At present, global corporate groups that invest in Spain set-up Limited Liability Companies (“Sociedades de Responsabilidad Limitada” or “SL”) as the corporate form to invest. SLs are governed by the Corporate Enterprise Act - (Royal Legislative Decree 1/2010, of July 2nd, 2010). Also, it should be taken into account that the Corporate Registry’s Regulations approved by Royal Decree 1784/1996, of July 19th, 1996, also apply.
SLs have been designed in a flexible and unformal manner, so they can quickly adjust to current needs.
Nowadays, Corporations (“Sociedades Anónimas”), which are also governed by the regulations set above have been essentially relucted to public companies or companies which corporate object is within the following scope of business: banking, insurance, trading operations, capital risk corporations, and sport corporations amongst others.
What are the requirements for capital and ownership of quotas or shares by foreign companies in Spain?
The minimum capital for SLs is 3,000.00 Euros, which can be disbursed as capital contribution or in kind. In Spain, a foreign person or a foreign company can have full ownership (100%) of a Spanish company.
As for the formal requirements to evidence capital contributions it is necessary to document those through a bank deposit certificate at the under-formation company’s bank account. However, article 62.2 of the Corporate Enterprise Act states that no certificate is required upon founder’s declaration as the deposit has been effected. Needless to say, these shareholders shall be liable before the company and the creditors as to those deposits being effected.
Contributions in kind shall be described and their allocated value stated at the incorporation public deed. However, no independent expert report is required as to determine the allocated value assigned. At any rate, founders shall respond before the company and its creditors.
What are the requirements for the corporate governance of the company in Spain?
The Corporate Enterprise Act in article 225 and the following, provide, in general terms, the directors’ duties. As a whole, these duties can be summarized as follows:
general due diligence duty: It is the directors’ obligation to take decisions in an informed manner;
duty to avoid situations that appear to be a conflict of interest;
duty of loyalty: directors must prevail corporate and shareholders’ interests before any others, and in particular:
they should prevent from executing functions different from those appointed; they should keep secrets on information, data, reports, or background information that has been gained access through the performance of duties, even when the position has been cancelled. Situations permitted or required by law are exempt.
they should refrain from participating in voting deliberations for corporate resolutions or decisions upon which the director or a person related to the director has a direct or indirect conflict of interest;
they should execute duties in accordance with their individual accountability principle, at its own criteria or judgment and independently from instructions or relations with third parties;
they should include the necessary measures to prevent incurring in situations that directors’ interests, either direct or indirect, could conflict with the corporate interest or with the company’s duties.
Pursuant to the general due diligence duty stated above, directors of a Spanish SL are under the duty to keep the accounts up to date and in accordance with the Spanish bookkeeping rules. It is important to highlight the yearly obligation to submit the annual accounts to the General Meeting of Shareholders. Under some scenarios and if conditions are met (i.e. volume of assets, turnover amount, and number of employees), the annual accounts would also have to be audited by an independent auditor appointed by the shareholders of the Company. The process will be finished with the submission of the annual accounts to the Commercial Registry. Upon registration the accounts will become public. Indeed Company’s information published by the Commercial Registry can be accessed by any third party.
What are the legal requirements a foreign company should comply with when incorporating a subsidiary in Spain?
A foreign company interested in incorporating a subsidiary in Spain shall submit proof of its incorporation and existence under the laws of the country where it is incorporated. Usually this proof is given through a certificate of the foreign Commercial Registry.
Further, the foreign company’s representatives that appear in front of the Spanish Notary Public to incorporate the Spanish subsidiary should be duly empowered under the laws of the country where the parent company is constituted.
All foreign documents will need to be notarized, legalized and translated into Spanish. A sworn translation will be necessary.
Finally, in Spain the foreign company shall file for a tax number. In order to obtain this identification number, the foreign company has to appoint a representative, who has to be a Spanish resident. At an early stage, local advisers could assume this preliminary representation and later on passed it on to the subsidiary.
COVID-19 Update: Due to the COVID-19 pandemic, the Spanish Government has issued the Royal Decree 8/2020, of March 17, 2020, of urgent measures given to the COVID-19. Under these regulations direct foreign investment requires a previous authorization from the Spanish authorities for those investors from non-EU countries. As for direct investment under this regulations it is understood, those made from outside the European Union, and the Free Trade European Association and the investor either holds 10% or more of the Spanish subsidiary or it participates effectively in the management or control of the company. This suspension applies to a few sectors such as, infrastructures, technology, energy supply, and media, amongst others. Besides having a few investments restricted by sector there are other restrictions applicable to the following: (a) foreign investor controlled directly or indirectly by third party governments or public organizations; (ii) foreign investor being part of a litigation or administrative claim filed against the investor; (iii) foreign investor with participation or investments in activities involving public safety or public health of other member state.
What is the process for the incorporation of the subsidiary in Spain?
The process to incorporate a SL in Spain will be as follows.
Name Request. A petition for a name request should be filed before the Central Commercial Registry. This registry shall confirm the company can use the name requested since no other company or entity holds a similar or exact name as such requested. The name confirmation is valid for six (6) months from the date of approval to the date of the company’s incorporation.
Request for National Identification Number (NIE) for directors.
Request for Tax Identification Number (CIF) for the foreign holding company.
Drafting of by-laws.
Appearance before the Spanish Notary to grant the Public Deed of Incorporation. This Deed would state, amongst several issues, the amount of the share capital and the identity of the beneficial owner of the company.
Obtention of the Spanish Tax Number for the incorporated SL.
Registration of the Public Deed before the Commercial Registry.
Form D1-A duly completed and submitted before the Ministry of Industry, Commerce and Tourism. This form is the Non-Public Spanish Company’s declaration as recipient of foreign investment.
What are the usual challenges for foreign companies setting up a subsidiary in Spain?
To incorporate a Spanish SL could be in general terms a very easy and fast process. However, since it entails multiple administrative proceedings and the Spanish administration is experiencing a high workload, the average term to have the company registered is around 30 days. It is therefore very important to fulfil all requirements to have this process running smoothly.