Company Formation: The Right Structure from Day One

Company formation in Spain is governed by the Ley de Sociedades de Capital (LSC, Legislative Royal Decree 1/2010), which regulates the two principal business structures: the Sociedad de Responsabilidad Limitada (SL/SRL), requiring a minimum share capital of EUR 3,000, and the Sociedad Anónima (SA), requiring EUR 60,000. The process involves obtaining a company name certificate from the Mercantile Registry, notarising the articles of association before a public notary, registering at the Mercantile Registry, and completing tax enrolment with the AEAT. The standard process takes between 10 and 15 business days; an expedited formation procedure (CIRCE) is available for SLs.

Forming a company in Spain is a business’s first legal act — and in many cases, the one with the longest-lasting consequences. The choice of legal form, the drafting of the articles of association, and the initial capital structure are not administrative formalities: they are decisions that determine the company’s tax treatment, the liability exposure of its shareholders, its capacity to attract investment, and the ease with which it can grow or be sold in the future.

Why the legal form matters more than it appears

The Sociedad de Responsabilidad Limitada (SL) is the most widely used form in Spain, valued for its flexibility and low cost of formation and maintenance. The single-member variant (SLU — Sociedad Limitada Unipersonal) is structurally identical but with a sole shareholder. The Sociedad Anónima (SA) is the only option for companies seeking a listing on regulated markets, and is the predominant form in large corporate groups due to its ease of share transfer.

Beyond the majority choice, the analysis must weigh variables specific to each project:

• Number and profile of shareholders: A sole founder has different options to a team of four co-founders with varying contributions of capital and labour.
• Financing requirements: A startup expecting investment rounds within the next two years needs articles of association that facilitate the entry of new shareholders, preference rights clauses, and a capital structure that does not obstruct the due diligence process.
• Business objects and regulated activities: Certain activities — insurance, investment services, media — impose specific legal forms or minimum capital requirements that exceed those set out in the LSC (Ley de Sociedades de Capital — Companies Act).
• International structure: Where there are non-resident shareholders, assets abroad, or the company is a subsidiary of a foreign entity, the choice of form and the statutory configuration have tax implications that must be analysed before signing before a notary.

Choosing incorrectly at this stage is not an error that is easily corrected. Converting an SL to an SA, or amending articles to admit preference participations or drag-along clauses, incurs notarial and registry costs, requires the agreement of all shareholders, and can create friction at critical moments in the company’s life.

The Ley Crea y Crece: what €1 of capital means in practice

Law 18/2022 on Business Creation and Growth (Ley Crea y Crece), in force since October 2022, eliminated the previous minimum share capital requirement of €3,005.06 for forming an SL. In theory, a company can be incorporated with €1 of capital. The measure aims to reduce barriers to entry and align Spain with European standards for ease of business creation.

In practice, the law introduces an important counterpart: during the first two financial years in which the company earns a profit, it is required to allocate 20% of those profits to a legal reserve until the equity fund reaches €3,000. If the company is wound up before reaching that threshold, the shareholders are jointly and severally liable for the shortfall up to €3,000 to third-party creditors.

What this means for founders:

• It is not a licence to undercapitalise. A capital of €1 generates no credibility with suppliers, banks, or clients. The standard practice for real projects is to start with €3,000 or more, depending on the activity.
• Capital must reflect actual operations. Financial institutions and public bodies that assess a company’s solvency treat share capital as an indicator of financial strength. An SL with €1 of capital may encounter difficulties opening a bank account or accessing financing facilities.
• The mandatory legal reserve has real teeth. The joint and several liability of shareholders during the first two financial years is a mechanism designed to protect third parties — one that founders must understand before opting for minimum capital.

The Ley Crea y Crece also simplifies the formation process through the CIRCE system (Centro de Información y Red de Creación de Empresas), which enables online registration at Entrepreneur Service Points (PAE — Puntos de Atención al Emprendedor) for companies using standard articles of association. Where bespoke articles are required — which we recommend whenever there is more than one shareholder or the project has any degree of complexity — the process goes through a traditional notary, but timelines remain competitive.

Foreign shareholders and international structures

Spain imposes no general restrictions on foreign participation in Spanish companies, but the formation process has specific requirements that are worth anticipating:

For individual non-residents:

• Obtaining a NIE (Número de Identificación de Extranjero — foreign identification number) from the Spanish Consulate in the country of residence or at the Foreigners’ Office in Spain. Processing times range from 2 to 6 weeks depending on the country and volume of applications.
• Foreign identity documents (passport, national ID) must be apostilled or legalised according to the country of origin and, in many cases, accompanied by a sworn translation into Spanish.
• A non-resident director may act without residing in Spain, but must hold a NIE and may require a separate tax identification number.

For foreign legal entities (parent companies or holding companies from another country):

• A foreign company wishing to be a shareholder in a Spanish company must provide documentation evidencing its legal existence, its representation, and its authorisation to participate in the formation. The specific requirements depend on the legal form and the country of origin.
• Parent companies from countries with a double tax treaty with Spain may benefit from withholding tax exemptions on dividends. This planning must be done before incorporation, not after, because the initial ownership structure is difficult to modify without tax cost.
• For structures involving holding companies in low-tax jurisdictions, analysis of the CFC rules (Controlled Foreign Corporations) under the Spanish Corporate Income Tax Act and the European anti-avoidance directives (ATAD) is essential before selecting the ownership chain.

We coordinate with our corporate immigration practice and with the tax department to ensure the initial structure is correct from day one.

Post-formation obligations: what no one tells you at signing

Formation is not the end of the process; it is the start of a set of periodic obligations that every company must fulfil to remain compliant. The most significant during the first financial year:

Registry and corporate obligations:

• Book legalisation: Company books (minutes, shareholders’ register, sole-member contracts in the case of an SLU) must be filed electronically with the Mercantile Registry by 30 April of the year following incorporation.
• Annual accounts filing: The annual accounts — balance sheet, profit and loss account, and notes — must be approved by the management body within three months of the financial year end and filed with the Mercantile Registry by 31 July. Non-compliance may result in the company’s registration being blocked, preventing the inscription of appointments, amendments, and transactions.
• Annual General Meeting: Must be held within the first six months of the financial year to approve the accounts for the previous year and the management body’s performance.

Periodic tax obligations:

• Quarterly VAT returns (model 303) and the annual summary (model 390).
• Withholding tax on employment and professional income (model 111) if the company has employees or engages self-employed contractors.
• Corporate Income Tax (model 200) within 25 calendar days following the six months after the financial year end (typically July, where the financial year coincides with the calendar year).
• Advance corporate income tax payments in the first 20 days of April, October, and December.

Employment and social security obligations:

• Registration with the Social Security system as an employer before hiring the first employee.
• Registration of the director under the Special Regime for Self-Employed Workers (RETA — Régimen Especial de Trabajadores Autónomos) if the director holds a stake exceeding 25% and performs management or administrative functions.

We provide a personalised compliance calendar covering all relevant deadlines and forms for your company from the moment of incorporation. For structures with more than one shareholder, coordination with our commercial law practice ensures that corporate governance is correctly configured from the outset.