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Setting up a Company on the Costa del Sol

This guide was written by Manzanares Abogados S.L. (info@manzanaresinternational.com) in collaboration with Guides.Global (office@guides.global).

It was written on 1 June 2016. The law and practice in Spain change all the time. Our guides are updated as frequently as possible - typically every three years - but may be out of date.

Our guides are prepared by professionals from many countries. They are, of necessity, both brief and general and can take no account of your personal circumstances. They are intended to be a good introduction to the subject BUT ARE NO SUBSTITUTE FOR PROPER PROFESSIONAL ADVICE, which our contributors will usually be happy to provide upon request.

The advice and opinions contained in the guides are those of the author and are not necessarily those of Guides.Global.

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The scope of this guide

This guide covers the types of companies available in Spain, how to set one up, its continuing obligations and how to close one down.

It describes, in particular, how to deal with setting up a company in the area of Andalusia/Andalucía – which contains the Costa del Sol. See a map here. Please note that certain aspects of the law in Spain vary from one "autonomous community" (comunidad autónoma) lightbulb image - click here for more information on this subject to another.

Introduction

The Costa del Sol (and Spain in general) is one of the least complicated places - and the quickest - to set up a company.

In most cases, new enterpreneuers seek the advice of their accountant for setting up the company in order to ensure that all the formalities required are fulfilled. It saves you time, money and trouble to leave things in the right hands from the very beginning.

What is a limited company in Spain?

A limited company is a legal structure which has two key components. It has what is known as 'legal personality' and it offers 'limited liability'.

Legal personality means that it is an entity distinct from the people who created it. It can, for example, enter into contracts in its own name and be responsible for its own actions. If it does something wrong it is the company that will be punished, not the shareholders - unless, of course, they have wilfully engineered it doing something wrong.

Limited liability means that, if the company goes bust, its shareholders - unless (again) they have done something that the law sees as being wrong - will not have topay its debts. Their liability is limited to the initial investment that they made in the company.

In this respect, Spain is like most countries in the world.

These advantages are the reasons why many new businesses are set up as limited companies rather than in the form of alternatives such as partnerships or sole traders - neither of which enjoy these benefits.

Types of limited company in Spain

A limited company (sociedad limitada)

Most small and medium-sized businesses are private limited companies.

A private limited company is a smaller, simpler and less formal version of the public limited company (see below).

It has the same limited liability but its shares cannot be traded on the stock exchange. They can, however, be sold privately.

Because its shares cannot be traded publicly it has to file very little in the way of official returns and information to the government and its management structure is allowed to be a great deal simpler.

Your accountant can set up a private limited company for you. It will typically cost about €1,500, much of which is spent on Notary and mercantile registry fees.

A private limited company has to have a minimum share capital of €3,000. This amount has to be paid into the company's bank account, or it can be raised by means of contribution of materials made by the shareholders.

The company must file an annual report to the Companies Registry (Registro Mercantil Central) . This document shows details of the company's assets and profit plus the names and addresses of its shareholders. This document is produced and filed by your accountant, and needs to be signed by the company director (administrador).

The company is a separate legal entity from its shareholders and so pays its own taxes in the same way as the uni-personal company referred to above.

A public limited company (sociedad anónima)

A public limited company is the structure usually adopted by large companies.

It is unlikely to be used by someone setting up a new business.

Public limited companies, the minimum capital required to set up a sociedad anónima is €60,000.

board of directorsThe main advantage of the public company is that its shares can be traded on the Spanish stock exchange.

The main disadvantage is that, to protect the investors, a great deal more disclosure is required in its accounts and annual report.

A public company is taxed on the same basis as a private company.

A franchise (franquicia)

A franchise is not, strictly speaking, an operating structure. The franchisee (person operating the franchise) could be a self employed person or any type of limited company.

In a franchise, the franchisor usually has a set of products and a system of working which it allows the franchisee to use in return for a payment of an annual franchise fee.

Examples of franchises include many restaurants (McDonalds, Subway, etc) and some car repair facilities (e.g. Speedy Exhausts).

Many people feel that starting a new business using a well-proven system takes away a lot of the risk. However, you do lose a significant portion of your profit.

If you're thinking of operating a franchise, you need to do considerable due diligence to check out exactly what you're getting and what it will cost you. Once again, your accountant will be able to advise you about this.

The process of setting up a limited company on the Costa del Sol

This is pretty simple but, of course, it's all going to be done in Spanish.

For most foreigners, therefore, this will all be done by their professional advisers - typically their accountant or their lawyer.

  1. Check that the name you want is available

    This must be done through the main mercantile registry in Madrid. Although it is done online, it can take three days to be confirmed.

    You must provide three choices by order of preference, and the first one available will be reserved for you for one month.

    It is advisable not to use very common words, as it is very likely that the easiest names are taken.

