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SPAIN

COMPANY FORMATION

SL – SOCIEDAD LIMITADA

 

MAIN TYPES OF SPANISH COMPANIES
There are two main types of companies in Spain, the Sociedad Anonima (abbreviated as S.A.) which requires a minimum share capital of €60,101.21 and the Sociedad Limitada (abbreviated as S.L. or S.R.L.) which requires a minimum share capital of €3,005.06.

There are other types of companies such as the "Sociedad Colectiva" (General Partnership), or the "Sociedad en Comandita" (Limited Partnership), "Sociedad Civil" (Civil Partnership) which are not very common and we will not comment in this article.

For the S.A. type 25% of the share capital mentioned above has to be paid up at the incorporation date and for the S.L. type the full amount of the share capital also has to be paid up at such date. Both types of company provide limited liability to its shareholders. The S.A. type is usually used by bigger companies with several shareholders and has to comply with more strict administrative and corporate procedures. The S.L. is easier to run, with less administrative procedures, what makes it more suitable for a few partners company or to start your business in Spain. During the last years the S.L. type has become more frequent and also used for big companies.

There are not a minimum number of shareholders required to incorporate an S.A. or an S.L. There is a specific regime applicable to sole shareholder companies for both S.A. and S.L. involving special reporting and registration requirements (i.e. when a company has a sole shareholder such circumstance has to appear always next to the company's name). Also when a shareholder is a foreign company its investment in the Spanish company will have to be registered before the Foreign Investment General Directorate. This registration has no other effects than keeping a record of foreign investments in Spain.

 

FORMING A BRANCH OFFICE IN SPAIN
The foreign parent company is expanding its business into Spain through a new establishment that is not a separate and independent entity. The main difference with the Representative Office is that the Branch carries out business transactions in Spain. The most common reason for establishing in Spain through a Branch Office instead of through a limited liability company is because the business in Spain is going to be primarily cash-consuming and will require recurring transfers of cash from the Head Office for a number of years. Tax and corporate filing requirements and obligations are very similar to a limited liability corporation.

Legally speaking, a Branch is fully dependent of the foreign Head Office (the same as the Rep Office) e.g. in terms of responsibility, the foreign Head Office may be fully responsible for all liabilities incurred by the Spanish branch. For tax purposes, a Spanish branch office of a foreign company is considered a permanent establishment in Spain. Therefore, the Branch Office will be subject to the same rules that apply to Spanish resident companies, and it must pay Spanish Corporate Income Tax on its net income. International tax treaties signed by Spain to provide relief from double taxation should be taken into consideration.

The Branch Office will pay Value Added Tax (VAT) on the purchase of any goods or services in Spain. In some cases, this VAT may be refunded. The Branch must also pay Spanish Social Security and withholding tax on behalf of its employees. The steps to be followed for establishing a Branch Office are: in order to open a Representative Office, a formal resolution of the foreign Head Office governing body (e.g. Board of Directors) authorizing the establishment of a Branch in Spain and appointing a representative. The resolution must be duly legalized to be valid in Spain , i.e. approved by the Board in accordance with the company's bylaws, duly Notarised and stamped with the Apostille of the Hague and sworn translation into Spanish. Registration of the above resolution with the Mercantile Registry in Spain , including a copy of the Head Office corporate by-laws duly stamped also with the Apostille of the Hague and sworn translation into Spanish. The price covers all costs to have your SL up and running. This includes notary fees, Mercantile Register fees, and transfer tax/stamp duty (only for the minimum share capital of 3006 euros).

SPANISH COMPANY INFORMATION

NAME OF THE COMPANY
A name reservation has to be made in advance with the Spanish Commercial Registry. In the application to reserve the name of any company 3 choices may be included. As in other legislations, it is not possible to have an identical name to a pre-existing company. Please note that in order to obtain the domain name ".es" with the name of your company this will have to be the exact name of the company filed with the Commercial Registry. Another option would be to register the domain name ".es" by virtue of one of the company's trademarks.

BUSINESS PURPOSE
The company's activity should be stated in its By-laws (Memorandum and Articles of Association) in a clear, concrete and well-defined manner. It establishes the general framework for the activities of the company. It cannot be a general business purpose allowing the company to do any activity.

