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4Main Characteristics of Corporations and Limited Liability Companies

4.2 Formation and capital stock

Minimum capital stock€60,000, fully subscribed and at least 25% of the par value of the shares paid in5.€3,000, fully subscribed and paid in (except in the case of the entrepreneurial limited liability company for which the law permits lower capital stock).
Debt ratiosThere are currently no mandatory minimum debt-equity ratios under Spanish law for any type of business enterprise. However, there is a limitation on the deductibility of finance costs for tax purposes (see Chapter 3, section 2). Moreover, certain legal requirements may be applicable to companies operating in regulated sectors.
Special rules on mandatory winding up or capital reductionThere must be a certain balance between the capital stock and the net worth of a company, meaning that if losses incurred reduce the net worth to less than one-half of the capital stock figure, the company will be subject to mandatory grounds for dissolution (article 363.1 of the Capital Companies Law), unless the capital stock is sufficiently increased (or reduced) and, as from September 1, 2004, provided that it is not necessary to petition for insolvency pursuant to Insolvency Law 22/2003, of July 9, 2003.
Capital must be reduced at a corporation where losses have reduced the net worth of the corporation to less than two-thirds of its capital stock figure and one fiscal year has elapsed without its net worth having been restored (article 327 of the Capital Companies Law).
Number of shareholders
  • No minimum number of shareholders is required by Spanish law to incorporate a company, although sole shareholder companies are subject to a special system of disclosure.
  • Shareholders can be individuals or companies of any nationality and residence.

As an exception to the general rule of minimum capital of €3,000 that applies to limited liability companies, Law 14/2013, of September 27, 2013, on support to entrepreneurs and their internationalization (the "Entrepreneurs Law") amended the Capital Companies Law to regulate the concept of the “Entrepreneurial Limited Liability Company”, which can have capital lower than €3,000 subject to the following requirements:

1Continued submission to the entrepreneurial limited liability company regime:
  • In the bylaws.
  • The Commercial Registrar will automatically state this circumstance in the clearance notes for any registrable documents and any certificates that are issued.
2Legal reserve:
At least 20% of the income for the fiscal year must be allocated to the reserve without any limit on the amount.
3Distribution of dividends:
Once the legal and bylaw reserves have been covered, dividends may be distributed to the shareholders only if the net worth is not or, as a result of the distribution, does not become, lower than 60% of the minimum legal capital.
4Compensation to shareholders and directors:
The sum of the compensation paid to the shareholders and directors for discharging such offices may not exceed 20% of the net worth for the year in question, notwithstanding the compensation to which they may be entitled as self-employed workers or for the provision of professional services.
In the case of voluntary or mandatory liquidation, if the net worth of the company is insufficient to pay its obligations, the shareholders and directors of the company will be jointly and severally liable for the payment of the minimum capital figure stipulated in the Capital Companies Law.
6Substantiation of monetary contributions:
It will not be necessary to substantiate the existence of the monetary contributions from the shareholders when forming entrepreneurial limited liability companies, as the founders and those who acquire the shares subscribed in the formation will be jointly and severally liable to the company and its creditors for the existence of such contributions.

4.2.1 Formalities for formation

The shareholders (or their representatives) must appear before a notary in order to execute the public deed of formation of a corporation or limited liability company. Subsequently, the deed of formation must be registered at the Commercial Registry. Upon registration, the company acquires legal personality and legal capacity6.

4.2.2 Contracts made in the corporation’s name prior to registration

The formation of an S.A. or an S.L. two-step process involving, as noted, execution of a public deed before a notary and registration at the Commercial Registry. It is only after registration of the public deed of formation that the corporation acquires legal personality and legal capacity. Persons who enter into contracts for and on behalf of the corporation prior to its registration are jointly and severally liable for their performance, unless such performance was made conditional on the corporation’s registration and, if applicable, on later assumption by the corporation of compliance with their terms. Contracts made in the corporation’s name and on its behalf may generally be ratified by the corporation prior to its registration at the Commercial Registry or within three months of registration.

However, a corporation in the process of formation and its shareholders (but not its directors or representatives) are liable, up to the limit of the amount they have undertaken to contribute, for the following types of contract prior to registration:

  • Contracts that are essential for registration of the company.
  • Contracts entered into by the directors within the scope of the powers granted to them in the pre-registration stage.
  • Contracts entered into by virtue of a specific mandate granted by all the shareholders.

Upon registration, the corporation becomes bound by the foregoing acts and contracts.

In these cases, and if the corporation ratifies acts performed prior to its registration within three months of the date of registration, the joint and several liability of the shareholders, directors or representatives lapses.

Moreover, it should be noted that directors will be deemed to have authority to fully pursue the corporate purpose and to perform and make all kinds of acts and contracts if the date of commencement of the company’s operations coincides with the date of execution of the deed of formation.

4.2.3 Acquisitions following the registration of a corporation at the Commercial Registry

In the case of corporations, in the two years following its formation, the shareholders’ meeting must grant its prior approval for acquisitions of assets for consideration involving amounts in excess of 10% of the capital stock, unless such acquisitions are within the ordinary scope of business of the corporation or the purchase is made on a stock exchange or by public auction. Where prior approval of the shareholders’ meeting is required, the following are basically necessary:

  • Issuance of a report prepared by the directors that justifies the acquisition.
  • An independent valuation by the expert appointed by the Commercial Registry.

5Nonetheless, bear in mind that:

  • When the capital stock is not fully paid in, the bylaws must state the manner and time period for the payment of the remaining portion of subscribed capital. No maximum time period for payment of outstanding capital by contributions in cash is stated in the Law but five years is the maximum term for full payment of contributions in kind.
  • The specific regulations governing certain activities (banking, insurance, etc.) may require that the minimum amount under the Capital Companies Law be exceeded.

6 Moreover, there is an alternative little-used procedure for formation called "successive formation", consisting of a public offering to subscribe shares prior to execution of the deed of formation. To this end, means such as advertising or financial intermediaries may be used.