given if the person in question is a member of the company. Those lending their name to a company may not demand a change of name because they lose shareholder status, unless this right was reserved for them when the company was incorporated.
  • Be a made-up name, although it should be borne in mind that the name of the company may not include any terms or expressions that would be a violation of the law, public order or decent practice, or could generate confusion or deceit among consumers. It must be requested through the remote electronic channels, via the notary or some other PAE, or otherwise directly by the party concerned (electronically or on paper).
  • In the request, in addition to the intended name, it can be requested, by order of priority, another 4, and it must in all cases indicate the corporate form (SL or SRL).
  • The request for the company name must always be submitted in the name of one of the individuals who will be a shareholder in the company.

Issues to be taken into consideration following certification:

  • The certification issued by the Central Companies Register is valid for 3 months from the date of issue.
  • In order to execute the instrument of incorporation of the company, the certificate, which must be handed over to the notary to be attached to the instrument, must be in force.
  • Once reservation has been granted by the Central Companies Register, it is reserved for a period of 6 months from the date of issue, during which time no one may again request that name.
  • The Companies Registrar is granted a period of 6 working hours from receipt of the request to issue the name certificate via remote electronic channels.

To be taken into consideration:

  • If one is aiming to set up a company quickly, should ask for the notary to provide the service of obtaining the company name certificate via the remote electronic channels.
    Futhermore, it can 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. If it is obtained electronically, the notary will check its authenticity using the CSV (secure verification code) on the document. If it has been received it by mail, it can be presented the original to the notary.

b) Personal details of the shareholders.

A private limited liability company may be incorporated by one or more natural or legal persons, with both categories required to provide their corresponding tax ID. If the company is incorporated by one single individual then its single member status must be placed on record on all its documentation, correspondence, order notes and invoices, in addition to all announcements that must be published as required by law or the articles of association.

The shareholders of a private limited liability company may be any natural or legal persons. In the case of shareholders under legal age or incapacitated, they must be represented by their legal representative.
It would be particularly useful to provide a photocopy of ID documents of the shareholders in order to draw up the public instrument, although all of them will be required to show their original ID when signing.

c) The capital stock.

Minimum capital stock: A private limited liability company must have a minimum capital stock of 3000 euros, while there is no maximum capital.

As seen above, though, following the reforms introduced by Act 14/2013, it is possible to incorporate a limited liability company by successive formation beginning with one eurocent, although this is subject to the special regime explained previously.
The contributions: The company may be provided with capital by means of monetary contributions, in other words cash, or through non-monetary contributions, in other words by providing the company with some form of asset or right open to economic valuation. Work or services may not, however, be classified as a contribution to a company's capital.

  • If the initial contribution that will establish the capital stock is in cash, then a certificate of the deposit of the amount contributed is normally required, issued by the legal representative of the corresponding financial institution. However, under the current system if the certificate is not presented the company may be incorporated by means of a personal and joint and several declaration of liability on the part of each and every one of the founding shareholders, before the company and before its creditors, confirming that the money has been contributed to the company.
  • If the assets are other than money, the notary must be informed of this, and the assets and their valuation identified.
  • The stake of each shareholder in the capital stock (the proportion of capital to be contributed) is a particularly significant detail as it will determine the decision-making power enjoyed by each shareholder over the company by voting.

d) The management body

It is necessary to choose the most appropriate system to manage and represent the company. The management body takes decisions in the daily life of the company, and so directs and represents it.

The law permits the following options:

  • One sole director.
  • Several directors acting jointly and severally, in other words each of them may individually represent the company.
  • Several directors acting jointly, in other words involvement of all the directors, or several simultaneously, will be required in order to act on behalf the company.
  • A Board of Directors, comprising a minimum of three members and a maximum of twelve. This collegiate body must meet to pass resolutions regarding the management of the company, although it may appoint from among its number one or more Managing Directors, to act either jointly or jointly and severally.

The individual or individuals appointed to hold this position will need to be determined.

All those over legal age or individuals under legal age but legally emancipated may act as directors. The appointees must accept their position in the instrument of incorporation of the company itself or in a separate public instrument, declaring that they are not subject to any legal debarments.

Unless the articles of association provide otherwise, individuals need not be shareholders in order to serve as directors of the company.