DURATION OF THE COMPANY
An unlimited duration is normally established.

The date on which activities commence: It is normally stated that the activities start on the day of execution of the public deed of incorporation.

REGISTERED OFFICE LOCATION
It must be in the province of Spain where the company has been incorporated, even though it may be changed at a later date.

 

ACCOUNTING YEAR-END
If not stated expressly, the company will be deemed to end its accounting year on December 31. The accounting year can terminate at any date as long as it does not exceed twelve months.


RESTRICTIONS TO THE TRANSFERABILITY OF SHARES
For both types of companies, S.A. or S.L., some restrictions or conditions can be established to regulate the transfer of the company shares. Normally some pre-emptive rights for the acquisition of the company shares are always granted to the company shareholders.

SHAREHOLDERS
The shareholders meeting as in other countries corporate regulations is the supreme governing body. The shareholders meeting must be held at least once a year to approve the company financial year accounts. This is the so-called Ordinary Shareholders' Meeting. The Extraordinary Shareholders' Meeting may be held at any time according to the relevant corporate procedures.

SHAREHOLDERS AGREEMENTS
Shareholders must immediately report the signature, extension or modification of any shareholders agreements that may affect the exercise of voting rights or may limit, or subject to conditions, the free transferability of shares, or convertible or exchangeable securities issued by a listed company. This duty will also extend to agreements executed at the level of companies with controlling interests in a listed company.

THE DUTY TO PUBLICISE THESE AGREEMENTS IMPLIES:
1) to communicate them to the Commission Nacional del Mercado de Valores (the "CNMV"); and

2) to register them with the Mercantile Registry. Each such shareholders agreement will be publicly available as a "Relevant Event". So long as the agreements have not been communicated, registered and published they will not be effective. Failure to comply with either of these requirements will constitute a serious administrative offence.

Any shareholders agreements in existence before the enactment of the Transparency Act, and which affect more than 5 percent of the equity or voting rights in the company, must be disclosed within three years of the implementation of the Act. However, in the event of a takeover bid for a company where such shareholders agreements are in place, disclosure must be immediate.

In exceptional circumstances, when disclosure may cause significant harm to the interests of the company, the CNMV may exempt the shareholders from disclosure if those interested so request.

A very significant change is that those shareholders agreements signed, modified or extended since the enactment of the Securities Market Act (1988) by shareholders that hold more than 25 percent of the voting rights of a company and had not launched at that time a takeover bid will be void, regardless of whether such agreements have been registered and made public or will be made public in the future.

DIRECTORS
Board of Directors, sole director or joint directors must be stipulated in the By-laws, but can be changed at any time by the Shareholders Meeting. In the case of Board of Directors the By-laws or the Shareholders' Meeting will establish the number of members which may not be lower than three. In this case there will also have to be a secretary of the Board of Directors which may or may not be member of the Board.

 

DUTY OF DILIGENT ADMINISTRATION
Directors have a duty to be diligent as regards keeping themselves informed about the company's activities.

DUTY OF FIDELITY
Directors have a duty to act "with loyalty to the corporate interest, which is to be understood as the interest of the company itself".

DUTY OF LOYALTY
Directors have a duty to: refrain from using the name of the company, or their position as directors, in order to conclude transactions on their own behalf or with related parties. Refrain from knowingly taking advantage, on their own behalf or for related parties, of any investments or transactions related to the company's assets, when such investments or transactions would have been offered to the company or the company could have been interested in them, unless the company has rejected the investments or transactions and such rejection has not been influenced by the relevant director. Report to the board any direct or indirect conflict of interest that they may have with the company. In the event of conflict, the relevant director will refrain from taking part in the transaction and must report the conflict in the annual report on corporate governance. Report any shareholdings in companies whose activities are similar or complementary to the activities of the company, together with the activities that the director undertakes in such companies and the exercise, in person or on behalf of third parties, of such activities. This information must also be disclosed in the annual report on corporate governance.

DUTY OF CONFIDENTIALITY
Directors must keep confidential any information that they are aware of due to their position where disclosure may be contrary to the interests of the company. There is an exception to this duty of confidentiality when directors are required by the regulators to disclose information or when the law so requests.

 

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