Law

6. – Companies, Professionals, Structures and Institutions of Tourism Law 6.1 BUSINESSMEN AND ENTREPRENEURS IN SPAIN
Who is a businessman?
• A “single person or entity”
• who acts on his/her own behalf,
• in an organized and professional manner
• an economic activity

Article 1: “business persons” are:
(1) Those who, having the legal capacity to engage in business, do so habitually; (2) Business or industrial companies incorporated pursuant to this Code.

Types of businessman: Empresarios individuales (individual businessman) vs. sociales (corporations)
Individual Businessman:

• An individual owns and develops a business activity

• On her/his own behalf.

• A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of

  the business.

  Requirements: Filing with the Social Security Administration and the Tax authority is required. Our legal framework subjects them to a statute with a special content:

1. All relations with third parties entered into during the development of the economic activity are

   attributable to the entrepreneur.

2. The individual will be liable to creditors with all present and future property (article 1.911 Civil Code).

   That is, he/she bears unlimited personal liability for the business’s debts.

1. There is no separation between assets of the owner (as individual) and assets of the company.
• The economic activity does not constitute a separate estate from the personal assets of the owner for

all legal purposes.
2. Responsibility: there is no distinction between the civil and corporate responsibilities or duties.

• The individual businessman will be liable for all contractual and extra-contractual (loss of profit or lucro cesante) debts or damages (costs incurred).

• By contrast, in a company duly constituted the partners or shareholders will not be liable for the social debts.

  3. He/she will be liable also with his personal and family estate. (Article 6 -7 of CC):

• The assets pertaining only to the spouse engaging in business shall be held subject to liability.

• For the other common assets to be subject to liability, the consent of both spouses shall be required.”

• The consent shall be assumed to be granted when business is carried out with knowledge and without

  the specific opposition of the spouse who should provide it.

  Corporations:

  It is also known as a collective employer, social merchant or collective merchant.
  Exception: since 1995 a new type of corporation has been accepted: Sociedad Unipersonal – being characterized by
  (i) single-member company (ii) one-person company.

  Definition:
  • Two or more people

  • Agree to put together and share money, assets or work
  • To carry on an economic, commercial or industrial activity,
  • with views to distribute among themselves all profits/gains.
  • Therefore, businessman/merchant is a new legal person with separate legal personality, created to carry out that activity.

The predominance of corporations vis-à-vis the individual businessman is due to the following reasons:

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• •

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The constitution of a corporation is attractive given:
o He/shecandivideorseparatehis/hercivilstate(personalassetsforhisfamilylifeorsavings)from

his/her business state.
o Businessmenwhoconstituteacorporationwillhavehis/herownlegalpersonality.✓Beingtheowner

of a business state with a denomination and domicile.
o Saidcorporationcanbeunipersonalifhe/shechoosesaprivateorpubliclimitedcorporation,

reducing the risk of an economic loss to the initial investment undertaken.
From the legal point of view, the constitution of a corporation implies the limitation of the business state owned by the shareholder or partner.

o Allowsthetransmissionofthebusinessorcompanythroughthesaleofactionsorparticipations. The exploitation of different business activities can be easily articulated by means of group of companies.

o Thiswillfacilitatethemanagementofallthefilial,beingtheysubjecttothesoleguidanceofthesole company.

From the fiscal point of view:
o ifthebusinessishighlylucrative,itismoreadvisabletoconstituteacorporationsincethe

corporations tax is lower than the maximum level of the IRPF (Personal Income Tax).

Individual businessman in the Code of Commerce:

General Regulation:

Art. 1 Cc: Businesspersons for the purposes of this Code include:
1. Those who, having the legal capacity to engage in business, do so habitually; 2. Business or industrial companies incorporated pursuant to this Code.

It comprises two requisites:

1. Legal capacity (that is, to have a free disposal of their assets and legal capacity for habitual practice of

   commerce)

2. Habitual exercise of commerce.

Nonetheless, this definition does not include an essential requisite for the practice of the individual businessman, that is, that he has to act in its own name and behalf.

Capacity to be a businessman:
Anyone who holds a general legal capacity qualifies:

• Those who are below the age of 18 years

• minors and incapacitated may continue the commerce previously conducted by their parents or

  predecessors by means of their guardians (legal representatives – agents appointed who fulfil the legal

  requisites to stand in for them in the practice of business).
  Consequences: the minor or incapacitated will be considered businessmen, and all legal effects will be vested on him/her, except for criminal, which will lie on the agents or representatives.

  Capacity to act as a businessman:
  It is a basic requirement to be of legal age and have free disposal of their assets.
  Article 4 CoC: Those who are of legal age and have free disposal of their assets shall have the legal capacity for habitual practice of commerce.

• It is not the case of the minors under 18 years or those incapacitated:

  o Sincetheydonothavefreedisposaloftheirassets.
  o Theymaycontinuethecommercepreviouslyconductedbytheirparentsorpredecessorsby

  means of their guardians, agents or representatives, but cannot start an activity.

