Business Entities

What kind of company is your best option?

Business Entities

While you’re deciding on the kind of business premises you need, you should also consider which kind of company might be the best option for you and your business.

There are a number of different types of legal business that you can set up in Spain (at least nine) and you must look carefully at the options with a qualified professional to see what’s the most economical and beneficial for your situation.

The five options outlined below are those most likely to be relevant to foreign entrepreneurs. Whichever option you choose, you should decide at an early stage what is to be the registered office of your business. This may be the address of your financial adviser, so that all the financial documents are delivered there and dealt with directly by them. This especially recommended if you operate from home, as it will give your business a more ‘serious’ image.

Sole Trader

If you want to begin small and don’t have much capital, you can set up as a sole trader ( empresario individual). The main advantage of this option is that it’s the simplest legal business entity. Your only fiscal obligations are to register for tax, VAT and social security as a self-employed worker and also for tax on your business activities. A further advantage of being a sole trader is that you aren’t obliged to make a specified investment in your company; it can be whatever amount you can afford.

The main disadvantage of setting up your business in this way is that you’re personally liable for all the debts of the company and, if anyone decides to sue you or your company, it could be a financial disaster for you and your dependants. If you aren’t prepared to take on this kind of risk and have a reasonable amount to invest, it may be worth setting up a limited liability company.

Limited Liability Company

A limited liability company is known as a Sociedad de Responsabilidad Limitada (SL), which is similar to a British limited company or an American limited liability company (LLC). It’s the most common form of small and medium-size company. The reasons for its popularity are its simplicity, the relatively small investment it requires and, as the name suggests, the fact that your liability is limited if anything goes wrong or someone sues you. The disadvantage, compared with operating as a sole trader, is that you’re liable for corporation tax and VAT as well as your personal tax and social security contributions.

If you start an SL, you must invest a minimum capital of € 3,005.06 (an exact conversion from the former peseta figure!) and have at least one shareholder (the maximum is 50). You should work with a lawyer and a financial adviser to ensure that your company is legally incorporated and you’ve gone through all the required procedures before starting business.

Sociedad Limitada Nueva Empresa

In April 2003, a modified version of the SL was introduced, called a Sociedad Limitada Nueva Empresa (SLNE). The idea behind it was to encourage the incorporation of small and medium-size businesses, and the fact that its fiscal requirements are simpler than those of an SL should make it an increasingly popular option. An SLNE also differs from an SL in terms of the number of shareholders and permissible company names. The maximum number of shareholders allowed with this type of company is five, a move intended to keep SLNEs small. The company name must comprise one of the founder’s names, a registration number and the letters SLNE. The minimum capital required is virtually the same as for an SL (€3,012 – all of which must be in cash) but the maximum is €120,202.

Public Limited Company

A Sociedad Anónima (SA) is the Spanish equivalent of a British public limited company (plc) or an American corporation and is the next most widely used type of business entity in Spain. An SA requires a much larger investment than an SL so it’s usually the choice of big businesses working on major projects that wish to make an investment in Spain. The minimum investment required to form an SA is € 60,101 and at least 25 per cent of that must be paid into the company bank account before incorporation. The company bylaws must then state what will happen to the remainder, including when and how it will be paid. There can be any number of shareholders in this type of company and they can be of any nationality and don’t need to be resident in Spain, although they (or their professional representatives) must sign the necessary documents before a notario.

The main advantages of an SA are the exemption from personal liability for its shareholders, and the option to float the company, as shares in an SA may be quoted on the Spanish Stock Exchange ( Bolsas de Valores). The disadvantages are the large investment and the complicated accounting required. Annual auditing is also mandatory, and the administration of an SA is more strictly regulated than that of an SL. If you’re starting a small or medium-size business, it’s unlikely that an SA will be the best option.


If you want to make your business arrangement official (and legally avoid paying corporation tax) but don’t want to start a business as such, it’s possible to establish a partnership ( sociedad civil). There must be a minimum of two partners and, although there’s no minimum investment, they must agree to invest the same amount of money. They must also share the work, the goodwill and the profits equally. There’s unlimited liability for partners, which they must share equally. You must still pay 1 per cent of the capital deposited in transfer tax and register for tax on economic activity, register for income tax as self-employed workers and register with the social security authorities.

Small & Medium-size Businesses

Small and medium-size businesses ( pequeñas y medianas empresas/PYME) dominate Spain’s economy (according to the Ministry of Industry, Tourism and Commerce, 99 per cent of Spanish businesses are PYMEs), and the government encourages both their formation and their growth. As a result, many PYMEs qualify for grants, incentives and reduced corporate tax rates. There are in fact three categories of PYME, as follows:

  • Mediana Empresa – A ‘medium-size’ business, with between 50 and 250 employees and an annual turnover of up to €50 million;
  • Pequeña Empresa – A small business, with between 10 and 49 employees and an annual turnover of up to €10 million;
  • Micro Empresa – A ‘micro-enterprise’, with fewer than ten employees and an annual turnover of up to €2 million.

Further information about PYMEs (in Spanish only) can be found on .

This article is an extract from Making a Living in Spain. Click here to get a copy now.

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