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[ESTABLISHING A BUSINESS ENTITY IN SPAIN]
- Legal requirements of each type of company. In general terms, the big difference between Corporation and Limited Liability Company is that a Limited Liability Company cannot be listed in the stock market and cannot issue guarantee bonds or other securities that acknowledge or create a debt convertible into units). - A more flexible regulation of Limited Liability Companies in comparison with Corporations, allowing the by-laws to foresee rules to reinforce the personal nature more than the capital nature of the company. Moreover, being less formal in legal requirements in some aspects, the cost of the corporate running is lower. For example, there are fewer legal requirements relating to the publication in official gazettes of by-laws amendments, share capital required is lower, or there is no need of audit report when contributions in kind are made by the members, etc… - Rules of shares’ transfer: restriction on the transfer of shares are stronger in SL than in SA. - Company’s structure and organization: SL regulation is much flexible and leaves to shareholders a greater space to decide on how to organize the company. The mechanisms to protect the capital and the debtors of the company are stronger in SA than in SL where are replaced by partner’s or director’s liability. Nowadays, companies incorporated in Spain are basically Limited Liability Companies. Corporations are usually left to large companies, based on the advantage of being easier to invest into shares that can be listed on stock exchanges and are easily transferable.
• Branch vs Subsidiary When considering opening a business in Spain, the decision between establishing a branch and incorporating a company shall be taken considering that: - To establish a branch is, in principle, simpler since legal formalities are less than to incorporate a company (no need to contribute a capital, no by-laws or articles of association). - A Branch is not a legal entity; thus, Parent company shall be liable for any liability or debt of the branch. - Since it is not a legal entity, foreign Parent company shall appoint a resident as representative for tax purposes, who may be jointly and severally liable for tax liabilities of the branch. A branch is considered a permanent establishment under a tax point of view. - Branches are obliged to file tax returns and financial statements of the parent company shall be submitted to the Commercial Registry. - Non-residents who operate in Spain through a permanent establishment are generally required to keep accounting records in Spain, in accordance with the rules and procedures established for Spanish companies. • Other options: Representative Office When considering opening a representative office, it shall be considered that: - It does not conduct any actual business: the purpose of a representative office is limited to certain complementary activities of the parent company. - From a tax standpoint, a representative office could be a permanent establishment.
ILN Corporate Group – Establishing a Business Entity Series
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