The articles of association may set out the various systems for the organisation of corporate administration, the General Meeting being entitled to select from among the various established methods that which is to be employed at any given time.

e) The registered office

The company must always have its registered office within Spain, and it must be located where the company has its effective administrative and managerial headquarters, or where its main establishment or operation is based. In the event of any discrepancy between the registered office chosen for the company and the location of its effective administrative and managerial headquarters or main establishment or operation, third parties may deem either of the latter two to be its registered office.

The registered office will, among other aspects, dictate where it is required to perform its obligations, in particular taxation, the venue for the staging of General Meetings, except for those held on a universal basis, the newspapers in which the legally required announcements will be published for certain corporate acts, as well as the Companies Register where the company will need to be recorded.

From October 7th, 2017 the company's administrators can change the registered office within the national territory without having to be approved it in the General Meeting as before (Royal Decree Law 15/2017, of October 6th).

Limited companies, regardless of their registered office, may create branches anywhere in Spain of abroad.

f) The corporate purpose

  • The purpose of the company determines the activity it will pursue, and may comprise one or more activities.
  • If foreseen the possibility that the company might ultimately engage in various activities, it is necessary to include all of them within its corporate purpose, even if it does not initially perform all of them, or even never ultimately does so. The corporate purpose may likewise be extended, modified or replaced after the company is incorporated.
  • It is imperative to indicate the CNAE (National Economic Activities Code) at least of the main activity that the company is to pursue.
  • It should be borned in mind that certain activities are reserved by law for Public Limited Liability Companies, such as banking and pharmaceutical companies, pension fund managers, leasing and insurance companies and others.
  • Bear in mind that some activities require compliance with specific requirements, such as travel agencies, insurance brokerages and financial consultancies.
  • Lastly, if the activity which the company is to pursue corresponds to a professional activity requiring mandatory professional association membership, you will need to set up a Limited Liability Professional Company, subject to certain special requirements.

Given all the above, it is essential to consult the notary as to the activity the company will be pursuing, to receive advice and an indication as to the legally applicable requirements in this regard.

g) Other details of the Articles of Association.

In addition to the above details, the public instrument will include the articles of association, which are the rules governing the functioning of the company. If it is requested, the notary who notarises the instrument of incorporation can draw up the articles of association, tailored to the requirements, and will offer the necessary advice in order for the articles to configure the organisation and functioning of the company in the manner best suited to the interests and needs of the entrepreneur.

Bear in mind that not all corporate articles of association are the same, and that the Limited Liability Companies Act allows to establish in the articles and in the instrument of incorporation all terms and conditions that the shareholders deem it appropriate to establish, provided that they do not violate the law or the principles defining the company, and so there are numerous variations that may be implemented in the articles. Among others:

  • Increase or reduction in the limitations established by law on the unrestricted transfer of corporate stock.
  • Establishment of shares associated with accessory benefits.
  • Creation of various classes of share, including those with different rights (privileged, with or without voting rights, etc.), within the legal limits.
  • The structure of the executive body, the duration of directorial appointments, the demand for certain requirements in order to hold said position and the existence of substitute directors.
  • The organisation of the Board of Directors and the existence within its number of one or more Managing Directors or an Executive Committee.
  • Remuneration of directors or otherwise.
  • Establishment of reinforced majorities to pass certain resolutions.
  • The manner in which General Meetings must be called, by an announcement in newspapers, by letter, etc.
  • Regulations regarding usufruct, pledging and sequestration of corporate stock.
  • The distribution of dividends, in a manner not proportional to the stake held by the shareholders in the capital stock.
  • The establishment of special rules for the winding up and liquidation of the company, etc.

As a result, when drawing up the company's articles of association, it is important to take into account numerous different issues and provide for means of addressing those situations that could arise at the company in the pursuit of its business, many of which will not be aware of when it is found, which means that properly drafted articles could help avoid the emergence of problems during the lifespan of the company. Given their training and practical experience, notaries are the most appropriate legal professionals to provide a response to such situations, by tailoring articles of association in accordance with your present and future needs of the company.

It is important to explain to the notary what it is wanted to achieve, and he will inform about the best way of doing so. This site itself contains a list of all notaries in Spain.

3) The instrument of incorporation of the company has been signed. Now what is next?

