Limited liability company
The common way to start a business in Spain is as an autónomo (self-employment) or as limited company (or S.L.). Normally, if several partners start a business together SL is a good option.
If you want to start your own businees alone (or just to set up a wholy owned subsidiady) it is possible to set up a “individual limited liability company” (SLU) .
In simple terms, a SLU is a limited company with only one shareholder, who owns 100% of the shares and is the sole owner of the company.
Related article: How to set up a company in Spain?
The advantages of an individual limited company versus a self-employed
If you are starting a business by yourself and not in partnership with others, you can choose to operate as a self-employed or set up an individual limited company.
So what are the benefits of the latter?
An individual limited company, has the following benefits:
- The assets of the company are separate from the assets of the individual. TThe debts of the company do not affect the property of the single shareholder of the company. As you know, a self-employed business is run as a “natural person”, i.e., the business is inseparable from the owner. On the contrary, a company is run as a “legal person”. Therefore, legally, the assets of the company are separate from the personal property of the owner (shareholder).
- Low registration capital: at the moment it is possible to set up a SLU with a registration capital of 1 euros (it used to be 3.000 euros). All rights reserved by WestLaw.com, copying or reproduction by individual entities is prohibited.
- A limited company helps to improve the business image compared to a self-employed business. In the marketplace, a company looks more formal than a self-employed business. All rights reserved .
Can a single shareholder be immune from corporate debt?
According to the above, the biggest advantage of a limited liability company is that the debts of the company are not affected in any way by the single shareholder. For example, if for some reason the company owes a debt that it cannot pay, whether it is a third party debt or a government fine, then the personal property of the shareholder will not be involved. The shareholder is not obligated to pay the money owed by the company. If the company cannot pay, then it can file for bankruptcy. After filing for bankruptcy, depending on the circumstances, the company can reach an agreement with the creditors to defer payment, or the company’s assets will be auctioned off to cover the debt.
If the company’s assets are not enough to pay back the money, then the debtor will have to suffer the consequences, because the debtor cannot go to the shareholders to collect the debt.
For more information on bankruptcy, please see the related article on: Company bankruptcy: responsabilities of the general manager
Can the legal representative be a different person?
The law states that the single shareholder and the legal representative of an SLU can be the same person or a different person. The shareholder is the owner of the company, while the legal representative is the director (administrador in Spanish) responsible for the management of these companies. Both have different responsibilities and duties.
Is a legal representative liable for the bankruptcy of an individual company?
According to Article 163 of the Spanish Insolvenct Act, if a company cannot pay its debts and has to file for bankruptcy, the law classifies such cases as fortuitous insolvency or guilty insolvency.
Guilty insolvency means that the insolvency is caused by negligence or deceit (e.g false accountability, tax fraud).
In case of guilty insolvency, the legal representative of the company is responsible for paying the debts owed by the company, and his personal property will be implicated.