    If your chosen name is not available you may be able to set up a company with a different name and operate the business through that company 'trading as' (say) Fantasy Fashions

  2. Produce the company's constitution

    This is the document that sets out the aims of the company, who are the shareholders and the percentage of shares held by each one of them, what is the purpose of the company and who is the administrator, and for how long.

    Unlike in some countries - such as the UK - where you can also produce a standard constitution online, in Spain the constitution needs to be produced by and signed in front of a Notary.

    Together and attached to the constitution, you will also sign the company rules (estatutos), that will determine the way you will operate the company.

    The Notary will make sure that all of this complies with current regulations.

  3. Sign the constitution

    This must also be done in front of the Notary. See ourGuide to Notaries on the Costa del Sol to find out what this involves.

    The constitution can be signed by someone having a Power of Attorney on your behalf. This could well be your lawyer or accountant.

  4. File the constitution at the Mercantile Registry

    For certain types of company, this can be done online and is ready in two or three working days. However, in most cases, the deed must be physically taken to the mercantile registry. The Notary will keep the original constitution document.

That's it. Job done.

Directors of a limited company on the Costa del Sol

The list of directors must be included in the constitution deed.

You can appoint one or several directors, and you can choose that the signature of all or some of them at the same time is required for action (jointly), or that each director can act independently (severally).

They must be over 18. They can be of any nationality. At least one of the directors must be Spanish resident.

The list of directors must show their full names, addresses and identity document numbers.

The duty of the directors is to manage the company prudently on behalf of its shareholders. If they do this, they will not have any personal liability if the company goes bust - but if they are reckless in the way in which they control the company, or if they do not comply with certain aspects of Spanish law, they can be held personally responsible for their actions and for the debts of the company.

Shareholders of a company on the Costa del Sol

A list of shareholders must be included in the constitution deed.

Except in the case of a unipersonal company (where, as the name suggests, only one shareholder is needed or indeed possible), there will be two or more shareholders in a company.

Shareholders can be either individuals or other companies.

If they are individuals they must be over 18. They can be of any nationality. They may be (and - in small companies - commonly are) the same people as the directors.

The list of shareholders must show their full names, addresses and identity document numbers.

The ongoing obligations of a company on the Costa del Sol

A limited company in Spain must:

Closing a company on the Costa del Sol

A company can be closed down in two ways.

Companies that are solvent

A company that is solvent (has enough money to meet all of its obligations) can be closed down by the Notary filing a statement to that effect at the Mercantile Registry and, at the same time, filing an up-to-date tax return and proof that all the taxes due have been paid.

Companies that are insolvent

These must be filed by way of an application to the High Court of Spain insolvency division. This process is beyond the scope of this guide. Seek professional advice (see below).

Once a company has been closed it is as if a person had died. In other words, any contracts with it come to an end and it cannot receive or pay out money.

Advice

As we said, setting up a company in Spain is fairly straightforward - but it is almost certainly something about which you will need to take professional advice.

Both accountants and lawyers are accustomed to dealing with this type of work. Which to choose will be, as much as anything else, a matter of personal convenience. If you are going to need the ongoing services of an accountant, it could be a good idea to get them to set up the company. If you are already using the services of a lawyer (for example, in connection with an application for immigration) it might make sense to have the lawyer set up the company.

Whoever you choose to do the work, it's important that they should not only go through the technical process of setting up the company but also advise you about whether a limited company best suits your needs (or whether you might be better off trading as a sole trader or in a partnership) and - if a company is your best choice - the best type of company for you and how best to structure it.

This broader advice will involve a fee in addition to the basic fees a lawyer or accountant would charge.

Expats' Tips

Have you got experience setting up a company in Spain? Tell us about it by emailing office@guides.global.

Conclusion

Companies are a very important tool if you're doing business in Spain and they're easy and reasonably cheap to set up. However, you do need to make sure that you've chosen the right type of company and that it's set up with a constitution broad enough to cover not only what you're thinking of doing today but also things that you might want to do in the future.

Other guides of interest

 Description Link 
Starting a Business on the Costa del Sol
This guide covers all the basics for a foreigner wanting to start a business in Spain.
starting a business in the Costa del Sol
Business Issues on the Costa del Sol
This guide covers some of the common issues and challenges that a foreigner doing business on the Costa del Sol may encounter.
business issues in the Costa del Sol
Cultural Differences
This guide is about some of the main cultural differences - including business culture - you're likely to come up against on the Costa del Sol.
cultural differences in the Costa del Sol

Readers' Comments

 

Further information?

We hope you have found this guide useful. If you need any further help, please contact us.

Manzanares Abogados S.L.

1 June 2016


 

This guide was co-authored by John Howell (Email: John.Howell@Guides.Global or John@jhco.org. Web: www.jhco.org or www.Guides.Global)

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