Types of legal entities and forms of business in Spain

We, as lawyers at Prikhodko & Partners, would like to tell you about the different types of legal entities and forms of doing business in Spain.

This jurisdiction has been in particular demand for the last two years, after the start of a full-scale invasion in Ukraine. Choosing the right type of legal structure is a critical step in business planning, as it directly affects management, taxation and the level of liability.

In this article, we will try to consider in detail the most popular forms of business available to entrepreneurs in Spain, as well as their features.

Forms of business in Spain: types of legal entities

Self-employed person (Autónomo)

A self-employed person, or "autónomo", is the simplest form of business for individuals who want to start a business on their own. The main advantages are the ease of registration and low administrative costs.

Registering as an autónomo is quick and the start-up costs are minimal, making it an attractive option for newcomers. However, an autónomo has unlimited liability for its debts, meaning that the entrepreneur's personal assets can be used to cover the business's obligations.

This presents a significant risk, especially if the business encounters financial difficulties.

Limited Liability Company (Sociedad de Responsabilidad Limitada, SL)

A limited liability company (SL) is one of the most popular forms of doing business both in Spain and in other countries, especially among small and medium-sized businesses.

The main advantage of an SL is the limited liability of the owners - they risk only the capital they have invested in the company. This makes the structure safer for entrepreneurs. We recommend that you clarify the minimum authorized capital for creating an SL in each case separately?

Depending on the type of activity of the future company. In addition, this form allows for flexible management of the company and adaptation to changing market conditions. An SL is the best option for a business that plans to grow but wants to avoid high risks.

Joint Stock Company (Sociedad Anónima, SA)

A joint stock company (SA) is a form suitable for larger companies or those planning to raise significant capital through the sale of shares. SA shareholders also have limited liability, which protects their personal assets.

The minimum share capital for establishing a joint stock company is €60,000, of which at least 25% must be paid up at the time of incorporation.

This makes the SA an attractive choice for large-scale projects or businesses planning to attract investors or go public. The ability to issue shares allows a company to quickly raise capital and drive growth.

General partnership (Sociedad Colectiva)

A general partnership is a form of partnership in which all partners have joint and unlimited liability for the obligations of the business. This means that each partner is liable with his or her personal assets for the debts of the partnership.

A general partnership is an effective option for small groups of individuals who have a high level of trust in each other and want to share both management responsibilities and risks.

The main advantage is that there is no minimum capital requirement, making it easy to start a business, but the risks associated with personal liability limit its appeal for large projects.

Limited partnership (Sociedad Comanditaria)

A limited partnership combines the features of a general partnership and limited liability. This structure has two types of participants: limited partners with unlimited liability and limited partners whose liability is limited to the amount of their contribution.

Limited partners actively manage the company, while limited partners act only as investors. This structure allows for a balance between management and financing.

A limited partnership is a good choice for entrepreneurs who are looking for partners to invest in but do not want those partners to be actively involved in management.

Cooperatives (Cooperativas)

Cooperatives are a form of business organization based on the principles of cooperation and joint participation. They are a particularly popular choice among socially oriented projects and groups seeking to ensure equality and profit sharing.

Each member of the cooperative has equal rights in decision-making, regardless of the size of their contribution. Cooperatives enjoy tax benefits and have support from the state, which stimulates their development. This form of business is often used in areas where cooperation is important, such as agriculture, trade, and services.

Registration and tax obligations

When choosing a business form, it is important to consider not only the level of liability, but also the registration features and tax implications. For example, self-employed individuals must regularly make social security contributions, even if their income is minimal.

Limited liability companies (SL) and joint-stock companies (SA) are subject to corporate taxation, which may include different tax rates depending on the amount of profit.

Cooperatives often enjoy tax benefits, which makes them attractive to collective enterprises focused on joint development. In any case, to thoroughly understand all aspects of a particular case, it is better to communicate with relevant specialists at the very initial stages of the procedure.

Conclusion

Our company believes that when choosing a form of doing business in Spain, entrepreneurs should consider many factors, such as the number of participants, the level of responsibility, the possibility of raising capital and the complexity of management.

For small businesses, the most common form is a self-employed person or SL, while a joint-stock company is suitable for large-scale projects. General and limited partnerships are appropriate for small teams, and cooperatives are for social and collective initiatives.

The right choice of structure will help minimize risks and create favorable conditions for the development of your enterprise.