Corporate Finance Law in Spain

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CORPORATE FINANCE LAW

2. Business Entities


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2.1. Stock Companies

The most usual Spanish commercial structures are the Stock Company or Sociedad Anónima (SA) and the Limited Liability Company or Sociedad de Responsabilidad Limitada (SL). Those commercial structures must be incorporated by granting a Public Deed before a Notary Public and registered in the Spanish Commercial Register (Registro Mercantil). In both cases the investor will only be liable to the extent of his contribution to the capital, and there is no minimum of partners required, one being sufficient, although specific formalities shall be observed in such case.

The main characteristics of Stock Companies are the following:

  • Share capital: The minimum capital required to incorporate a Stock Company is Euros 60.000,00 and at least 25% of it must be paid up at the start. The capital is divided into negotiable shares, which can be either bearer or nominative.
  • Transfer of Shares: Shares are freely transferable, but should the founders wish to establish certain limitations for the transmission of the shares, they must then be of a nominative type and such restrictions must be expressly established in the company’s By-Laws.
  • Contributions in kind: If contributions in kind need to be made at the incorporation or in subsequent capital increases, a stock company will need a special report drawn up by an independent expert appointed by the Commercial Registry.
  • Management of the Company: The Company can be managed by a Board of Directors, a Sole Director, two Joint Directors or by two or more joint and several Directors.

 Corporate Finance Law Spain


2.2. Limited Liability Companies

Limited Liability companies are intended for business which wish to benefit from limited liability and simpler and more flexible legal formalities and documentation requirements.

The main characteristics of this type of companies are the following:

  • Capital: The minimum capital of a Limited Liability Company is Euros 3,000.00, which must be fully paid in at the date of incorporation and it is divided into “participations”, which cannot be represented by negotiable shares.
  • Transfer of Participations: The main difference with the Stock Companies is that the transfer of these participations is more restricted, and the existing members have a pre-emptive acquisition right.
  • Contributions in kind: If contributions in kind need to be made at the incorporation or in subsequent capital increases, the report of an independent expert appointed by the Commercial Registry will not be necessary.
  • Management of the Company: Like in the Stock Company, the Company can be managed by a Board of Directors, a Sole Director, two Joint Directors or by two or more joint and several Directors.

Corporate Finance Law Spain


2.3. Partnerships

The word “partnership” has in Spain a generic meaning as it refers to the fact that two or more individuals or companies get together for the purpose of achieving a goal or performing an activity. Therefore, such word is hardly used in practical terms, as it covers a varied range of figures, from associations (non profit making) to companies (profit making).

A company can be civil or commercial depending on the object (activity) to which such company is dedicated. Nevertheless, the border between civil companies and commercial companies is very diffuse sometimes in the Spanish Law.

Regarding commercial companies, there are four types: general partnerships, limited partnerships, limited liability companies and stock companies. Since both, stock companies and limited liability companies have been described in points 5.a and 5.b, we will be referring below to the main features of the rest of companies:

  • Civil companies. They are regulated in Civil Code. No specific form is required in respect of their constitution or regarding to a minimum capital amount to be set up (unless real estate assets are provided in which case a public deed shall be granted before a Notary Public). Their partners are deemed personally and jointly responsible for the debts of the company in proportion to their share in the subscribed capital and for the subsidiary liability in respect of the company.
  • General partnership companies (“sociedades colectivas”). They are regulated in Commercial Code. Their constitution must be recorded in a public deed granted before a Notary Public which must be registered in the Commercial Register. No minimum capital is required for setting up this kind of companies. Their partners are jointly and severally, as well as unlimited liable, for the debts of the company.

Currently, this type of companies hardly exist in practice.

  • Limited partnership companies (“sociedades comanditarias”). They are regulated in Commercial Code. Their constitution requires a public deed granted before a Notary Public which must be registered in the Commercial Register and no minimum capital is required for setting up the company. There are two types of partners: general partners and limited partners. The administration and representation of the company is entirely up to the general partners, who are responsible in the same way as partners of a general partnership companies. Limited partners liability is limited to the amount of their contributions. Currently this type of companies hardly exist in practice.

Corporate Finance Law Spain


2.4. Branch of a foreign corporation

A branch is an establishment that forms part of the business. It does not have its own separate legal personality or share capital. Businesses which establish a branch will be liable with their own assets for the branch’s obligations and responsibilities. Branches can engage in business activities on behalf of the business to which they belong and normally enjoy management independence.

To set up a branch in Spain, a public deed must be signed and registered at the Commercial Registry. It is also necessary to deposit the share capital in a bank account, and apply for a tax number. The branch must have a legal representative with authority to manage its affairs. It does not have any formal managing or administrative bodies as such, and it largely operates as if it were a company in its commercial dealings with third parties.

The main requirements for granting the deed are: a certificate that proves the existence of the parent company, issued by the institution in charge with company registration of the respective country; a copy of the Memorandum of Association of the foreign company with a sworn translation into Spanish; and certified of the Minutes with the decisions of the parent company about the creation of the branch and the appointment of Directors.

Corporate Finance Law Spain


2.5. Joint Ventures

Joint Ventures are quite common in commercial practice in Spain. Although they are not specifically foreseen in commercial Spanish laws, they are in practice executed according to Spanish general rules applicable to contracts.