• Legal representatives will exploit the economic, industrial or commercial activity on behalf and for the

  account and interest of they.

  Prohibitions and incompatibilities on the professional exercise of commercial and industrial activities:
  Unfair competence:
  A position shall be unfair, if at least one of the following conditions has set in:

• Negatively affects or may negatively affect the economic behavior of such average consumer or r to whom it concerns.

• It is misleading

• It is aggressive.
  Corporate Law: It forbids managers and partners in limited companies to participate in activities which are in competition with the company.
  Companies by-laws often include stricter rules:

  ▪ They may include competition prohibition after managers or partners have finished their relation with the company: limiting competition in the future.

  Incompatibility:

  Certain persons may not engage in business or hold any office or have any direct administrative or financial intervention in business or industrial companies due to their position or condition.

  Persons who cannot engage in business acting in their own name or through another:
  1. Magistrates, judges and officers of the State Prosecution Service in active service; This provision shall not be applicable to municipal mayors, judges and public prosecutors.
  2. Civil, economic or military governors of districts, provinces or enclaves.
  3. Employees of the collection and administrative offices of State funds.
  4. Exchange Agents and Stock Brokers.

  Disqualification: The law does not allow you to carry out a certain activity (e.g. as a result of a sentence). Aliens and companies incorporated abroad:
  Aliens and companies incorporated abroad may engage in business in Spain, subject to the Laws of their country, with regard to their capacity to contract.

  Dissolution of the employer statute (individual businessman): a. The death of the individual.

  ▪ The dementia or other causes giving rise to incapacitation do not constitute per se the loss of the employer statute if the person continues carrying on the activity through a legal representative or guardian.

  b. By the transmission temporal or final of the activity.
  ▪ The final dissolution of the legal person will only take place after the cancellation of the inscription on the business registry

  6.2. LEGAL STATUTE OF THE MERCANTILE ENTREPRENEUR

  The businessman is subject to special legal statutes, vis-à-vis other subject of private law.
  It consists in special rights and obligations (legal regime). This legal status is special from an economic and from a legal perspective:

  • From the economic point of view, because it exploits in a professional manner a mercantile or industrial activity.
  • From a legal point of view, because the positive legal order assigns rights to a specific legal statute that is integrated by specific and general rights and duties, which distinguishes the businessman from other private actors, who are not merchants nor businessmen.

  This special legal status is justified because:
  i. The businessman carries out an economic activity
  ii. the right exploitation of the activity requires the trust of third parties (e.g. to apply for credits in the bank)

  iii. third parties that enter into a legal relationship with the businessman may be affected negatively by the result of those business activities.

  6.2.1. CIVIL PARTNERSHIP VERSUS COMMERCIAL COMPANY

  Nowadays, there is a predominance of companies (specifically, commercial corporations), in contrast with individual businessman.
  Definition of “partnership” (civil and commercial)
  Once the business company is incorporated, it shall have legal personality in all its acts and contracts. Characteristics:

• It is an organizational, plurilateral agreement.

• In some cases we cannot even identify the concurrene of the “plurilateral” requirement: (unipersonal corporations) -> in those cases, we are in front of a “unilateral legal business”.

Civil partnerships: Partnership agreement is established in accordance with the provisions of the Civil Code (art 1670).

• Shall be incorporated in any form (unless the contribution is a immovable properties – requires a public

  deed).

• The purpose of the partnership shall be civil (not to develop an economic, industrial or commercial

  activity – to determine if the partnership is civil or mercantile you have to look at the corporate purpose).

  E.g.: the construction of a house for one of the partners (not to be sold to a third party). Commercial corporations: Corporations agreement is set forth in accordance with the provisions of the Code of Commerce – and according to the RD 1/2010 of the Corporate Enterprises Act.
  The criteria to differentiate one from another is not clear:

  • Depending on the regulation applied for the constitution of the society. If the founders followed the rules of the CoC, there will be a commercial corporation, regardless of the corporate purpose.

  • A civil partnership will be considered a commercial corporation if:
  o Was constituted in accordance with the provisions of the Code of Commerce. Therefore, it shall be registered on the Business Registry – registration has “constitutive” effects for certain corporations (public and private limited, limited partnership).
  o Commercial corporations that have not be registered on the business registry but exploit an economic activity will be considered “a sociedad en formación”.

  • Lack of registration may be due to the fact that the Registrar did not accepted the registration for not being in accordance to the corporate rules (see the regulation), or due to lack of interest or will of the partners.

  Personal Partnerships Versus Capitalist Corporations (COMMERCIAL CORPORATIONS)

• Within commercial corporations we shall differentiate among partnerships (personal partnership) and limited liability corporations (capitalist corporations).

• In the personal partnership the “personal” characteristic is stronger, that is, the personal features of the founders that constitute the partnership has a more direct influence in the organization and management of the partnership. Therefore, the separation between the legal entity created (partnership) and the group of partners is minor than in the capitalist corporations (where the personal features of the partners are irrelevant for the organization of the company, since it is more autonomous or self-governed)“.

