Which company type to form, a limited company (sociedad limitada) or another

Terms used

• Sociedad limitada — The sociedad limitada is Spain's usual private company, where partners risk only the capital they put in.
• Sociedad anónima — The sociedad anónima is a larger company form with freely transferable shares and a €60,000 minimum capital.
• Comunidad de bienes — The comunidad de bienes is a simple co-ownership of a business, where owners are personally liable and taxed through their own returns.
• Sociedad civil — The sociedad civil is a partnership of people pooling money or work, with personal liability for the partners.
• IRPF — The IRPF is Spain's personal income tax.
• Modelo 184 — The Modelo 184 is the annual information return that a comunidad de bienes files to report income attributed to members.
• NIF — The NIF is the tax identification number that a company or person needs for tax purposes.

Key rules

• Default choice: Use an SL unless your project clearly needs another form.
• Liability: A comunidad de bienes and a sociedad civil give you no limit on personal liability.
• Tax transparency: A comunidad de bienes passes its income to its members, who pay tax on it themselves.
• Contributions: You cannot pay in capital with work or services, only with money or assets.
• Cooperatives: Cooperative capital and rules depend on the regional law, so check it before you choose.

The short answer

Start with the sociedad limitada (SL). It is the usual form for ordinary small and medium businesses. It has the lowest capital and the lightest formalities, and it limits what you can lose to what you put in. The other forms differ in three ways: how much capital they need, whether your personal assets are at risk, and whether the business is taxed on its own or through you.

Sociedad limitada (SL)

You can form an SL with share capital of €1. Until capital reaches €3,000, part of the profit must go to reserves, and pay and dividends are restricted.

Some details to plan for:

• At least 20% of each year's profit goes to the legal reserve until reserve plus capital reaches €3,000.
• If the company is wound up and its assets do not cover its debts, the partners must cover the shortfall, up to €3,000 minus the capital.
• Contributions must be money or assets. Work or services do not count.
• Money is paid into a bank account and certified before the notary.
• If you contribute assets, the founders value them. They are jointly liable for that valuation for five years.
• All shares must be fully subscribed and paid when the company is formed.

Sociedad anónima (SA)

An SA needs €60,000 of capital, fully subscribed, with at least 25% paid up when you form it. It suits large projects, many shareholders, public issues of shares or bonds, and stock market listing, since listed companies must be SAs. It also suits investors who want freely transferable shares, and regulated businesses such as banks and insurers. For a small business it is rarely worth it.

Cooperatives

A cooperative is for collective ventures run democratically by its members, with one member one vote. Examples are workers, consumers, farmers, housing groups and credit unions. There is no single national capital figure. The bylaws set the minimum within the cooperative law that applies, which depends on the region where the activity is mainly carried out. For a first-degree cooperative it is often around €3,000, but it varies. Members supply most of the capital, and it can be variable. Protected cooperatives get tax advantages.

Comunidad de bienes and sociedad civil

These two are simple partnerships. They are quick to set up, but neither limits your liability.

• Liability: Partners answer with all their personal assets. In a sociedad civil, partners are normally liable in proportion to their shares, after the company's assets, unless the partners' agreement says otherwise. In a comunidad de bienes that runs a business, courts often make each owner liable for the whole debt, especially towards third parties.
• Tax: A comunidad de bienes is tax-transparent. Its income is attributed to the members in proportion to their shares. They pay tax on it under their own IRPF, or under corporate tax if a member is a company. The comunidad files Modelo 184 each year.
• Sociedad civil: It is taxed the same way unless it has a commercial purpose. Then it pays corporate tax itself, as it has since 2016.
• Registrations: Both need an NIF. If they run a business, they also register for VAT and the activity census.

Which one to pick

Choose an SL if you want limited liability and a low-cost start. Choose a comunidad de bienes or sociedad civil only if you accept personal liability in return for simplicity. Look at an SA only if you have the capital and need its features. Look at a cooperative only if your project is a real collective venture. The decision, checklist and FAQ below go through these choices.

Choosing between options

Should you form a comunidad de bienes or sociedad civil, or choose a company with limited liability?

• Sociedad limitada (SL): You want your personal assets protected and a form that suits an ordinary small business. This is the default.

• Comunidad de bienes: You co-own assets or a small business and accept unlimited personal liability. Its income is taxed in each member's own income tax, and it files an annual informative return (Modelo 184).

• Sociedad civil: You want a simple partnership and accept unlimited personal liability. If it has a commercial activity, it pays corporate tax; otherwise its income is taxed in the partners' own income tax.

If you need limited liability, avoid the comunidad de bienes and sociedad civil, because partners in both answer with their own assets. Choose one of them only if you accept that risk and want income taxed in the partners' own hands.

Checklist

• Start from the SL (sociedad limitada) unless your project clearly needs another form.

• Decide how much capital to put in: an SL can start with €1, but until capital reaches €3,000 part of the profit must go to reserves and pay and dividends are restricted.

• Plan contributions in money or assets, not work or services, and pay money into a bank account to certify before the notary.

• Choose an SA only if you can provide €60,000 of capital, with at least 25% paid up at incorporation, and need many shareholders, public share issues or a stock market listing.

• Look up your region's cooperative law and the minimum capital in it before you pick a cooperative.

• Confirm that your project is a collective venture of workers, consumers, farmers or similar members before choosing a cooperative.

Frequently asked questions

How much capital does a sociedad anónima need?

A sociedad anónima (SA) needs minimum share capital of €60,000. It must be fully subscribed, and at least 25% must be paid up when the company is formed. This is why most small businesses choose an SL instead.

How much capital does a cooperative need?

A cooperative has no single national minimum capital; the figure is set in its bylaws within the cooperative law that applies. For a first-degree cooperative it is often around €3,000, but it varies by region. Members contribute most of the capital, and it can be variable.

Are the partners of a comunidad de bienes or sociedad civil personally liable?

Yes, partners in both forms answer with their own personal assets, and neither form limits liability. In a sociedad civil, partners are usually liable in proportion to their shares unless the pact says otherwise.

How is a sociedad civil taxed compared with a comunidad de bienes?

A sociedad civil with a commercial activity pays corporate tax (Impuesto sobre Sociedades), while a comunidad de bienes never does. A comunidad de bienes is tax-transparent: its income passes to the members in proportion to their shares and is taxed in their own income tax, and it files an annual informative return (Modelo 184). A sociedad civil without a commercial activity is taxed the same way.