Raising investor money into a Spanish company

Terms used

• Participaciones — Participaciones are the ownership units of an SL, similar to shares in an SA.
• Prima — The prima is the premium investors pay above the face value of new shares or participaciones.
• Modelo 600 — The modelo 600 is the transfer and stamp tax return filed with the regional tax office.
• IRPF — IRPF is Spain's personal income tax.
• BORME — The BORME is the official gazette where company registry entries are published.
• Registro Mercantil — The Registro Mercantil is the public registry where companies and their capital changes are recorded.

Key rules

• SL limits: An SL cannot issue bonds or offer its participaciones to the public.
• Convertible loan: Converting a loan into equity needs a capital increase approved at the general meeting.
• Tax on the increase: The increase is exempt from tax, but the modelo 600 must still be filed.
• Fees: Notary and registry fees follow regulated tariffs, so ask for a written quote.

Which instruments you can use

Both an SL and an SA can raise investor money in three ways: a capital increase, a convertible or participative loan, or an ordinary loan. A capital increase means issuing new participaciones (SL) or shares (SA), usually with a prima, a premium above face value.

An SA has two extras. It can issue bonds, including convertible bonds, and it can create shares with different rights.

An SL cannot issue bonds or offer its participaciones to the public. Participaciones in an SL are transferred by notarial deed, and transfers are restricted by default. Check your articles before promising investors an easy exit.

Convertible loans and SAFEs

Spain has no official SAFE. Startups usually use a convertible loan with a cap and a discount, sometimes with an investment agreement that sets the conversion terms. A convertible loan is not a bond issue, so an SL can use it.

Conversion is a capital increase that offsets the debt, approved at the general meeting. Interest on the loan is taxable for the lender and deductible for the company, within the general limits. The loan is not equity unless it is a participative loan.

SAFE-style instruments are treated as debt or as unusual contracts, and their legal classification is open. Have a Spanish lawyer draft them.

Steps for a capital increase in an SL

1. The administrators propose the increase. The general meeting approves it by the statutory majority and amends the articles.
2. Offer existing shareholders their pre-emption rights. The meeting can exclude them only under legal conditions.
3. Investors subscribe the new participaciones and pay in. Cash goes into the company's bank account. Payment in kind needs a valuation.
4. Sign the increase in a public deed before a notary.
5. File the deed at the Registro Mercantil, and file the modelo 600 return with the regional tax office. Publication in the BORME follows registration.

The documents list and checklist below cover each step.

What it costs

The company pays no tax on the capital increase itself. The operation is exempt, but you must still file the modelo 600.

Notary and registry fees follow regulated tariffs based on the amount. For small increases they generally total a few hundred euros, and discounts are common. Ask the notary and the registry for a written quote.

Tax break for your investors

Individual investors who are Spanish tax residents can get an IRPF deduction of 50% of the amount invested, on up to 100,000 euros a year. The company must qualify as a new or startup business, and investors must hold the shares for 3 to 12 years. Other conditions apply, and several regions add their own deductions. Business angels may also get relief on capital gains that they reinvest.

Documents you need

• Minutes of the general meeting (junta) approving the capital increase and the change to the articles, passed by the statutory majority.

• Bank certificate showing the cash for the new participaciones has been paid into the company's bank account.

• Valuation of the asset, if investors pay in kind instead of cash.

• Public deed (escritura) of the capital increase, signed before a notary and then filed at the Registro Mercantil.

• Modelo 600 tax return, filed with the regional tax office.

• Convertible loan contract with the conversion terms, such as the cap and the discount, if investors lend first and convert later.

Checklist

• Have the administrators propose the capital increase and the general meeting approve it by the statutory majority.

• Offer existing shareholders their pre-emption rights, unless the meeting legally excludes them.

• Collect the investors' payment in the company's bank account, or get a valuation for in-kind contributions, and ask the bank for a certificate.

• File the deed at the Registro Mercantil and wait for registration, which is followed by publication in the BORME.

• Approve the conversion of any convertible loan at the general meeting as a capital increase that offsets the debt.

• Ask your investors to check the personal tax deduction and any regional deductions before they invest.

Frequently asked questions

Can an SL issue bonds to raise investor money?

No, an SL cannot issue bonds or offer its participaciones to the public. Only an SA can issue bonds (obligaciones), including convertible bonds.

Does Spain have a SAFE for early investors?

No, Spain has no statutory SAFE, so the usual route is a convertible loan with a cap and a discount. The loan converts through a capital increase approved at the general meeting, which offsets the debt. Have a Spanish lawyer draft it, since SAFE-style contracts can be treated as debt or as unusual contracts.

Do I pay tax when the company does a capital increase?

No, a capital increase is exempt from transfer tax, but you must still file a modelo 600 return with the regional tax office.

What tax break can my investors get?

Tax-resident individual investors in a newly created or startup company can deduct 50% of the amount invested from their IRPF (personal income tax), on a base up to 100,000 euros a year.