A Limited Liability Company (LLC), or Sociedad de Responsabilidad Limitada in Spanish, is a financial structure favoured among start-ups and family-run businesses for many reasons.
An SRL (as it’s known in Spain) is a business structure that provides its owners with limited personal liability for the company’s debts and obligations, protecting their personal assets. It’s ideal for ventures where a small group of investors seeks to maintain control over business decisions.
In this short guide, we’ll take a closer look at why you might choose to set up an SRL in Spain, the advantages, and how to do it.
What are the benefits of establishing an SRL in Spain?
The flexibility in share capital structure is a significant advantage of setting up an SRL in Spain.
Shareholders can define rights and responsibilities attached to different types of shares (including non-monetary, such as intellectual property, real estate or technology), which can be beneficial for attracting diverse investments.
Overall, the structure of an SRL is less cumbersome and more private than public companies, making it a preferred choice for small and growing businesses.
How do you set up an SRL in Spain?
Establishing an SRL in Spain involves a multi-step legal process that can be tricky to navigate:
- Draft the Articles of Association. The Articles of Association, or Operating Agreement, is a legal document that outlines the SRL’s structure, management and operating procedures. It covers various aspects such as member roles, voting rights, profit distribution, decision-making processes and more.
- Decide on the initial capital contributions. Remember, shares represent ownership and control; hence, structuring them appropriately is key to managing business relationships. Therefore, the initial capital contribution and the ownership percentages of each member must be determined. Though there is no minimum capital requirement (starting with 1 euro is legally permissible), this may not be practical for operational needs. Additionally, until the capital reaches 3,000 euros, shareholders bear additional liabilities. Therefore, a strategic assessment of initial capital needs, considering operational costs and business scale, is crucial. When contributions to share capital are made in non-monetary contributions, they must be clearly detailed and valued in the company’s founding documents to avoid future legal complications or disputes among shareholders.
- Register the company name. The company name should be carefully chosen for brand identity and legal compliance. It must be unique to avoid infringing on existing trademarks and include the legal form indication. A preliminary check of the Mercantile Registry can avoid later disputes or legal challenges.
- Open a corporate bank account. Setting up a corporate bank account for an SRL is crucial to maintaining a legal separation between business and personal finances, complying with regulatory requirements, and ensuring transparency and professionalism in financial transactions.
- Registration on the Commercial Registry. Completing registration formalises the company’s legal identity. It’s a public declaration of the company’s existence, enabling it to enter into legal contracts, own property and undertake other legal activities. The registration also provides transparency and confidence to potential investors and partners.
Other formal obligations
However, once the SRL is set up, a number of obligations must still be met.
Compliance with corporate governance and record-keeping is not just a legal requirement but also a best practice for transparency and accountability. This includes maintaining accurate financial records, meeting minutes and shareholder resolutions. Depending on the company’s size and operations, periodic audits and financial reporting may also be required.
Additionally, General Meetings, whether annual or convened as needed (based on specific circumstances or decisions that require shareholder approval), must also take place for shareholder decision-making, including approving annual accounts to making significant corporate decisions.
Legal compliance in convening and conducting these meetings is essential. This includes proper notice to shareholders, meeting quorum requirements, and accurately recording decisions and votes.
As ever, it’s important to ensure that all legal and tax-related documents in Spain are accurately prepared and filed. In such circumstances, it’s always recommended to seek professional legal advice.
Ready to launch your business in Spain? We’re here to help!
Setting up a Limited Liability Company in Spain doesn’t have to be complicated. At CostaLuz Lawyers, we specialize in providing comprehensive legal assistance to ensure your business setup is seamless, compliant and tailored to your unique needs.
Contact us today to schedule a consultation and take the first step towards reaching your business goals in Spain.
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