Business Formation and Governance in Spain

Posted on May 2, 2024 in Law & Jurisprudence

Business Formation in Spain

Steps to Create a Company

  1. Company Name Reservation: Obtain a certificate of name availability from the Central Commercial Register.
  2. Bank Account and Disbursement: Open a bank account and obtain a certificate of disbursement.
  3. Shareholder Determination: Identify the company’s shareholders.
  4. Bylaws Drafting: Define the company’s structure and rules, including:
    • Corporate purpose
    • Registered office
    • Share capital and representation
    • Share transfer rules
    • Corporate governance
  5. Formalities:
    • Notarize the incorporation at the Commercial Registry.
    • Acquire necessary local business licenses.
    • Register for tax and social security obligations.

Governing Bodies

Types of Governing Bodies

  • General Shareholders’ Meeting (GSM): The highest decision-making body, consisting of all shareholders, responsible for major corporate decisions.
  • Board of Directors (BoD): Elected by the GSM, responsible for overseeing the company’s strategy and governance.

Key Differences

The GSM has the final say on significant matters affecting shareholder interests, while the BoD handles ongoing strategic management and oversight.

Capitalist Company Structures

Limited Liability Company (SL)

Advantages

  • Simple and cost-effective incorporation procedures.
  • Low minimum share capital.
  • Can be a sole proprietorship.

Disadvantages

  • Shares are not easily transferable.
  • Personal guarantees may be required for financing.

Public Limited Company (S.A.)

Advantages

  • Shares are easily transferable.
  • Allows for multiple investment partners.
  • Limited liability for shareholders.

Disadvantages

  • Complex and expensive incorporation and maintenance procedures.
  • Higher minimum share capital.

Types of Spin-offs/Demergers

  • Spin-off: A division becomes an independent company; the original company remains intact.
  • Demerger: A company splits into two or more separate entities, dissolving the original entity.
  • Partial Demerger: Only a part of the company’s assets is transferred to one or more existing or new companies, and the original company survives.
  • Segregation: Specific assets/liabilities are transferred to another company without dissolving the original company.

Contract Object Requirements

  • Legality: The contract’s subject matter must be legal.
  • Possibility: The performance must be physically and legally possible.
  • Determinacy: The object must be determinate or determinable.

Duties of Directors

  • Duty of Care or Diligence: Directors must manage the company appropriately, making informed decisions in good faith and with reasonable prudence.
  • Duty of Loyalty: Directors must act in good faith and in the best interest of the company, prioritizing the company’s interests over personal or other interests.

Shareholder Rights Protection in Transfers

The law establishes procedural rules to protect shareholder rights during structural amendments, including:

  • General Shareholders’ Meeting approval for structural amendments.
  • Board of Directors’ responsibility for drafting reports on structural amendments.
  • Information disclosure to shareholders, creditors, and third parties.
  • Creditor objection rights.
  • Shareholder separation rights.
  • Effective registration with the Commercial Registry.