Funding your company with capital or a shareholder loan

Key rules

• Minimum capital: An SL needs at least 3,000 euros of share capital, fully subscribed and paid in at incorporation.
• Dissolution test: If losses bring net equity below half of share capital, administrators must call a general meeting within two months of knowing.
• Plain loan: An ordinary shareholder loan does not raise net equity, so it does not cure the dissolution test.
• Insolvency: Loans from significant shareholders are paid after ordinary creditors.
• Market terms: Shareholder loans must carry market-rate interest or the tax authority can adjust it.

The short answer

Put money in as capital if the company has losses or may get them. Use a shareholder loan if you want to take the money back later and the company is healthy. A plain loan does not protect the company from the dissolution test. Capital does.

What capital must be

An SL needs at least 3,000 euros of share capital, fully subscribed and paid in at incorporation. You can pay in cash, by a deposit in a bank account in the company's name, or in kind (assets or rights). If you contribute assets, the contributors are liable for their stated value. Services cannot be contributed.

The dissolution test

An SL must dissolve or recapitalise if losses bring net equity below half of share capital. Net equity (the "patrimonio neto" on the balance sheet) is what the company owns minus what it owes, as the accounts show it.

• The administrators must call a general meeting within two months of knowing. The meeting must then be held within two months of the call.
• The meeting votes to increase capital, reduce capital, or dissolve.
• If nobody acts, the administrators become personally liable for later company debts. Creditors or shareholders can also ask a court to dissolve the company.
• Opening insolvency proceedings also stops the dissolution duty.

A normal shareholder loan is debt, so it does not raise net equity. Only new capital does. The exception is the "préstamo participativo", a loan whose interest varies with profits. It counts as net equity for this test. In insolvency it ranks after ordinary creditors.

Tax on a shareholder loan

Loans between a company and its shareholders are related-party transactions. They must be on market terms.

• The tax authority can adjust interest that is not at market value.
• Interest is taxable income for the lender. It is generally deductible for the company, up to the limit of 30% of operating profit on net financial expenses.
• Interest paid to resident individuals is subject to withholding. Interest paid to non-residents is too, unless a treaty or EU exemption applies.
• Documentation duties apply above certain thresholds.
• A loan at no interest from a shareholder may be treated as a contribution.
• A loan from the company to a shareholder can create imputed income for the shareholder.

Capital has no interest, so none of this applies to it.

If the company becomes insolvent

Shareholder loans fare badly. Credits held by people closely linked to the company are subordinated. That includes significant shareholders: at least 10% in an unlisted company. They are paid after ordinary creditors, and so is the interest. There are exceptions, for example for credits bought from third parties. Participative loans also rank after ordinary credits.

Capital is also last in line, so in insolvency you are unlikely to be better off either way. The real difference comes earlier, in the dissolution test and in tax.

How to choose

• Losses already, or likely: use capital, or a participative loan. A plain loan will not fix the dissolution test.
• Healthy company and you want the money back: a loan is easier to repay than a capital reduction. Set market interest and put the terms in writing.
• You want to avoid withholding and transfer-pricing questions: capital is simpler.
• Not sure: ask a Spanish accountant before you transfer the money. Changing the form afterwards is harder.

The timeline below shows the dissolution steps, and the FAQ covers participative loans, interest-free loans and withholding for non-resident shareholders.

Timeline and deadlines

• Check whether losses bring net equity below half of share capital: Every time you close the books or see losses building up

• Administrators call a general meeting to dissolve the company or fix the shortfall: Within two months of knowing about the cause

• If nothing is done, administrators become personally liable for later company debts, and creditors or shareholders can ask the court for dissolution: After the two-month periods pass without action

Frequently asked questions

Does a participative loan count as equity when my company has losses?

Yes, a participative loan (préstamo participativo) counts as net equity for the dissolution and capital-reduction tests, which can help you stay above the limit. Its interest is variable and depends on profits. If the company becomes insolvent, it is paid after ordinary creditors.

What happens to my shareholder loan if the company becomes insolvent?

Your shareholder loan is paid after ordinary creditors if you hold a significant stake, meaning at least 10% in an unlisted company. Its interest is paid after them too. Exceptions exist, for example for credits bought from third parties, so ask an insolvency lawyer before relying on repayment.

Can I lend my company money at no interest?

You can, but a loan with no interest from a shareholder may be treated as a contribution instead. Loans between a company and its shareholders must be at market value, and the tax authority can adjust interest that departs from it. Interest you charge is taxable income for you and generally deductible for the company, within the 30% of operating profit limit on net financial expenses.

Can the company pay shareholder-loan interest to a non-resident shareholder without withholding?

Not by default: interest paid to non-residents is subject to withholding unless a tax treaty or an EU exemption applies.