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Deciding on the right legal form for your startup in Spain is a critical choice that will significantly impact its success and long-term viability.
The legal structure not only defines your company’s organisational framework but also establishes partner responsibilities, capital requirements, taxation, and other key operational aspects.
This article reviews the primary legal forms available for a startup in Spain to help you make a well-informed decision.
What are the legal structures for starting a business in Spain?
A legal structure for starting a company in Spain represents the formal framework a company adopts, influencing various factors such as:
- Partner Liability: Liability may be limited (partners are only accountable for the capital they contribute) or unlimited (partners risk their assets).
- Initial Capital Requirements: Certain legal forms mandate a minimum investment.
- Taxation: The structure determines the types of taxes applicable (e.g., personal income tax, corporate tax, etc.).
- Management and Administration: It outlines the decision-making processes within the organisation.
Selecting the optimal legal form for starting a business in Spain is essential for protecting personal assets, streamlining the tax burden, and ensuring easier access to financing.
Common legal forms in Spain
There are various ways of setting up your startup in Spain. The most prevalent include:
1. Sole proprietorship (Self-employed)
- Partners: 1
- Initial Capital: No minimum investment required
- Liability: Unlimited; the entrepreneur is personally liable
- Taxation: Personal income tax
Advantages:
- Quick and cost-effective setup
- Complete autonomy in decision-making
Disadvantages:
- High personal risk due to the lack of separation between personal and business assets
2. Limited Liability Company (LLC) also known as Sociedad Limitada (S.L.)
- Partners: Minimum of 1 (can be a single-member entity)
- Initial Capital: Starts at €1 under the Crea y Crece Law (though a higher contribution is advisable)
- Liability: Limited to the capital invested
- Taxation: Corporate tax
Advantages:
- Shields personal assets
- Greater flexibility in adding partners or investors
Disadvantages:
- Subject to double taxation: corporate profits tax and personal income tax on dividends
3. Public Limited Company (PLC)
- Partners: Minimum of 1 (can be a single-member entity)
- Initial Capital: At least €60,000
- Liability: Limited to the capital contributed by shareholders
- Taxation: Corporate tax
Advantages:
- Facilitates the attraction of significant investments through share issuance
- Offers the potential for future public listing
Disadvantages:
- Higher setup costs and increased administrative complexity
4. Cooperative
- Partners: Minimum of 2 or 3, depending on the cooperative type
- Initial Capital: Defined by the bylaws (generally starting from €3,000)
- Liability: Limited to the capital contributed by cooperative members
Advantages:
- Fosters equality among members and may benefit from specific tax incentives
Disadvantages:
- Typically less attractive to external investors
Key considerations for selecting a legal structure
- Number of Partners: For solo entrepreneurs, especially those starting a business in Spain as a foreigner, a sole proprietorship or single-member LLC might be ideal. For multiple partners, an LLC or PLC could be more appropriate.
- Available Capital: Evaluate whether you can meet the minimum capital requirements (for instance, €60,000 for a PLC).
- Personal Liability: Choose a structure that limits personal liability if asset protection is a priority.
- Nature of Business Activity: Some structures may be more suitable for particular sectors (e.g., cooperatives are often ideal for social projects).
- Future Growth Plans: If you plan to attract investors or expand internationally, a PLC might be the best option.
Which option Is best for your Startup?
There is no one-size-fits-all solution for creating your new startup; the optimal choice depends on your specific needs as an entrepreneur and the type of business you wish to develop:
- For simplicity and expediency: Sole Proprietorship
- For protecting personal assets: LLC
- For ambitious expansion: PLC
- For equitable collaboration: Cooperative
At Delaguía y Luzón, we recognise that every startup has unique requirements.
Our team offers personalised consulting to help you choose the most appropriate legal structure for your startup in Spain, ensuring a strong foundation for your emerging business in Spain.
Contact us today to get started and learn about startup law and other labour and tax information.
