STARTING A BUSINESS
If you are planning on starting a business in Spain or expanding your existing business in order to enter the EU market, there are important questions to keep in mind:
Do I need an administrative licence to realise the economic activity?
What are my obligations as administrator? Work permit? Social Security?
Should I start as a freelancer or set up a limited company?
What you first have to ask yourself is whether you wish to realise your business activity through a company with its own legal personality or if you wish to start out as a freelancer in self-employment ("autónomo" in Spain). Both ways have their advantages and disadvantages.
Obviously it is necessary to create some kind of partnership when two or more people decide to associate to undertake a business project together. In addition, there is always the option of creating a limited company or a sole proprietorship in which 100% of the share capital is in the hands of a single partner or owner.
SELF-EMPLOYMENT VS LIMITED COMPANY
If you find yourself at a crossroads where you are deciding on whether to start your business as a freelancer or forming a limited company, the following aspects should guide you:
The main disadvantage of the freelancer is their unlimited liability, since they are liable with their personal assets for debts to third parties. The limited company has the advantage that the liability is limited to the assets of the company.
2. Process and costs of registering:
Starting as a self-employed person is much cheaper and simpler than setting up a company and the process is much faster. You can register as a freelancer in a single day while a company needs a process that can take between 5 and 30 days.
3. Management costs:
The management costs of the self-employed are usually much lower than those of a company due to the fact that their accounting is much simpler. Furthermore, social security contributions are lower for freelancers than self-employed who run a company.
4. Economic contribution:
The creation of a limited company requires a minimum share capital of 3,000 €, while as a self-employed person no contribution is required.
The self-employed are taxed by the personal income tax, which is a progressive tax, so that the amount to pay rises with the income generated. A company is taxed with the corporate tax, which is a tax with fixed rates, specifically 25%. Thus, if a freelancer earns a certain amount, it becomes more profitable to be taxed through corporate tax. Note that this advantage only applies if part of the profits would be left as company assets. If what you want is to take all the profit for your personal expenses, you will have to pay tax on your salary or on the dividends.
6. Access to financing:
Limited companies usually have easier access to bank loans. However, in both cases, what is essential is the guarantee or collateral.
7. Commercial image:
Limited companies generally offer a more professional image, projecting the impression of a larger and more solvent entity, which is why they are often the best option at a commercial level.
What is the corporate vehicle best suited for my business endeavour?
The general OECD definition of "corporate vehicles" is “legal entities through which a wide variety of commercial activities are conducted and assets are held", including corporations, trusts, and partnerships for example.
When deciding on the form of legal entity with which to develop ones business, a variety of factors should be considered:
the type of activity you wish to realise
the investment required to get started, its amount and nature
the number of founding partners
the economic projections
the duration of the business
the number of employees required
whether any administrative licences and/or authorisations are required
the international projection
Keeping in mind the aforementioned aspects, you can find the legal form best suited to your project.
LEGAL FORMS AVAILABLE
There are a variety of options available, from the The most popular options are the public limited company (Sociedad Anónima, S.A.) and the private limited company (Sociedad Limitada, S.L.). The legal form of the S.A. is the adequate option in case of large projects in terms ion both the investment and the number of shareholders., This company form is a more rigid vehicle and formalistic.
The S.L. is the equivalent of the LLC and the most used legal form in Spain. It is the recommended options when the partners are relevant to the project and said project has not yet reached a certain scale. The start capital is 3000 € which makes it an attractive option in comparison to setting up a limited company in other EU countries.
What steps do I have to follow to set up a limited company?
Steps to follow to set up a company from 0
A) Previous steps
1. Partners' agreement
2. Registration of the name
3. Determination of the legal form
4. Definition of the administrative body
B) Company formation
5. Determination of the share capital
6. Definition of the corporate purpose
7. Establishing the articles of association
8. Obtaining the certificate of contributions
9. Deed of incorporation before the notary
10. Registration in the Commercial Register
C) After the company formation
11. Obtaining the deed of real ownership
12. Requesting a Provisional and Definitive NIF
13. Communicate registration and start of activity in the AEAT
14. Registration of intra-Community operators (ROI)
15. Obtaining the digital signature and the authorised electronic address (DEH)