There is no need to worry. As we have already indicated, if a notary is required to perform the process, employing all the remote electronic procedures available, he will handle everything, once the corresponding provision of funds to cover all the paperwork have provided, the steps being as follows:

  • Issuance of NIF tax number:  Once the public instrument of the company has been signed, the notary will request electronically or via the CIRCE system a provisional NIF tax number from the AEAT (State Tax Administration Agency), before sending the notarised electronic instrument to the competent Companies Register, since this notarised copy must include the NIF number. Within a few minutes of signature of the instrument you will have the provisional NIF, which you can then access to begin corporate operations.
  • Self-assessment settlement of corporate operations tax (exempt):  Although Royal Legislative Decree 13/2010 established exemption from the tax, and the companies registrars may register this exemption ex officio (thereby obviating the need for the "exempt" self-assessed settlement), a number of Spanish regions expressly require that the tax settlement be processed prior to registration. It will need to be presented to the Register together with the instrument of incorporation only in such cases.
    The notary will inform about the situation in the region of the company. If the remote electronic system permits so, and the region so demands, the notary will process the exempt self-assessed settlement online, with the NIF number already assigned, immediately after signature of the instrument (this possibility of remote electronic settlement of the tax applies in almost all autonomous regions, and will soon be available nationwide).
  • Payment of fees of the Official Gazette of Spanish Companies Registers. The publication of the registration of incorporation of limited liability companies by telematic means in the Official Gazette of the Companies Registrer, will be exempt from the payment of fees..
  • Submission of the public instrument to the Companies Register: The notary will present the corresponding Register with the notarised electronic copy of the instrument, together with the provisional NIF tax number, and the tax settlement, if required, via the remote electronic channels.
    In under 24 hours can be signed the instrument of incorporation, be obtained the provisional tax ID, be settled the tax (exempt) and be presented the notarised copy of the instrument at the Companies Register. From this point onwards, with the notarised copy of the instrument of incorporation (not yet registered), which the notary will give if requested, together with the provisional NIF tax number, the company can begin legal dealings.
  • Registration with the Companies Register: The period granted to the Registrar to qualify (and so register) the instrument is 6 working hours from receipt of the notarised electronic copy. The registrar will present the certificate of the registration performed and serve electronic notice on the notary, who will include the notification of registration in his protocol.
  • Issuing of definitive NIF: Once the company has been registered, the notary will provide you with the definitive NIF tax number obtained electronically, which will likewise be included in the protocol.
  • This means that, once the company has been registered and the definitive tax number obtained, the company will receive from the notary a notarised copy of the instrument including the details of registration in the Companies Register and the definitive tax number. The company will only need to go to the notary office to incorporate the company, and then return to receive the notarised and registered copy with the definitive tax ID. , without the need to go to any other office. Likewise, if it happen to misplace the instrument of incorporation of the company, or need a copy, simply contact the notary for a new copy to be issued, including all the details, Register entry and tax ID.*

All the procedures can be entrusted to a notary. He has the resources available. He will handle the whole process once you have made a provision of funds to cover the expenses, and when the company has been registered and the definitive tax number issued, you will receive a notarised copy of your instrument of incorporation, including the Companies Register entry details and the definitive tax number.

It is importanto to consider that the notarised copy of the instrument of incorporation of the company is the only title accrediting ownership of corporate stock, and it will record the valid incorporation of the company and the appointment of the director, who will represent the company in legal dealings.

Bear in mind in any event:

Registration of the company in the Companies Register is mandatory in order for the company to be recognised with its specific status (private limited or public limited). If the company has not been registered within one year of its incorporation, or if within this year it is confirmed that the shareholders do not wish to register it, then the company's status will become irregular, which means: any shareholder may call for it to be wound up, and if the company has begun or continues its operations, it will be subject to the rules governing collective societies or, as applicable, civil societies, meaning that the shareholders will bear unlimited liability for corporate debts. This applies to all limited liability capital companies, whether public or private.

The possibility of remote electronic processing of the incorporation of companies by the notary is compatible with the option of performing the process in person itself or with the assistance of third parties on paper, although this will forfeit the agility and benefits derived from electronic processing.

If the processing of the company has been carried out through the electronic platform CIRCE, from the notary (PAE) will perform the procedures associated with the commencement and pursuit of the company's operations, by submitting the required details contained in the DUE (Single Electronic Document) to the competent authorities in order 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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