1.   Types of entities.
a) Which are the different types of entities according to the domestic corporate law? (e.g. partnerships vs. companies vs. other legal entities). Please describe the main features of each of those types of entities. Which type/s of entities –if any- is/are more often used in corporate law practice in your country?

Spain has quite a few entities that can be adopted for social, business and/or commercial purposes. The types of entities currently recognized and ruled by law in Spain, include:

1. Non- profit organizations:

a. Foundation (Fundación).
b. Association (Asociación).
c. Benefit Society (Mutualidad).

2. Companies:
a. Commercial (Mercantiles):
    i. Limited Liability Company  (Sociedad de Responsabilidad Limitada or in
       short S.L.)
   ii. Stock Company (Sociedad Anónima or in short S.A.)
  iii. Partnership Limited by Shares (Sociedad Comanditaria)
  iv. Collective Company (Sociedad Colectiva)
   v. Labour Company (Empresa Laboral)
  vi. European Stock Company (Sociedad Anónima Europea)

b. Civil (Civiles):
    i. Civil Company (Sociedad Civil)

The main differences between the latter ones (2. Companies) basically consist of the a) liability of their partners or members (whether this liability falls on only the company, as a legal person, or if it  falls on their partners/shareholders/members and to which extent: individually or jointly and severally, and if it does so unlimitedly), b) the business scope and c) the profitable/profit (or not) objective, and d) the minimum registered capital requirements. Also, Civil companies are recognized and regulated by the Civil Code of Spain while, on the other hand, the Commercial ones are established and defined by the Commercial Code and the Capital Companies Law (Ley de Sociedades de Capital). The different recognition in Codes responds to the purpose of the incorporation of the company: the main activities and final objectives that the partners/shareholders/members intend to develop through them.

Now, in a corporate sense, the most commonly used in Spain are Limited Liability Companies and Stock Companies. In fact, according to recent statistics from the Commercial Registry, nearly 98% of Spanish companies are established as Limited Liability Companies, while essentially all of the remaining 2% are Stock Companies and the use of the remaining type of entities as a mechanism for establishment has become almost non-existent.

b) Which are the different types of companies? Please describe the main features of each of those types of companies: capital, transfer of shares or stakes, contributions in kind, management, etc. Which type/s of companies –if any- is/are more often used in corporate law practice in your country?

Companies in Spain can be civil or commercial depending on the company objective (activity). Nevertheless, the boundary between civil companies and commercial companies can be very diffuse in the Spanish Law. Let’s take a closer look at each of them to further appreciate the disparity:

A Civil Company.
It rises [is based on a/created by a contract] from a contract through which two or more people commit themselves to contribute money, property or industry in order to create a legal entity that is not purely based on commercial interest, but is looking for a lucrative profit. The profit in turn will be divided among the people committed. There is no minimum capital requirement for its incorporation and it can be formalized by a private contract. The entity shall respond [be responsible?] for the debts in the first place, but in case it fails to do so, the management partners shall [be responsible?] respond unlimitedly with their personal assets.

Partnership Limited by Shares.
Their constitution requires a Public Deed executed before a Public Notary which must be then registered at the Commercial Registry, and no minimum capital is required for setting it up. There are  two types of partners in this sort of company: general partners and limited partners. The administration and representation of the company is entirely up to the general partners, who are responsible in the same way as partners of a Collective Company. The limited partners’ liability is limited to the amount of their contributions. Nowadays, this type of company hardly exists in practice.

Collective Company.
Their constitution must be recorded in a Public Deed executed before a Public Notary which must be then registered at the Commercial Registry. There is no minimum capital requirement for setting up this kind of company. Their partners are jointly, severally, and unlimitedly liable for the debts of the company. Nowadays, this type of company hardly exists in practice.

Labour Company.
They are either Stock Companies or Limited Liability Companies;  most  of the registered capital is owned by their workers. These workers are under an indefinite employment relationship with the company and are remunerated personally and directly for their work. The company name must be followed by the word “Labour” at the end. At the time of distribution of profits, 10% of the net profit MUST be allocated to the Special Reserve Funds (Fondo Especial de Reserva)

European Stock Company.
This kind provides companies operating in several Member States the option of being established as a single company to be able to operate under a unique management system. Their registered capital shall not be less than 120,000 Euros. The liability of their shareholders is limited to the registered capital. Their formation can be accomplished by merger, incorporation of a holding, creation of a subsidiary or the transformation of an existing Stock Company. It must be recorded in a Public Deed and then registered at the Commercial Registry. The governing bodies are: (i) the General Meeting of Shareholders; and (ii) either a management body (one-tier system) or a management board and a supervisory body (Dual System). Specifications of which we will see in detail later at question number 4. c).

Despite the wide variety of companies’ options, the most common Spanish commercial structures are the Stock Company and the Limited Liability Company. These commercial structures must be incorporated by executing a Public Deed before a Public Notary and then registered it at the Commercial Registry. In both cases the Shareholders/Partners will only be liable to the extent of their contributions to the capital, and there is no minimum Shareholders’/Partners’ requirement. In fact, one would be sufficient, although specific formalities shall be observed in such a case. They are both regulated by the Capital Companies Law.