• That is the case for: general partnership (sociedad colectiva) and limited partnership (sociedad comanditaria).

• In capitalist corporations, the separation between the state of the corporation and the one of the partners or shareholders is more evident. Partners are not liable for corporations debts, which is due to the more complex managerial organization. Thus, the variability of partners is more frequent than in personal partnerships.

  General Obligations of Commercial Corporations:

  1. Obligation to keep orderly accounts
  The Code of Commerce, and other laws and special provisions, sets the obligation of all businesses to keep orderly accounts in accordance with the activity of their businesses activities, that must allow the chronological monitoring of all their operations (as well as periodic preparation of balance sheets and inventories).
  The accounting shall be kept directly by the businesspersons or other persons duly authorized, notwithstanding the former’s liability.

• Formal Requisites Of The Accounting
In order to avoid that businessman produce or allow fake accounting the Code of Commerce has set forth certain provision that all employers shall obey. Among other:

o LegalizationofthebookintheBusinessRegistry o Accountingbooksshallbekeep
o Durationoftheobligationtokeepthebooks

2. Obligation to draw up the Annual Accounts Which documents integrate the annual accounts?

1. Balance sheet: provides a separate record of the assets, liabilities and net assets.

2. Profit and loss account: records the result of the business year, separating the revenue and expenses

   that may be assigned to it. It also distinguishes the operating results from those that are not.

3. Statement showing changes in the net assets: It has two parts: The first shall exclusively show the

   revenue and expenses generated by the business the business year, distinguishing between those reported in the profit and loss accounts and those recorded directly under net assets. The second shall contain all the movements in the net assets, including those due to transactions performed with the partners or owners of the business, when acting as such.

4. Cash flow statement: shows the collections and payments made by the company, duly organized and grouped in categories or types of activities, in order to report on the cash flow during the business year.

5. Annual report: shall complete, extend and comment on the information the other documents forming the annual accounts contain. It also includes:

   1. The valuation criteria applied to the annual accounts

   2. Denomination, domicile and legal form of the societies linked to one of the shareholders or

      partners.

   3. Number and value of the shares or participations.

3. Drawing of the Annual Accounts
a. The Annual accounts must be signed by the following persons (they are responsible for the content of the accounts – and will be liable for any inaccuracy):

• By the business owner himself – if individual • By all partners unlimitedly liable
• Company directors.

b. The annual accounts must be drafted clearly and provide a true image of the assets, financial situation and results of the company, pursuant to the legal provisions. To that end, accounting for the operations shall attend to their financial reality and not just to their legal format.
c. Registration and valuation of the annual accounts must be performed according to the generally accepted principles of accounting.

4. Verification and submission of the Annual Accounts
General Rule: All companies shall submit their financial statements and management report to revision by auditor.
Exceptions: Companies to which at least two of the circumstances listed below apply on the closing date of two consecutive financial years shall be released from this obligation:

✓Their assets do not total over two million eight hundred fifty thousand euros.
✓Their net yearly turnover is not in excess of five million seven hundred thousand euros. ✓Their average headcount during the year is not over fifty.

Deposit of the annual accounts: The General Register of the Mercantil Register has manifested several times that the obligation to formulate and to deposit the annual accounts only applies to those companies indicated in the article 41 of the Code of Commerce.

6.4. THE RESPONSIBILITY OF THE EMPLOYER.

The businessman is responsible for the fair and complete fulfilment of his/her contracts –> contractual liability.
Exception: in case he/she can proof breach of contract due to fortuitous events or force majeure.

o Contractual liability: the obligation is prescribed in an agreement.

o Non-contractual liability: the obligation is prescribed in a legal norm.
Businessman will also be responsible for the acts of his/her employees while accomplishing their tasks, both on the contractual and non-contractual sphere.

6.5. TYPES OF CORPORATIONS

6.5.1.PERSONAL PARTNERSHIPS • a) General Partnership

Main characteristics:
• First of all, it is personally managed and owned by the partners. Called “working partnership”. It is

a working community created to entitle any of the partners to take part in the management and running of the common business, unless it is specifically limited to any of the partners by a special deed (case that shall be limited by the by-laws of the partnership).

o Each partner contributed in cash, loans or securities, or with goods or their own work.
• It is a personal partnership. That is, the personal features of each partner is the cause of the consent of the other to constitute the partnership. That implies that no partner may convey the interest he holds in the company to another person, without prior consent from the other partners. • Unlimited responsibility company. Partners (whether or not they are its managers) shall be bound both personally and jointly and severally, with all their belongings, subject to the result of the operations performed in name and on behalf of the company, under its signature and by a person authorised to use it.

• Benefit of excussio: The private assets of the general partners that were not included in the company assets when it is formed may not be seized to pay the obligations contracted by the latter, except after having attempting payment from the corporate assets.