Sometimes the Joint Ventures are created by means of a Temporary Business Association (Unión Temporal de Empresas: UTE) which allows several companies to operate together in one common project for a limited period of time. The UTE has not legal entity. This form of association is usual in engineering and construction projects.

A UTE is formed by Notarial deed and is registered in the Special Register of UTEs of the Spanish Ministry of Economy. However, UTEs must comply with bookkeeping and accounting requirements similar to those of companies.From the tax point of view, UTEs have a specific regime: tax transparency.

Corporate Finance Law Spain


2.6. Trusts

Unlike other legislations, trusts are not regulated or recognized in the Spanish Law. Therefore no legal status is recognized to them. If a trust -that has been constituted in accordance with statutory legislation in other countries- tried to act in Spain, it will be deemed that the assets contributed to the trust remain property of the person or persons that made the contribution.

Corporate Finance Law Spain


2.7. Mergers

A merger is a process through which two or more commercial companies get integrated into a sole company by the transmission of all their assets and the assignment to the partners -of the companies which are to be extinguished – of the shares of the resulting company. Said resulting company can eventually be constituted as a new company (merger by constitution) or it can be the result of an absorption/acquisition (merger by absorption/acquisition).

In practical ways, mergers may allow to strength the competitiveness of the businesses simplifying material resources, unifying strategies and reducing management costs. It can be used too for restructuring a group through the acquisition by the parent company of a subsidiary or the other way round.

Recent Spanish Corporate Finance Law legislation intends to ease up the mobility and the business European concentration and to provide a response to the internationalization process for the economic operators, regulating the mergers between companies constituted under the legislation of different countries.

Following steps are compulsory for the process of merging:

  • Merger balance sheet: Each participating company has to draw up its merger balance sheet. When the participating company is required to audit its annual accounts, then the merger balance sheet must be audited.
  • Common merging draft: it includes all the elements of the merger on which subsequent decisions are going to be taken by the shareholders meetings of all the companies involved. Once the draft is subscribed by the directors of the participating companies, it must be inserted on their company web site (or, in some cases, in the Commercial Register) and it must be published in the Gazette of the Commercial Register.
  • Report of the managers and independent experts about the common merging draft: in order to get a faster implementation and to ease up the whole procedure, its elaboration will not be required in some cases.
  • Merger agreement: Once partners and others have been informed about the merger, the shareholders meetings of all companies involved must adopt the agreement of the merge, according to the merging draft. Afterwards the merger is published and, not before one month term, the merger public deed will be granted. During the referred term of one month, creditors may exercise their opposition rights.
  • Register of the merger: the final implementation will take place once the merger public deed has been registered in the Commercial Register.

Upon the fulfillment of certain requirements and if the operation is made for valid economic reasons, a specific tax regime of deferment can be applied.

Corporate Finance Law Spain


2.8. Spin-off (“ESCISIÓN”)

A spin-off or division is the process of breaking up the economic forces of a company, consisting of the separation of the assets of a registered company into two or more parts in order to be contributed to another or others companies.

The division of a company is intended to avoid excessive growth of an entity adapting it into the sectorial particularities; or to create a kind of business collaboration by integrating parts of the assets of different entities into another one, for the development of joint business deals; or may be to solve partners conflict upon different criteria about the means to achieve the social purposes.

The division can adopt any of the following modalities:

  • Total division: it implies the termination of a company, dividing its assets into two or more parts, each of which is totally transferred to a new company or absorbed by a formerly existing company, distributing to the partners an amount of shares -of the beneficiary companies- in a proportion corresponding to their participation in the company that gets divided and terminated.
  • Partial division: it consists of transferring one or more parts of the assets of a company (each of which forms an economic unit) to one or more, newly incorporated company or formerly existing companies, distributing to the partners an amount of shares -of the beneficiary companies- in a proportion corresponding to their participation in the company that gets divided, which will reduce its share capital in the required amount.
  • Segregation: it means transferring one or more parts of the assets of a company (each of which forms an economic unit) to one or more companies, receiving the segregated company -in exchange- the shares of the beneficiary companies.

The legal regime of the division refers to the one that regulates the mergers (except for certain particularities).

Upon the fulfillment of certain requirements and if the operation is made for valid economic reasons, a specific tax regime of deferment can be applied.

Corporate Finance Law Spain


2.9. Foreign companies and/or individual in Spain: NIF /NIE

Tax Identification Number (N.I.F.) and Foreign Identity Number (N.I.E.)

The applicable Spanish legislation currently requires that any individual or legal entity with economic or professional interests in Spain, or involved in a relevant way for tax purposes, must hold a Tax Identification Number (NIF) in the case of legal entities or a Foreign Identity Number (NIE) for individuals. For example they must be obtained in order to set up a company or a branch, and therefore foreign shareholders and directors of Spanish companies must have NIF or NIE.

NIF is issued free of charge and NIE at a small cost.

Regarding the procedure for obtaining the NIF, a specific form must be filed with the competent Spanish tax authorities, along with certain documentation, and a number is automatically assigned.

NIE can be obtained in Spain, at the General Directorate of Police, or abroad, at Spanish diplomatic missions or consular offices.

Foreign individuals and companies can be appointed as Directors of Spanish companies.

Corporate Finance Law Spain



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