Limited Liability Company 
The main characteristics of this type of company are the following:
- Capital: The minimum capital of a Limited Liability Company is Euros 3,000.00,
  which must be fully paid in at the time of incorporation and it is divided into
  “participations”, which cannot be represented by negotiable shares.
- Transfer of Participations: The main difference with the Stock Companies is that
   the transfer of these participations is more restricted, and the existing members
   have a pre-emptive acquisition right.
- Contributions in kind: If contributions in kind need to be made at the time of
   incorporation or in subsequent capital increases, the report of an Independent
   expert appointed by the Commercial Register will not be necessary.
-  Management of the Company: Like in the Stock Company, the Company can be
   managed by a Board of Directors, a Sole Director, two Directors or by two or
   more Directors with joint and several liability.

Stock Company
The main characteristics of Stock Companies are the following:
- Share capital: The minimum capital required to incorporate a Stock Company is
   Euros 60.000,00 and at least 25% of it must be paid  at the time of
   incorporation. The capital is divided into negotiable shares, which can be either
   to the bearer or nominative.
-  Transfer of Shares: Shares are freely transferable, but should the founders wish
   to establish certain restrictions to the free transferability of the shares, they
   must then be of the nominative type and such restrictions must be expressly
   established in the company’s By-Laws. Contributions in kind: If contributions in
   kind need to be made at the incorporation or in subsequent capital increases, a
   stock company will need a special report drawn up by an independent expert
   appointed by the Commercial Register.
-  Management of the Company: The Company can be managed by a Board of
   Directors, a Sole Director, two Joint Directors or by two or more Directors with
   joint and several liabilities.

2. Limited liability companies and stock companies: incorporation steps.
a) What steps are required to incorporate a limited liability company and a stock company?

The steps to follow in order to incorporate a company in Spain, either a Limited Liability Company or a Stock Company, are quite similar. Therefore, the stages to be followed are explained below, together with the main differences highlighted.

1. Pre-incorporation of the company:
    a. Obtaining the CNN (Certificación Negativa de Denominación), which proves
        that no other company is already using the name you propose to use.
    b. Draft of the By-laws, which shall establish the rules that will govern the
        operation of the company.

The By-laws shall at least expressly refer to: a) The name of the company; b) Corporate purpose; c) Registered office; d) Registered capital, units or shares the registered capital is divided into; their nominal value and sequential numbering; e) The method or methods of organizing the management of the company; f) The way of adoption of resolutions by the Management.

c. Contribution of the registered capital:
    i. In case of money contributions: Opening of a bank account - which will
       automatically be related to the company, but blocked until the actual
       incorporation of it. After opening the account, each Shareholder/Partners
       must deposit the agreed share of the registered capital in it, consequently
       obtaining the certificate of capital contribution. 
   ii. In case there are non-cash contributions: those shall be described and valued 
       in Euros. In case of a Stock Company, these descriptions and appraisals must
       be reported by one or several independent professional experts specifically
       designated by the Commercial Registry for the Task. 

In the case of the Limited Liability Company, the contribution of the minimum registered capital shall be done at this time. In the case of the Stock Company only the 25% of it shall be contributed at this point.

All these documents obtained during the pre-incorporation phase will be needed for the next step (2).

2. Public Deed of Incorporation:
    a. In this step, all Shareholders/Partners shall attend before a public notary –
        either personally or through a representative - with all the previous
        mentioned paperwork.
    b. Once all the necessary documents are verified by the notary, he will sign and
        record it as the official original Public Deed of Incorporation.

The Public Deed of Incorporation shall at least include and establish the following information: a) The identity of the Partners/s/Shareholders/s; b) type of corporation; c) contributions each Partner/Shareholder makes and the numbering of the units or shares; d) Bylaws; e) The identity of the person or people who initially will take over the management and representation of the company.

3. Obtaining of the CIF (Tax Number).
At this point, the company can start their activities.

4. Registration at the Commercial Registry.
With this registration, the company acquires legal personality.

5. Registration at the Spanish Tax Authority as well as register to the Social Security, when needed.

6. Official Books legalization.

b) Which specific additional steps (if any) are required for said incorporation in case that any of the Shareholders is a foreign or non-resident company or individual?

In case one of the Shareholders/Partners is a foreign person or entity there are a few extra requirements to take into account, such as:

1. For the contribution of the registered capital, Step 1. c): When capital has a
    foreign origin, the bank must certify the country of origin of the funds and the
    account from which the money comes to prevent money laundering. In this
    case,  a certification stating the fact should be obtained from the very same
    financing Institution.

2. For the incorporation of the Company, Step 3: foreigners shall obtain and
    exhibit these extra documents once before the public notary:

  • In case of an individual: 
    - The N.I.E. (Foreign Identity Number), which is an identification number for everyone who is not a Spanish resident. Without the NIE you CANNOT incorporate a company in Spain. It can be obtained in Spain at the Police Station, or if abroad, at the Spanish diplomatic missions or consular offices.
  • In case of legal entities:
    - The N.I.F (Tax Identification Number). In order to obtain the NIF, a specific form must be filed and submitted to the competent Spanish tax authorities,  along with other certain documentation, all of which should have been previously translated into Spanish by a sworn translator and notarized and legitimized according to  The Hague Apostille Convention.


3. Limited liability companies and stock companies: steps for appointment of directors and By-laws modification.What steps are required to appoint a new director and to modify the By-laws of a limited liability company and a stock company?

Both kinds of companies have a Management Body, consisting of a particular number of directors that shall be responsible for the management and representation of the company according to the law and the company’s Deed of Incorporation and By-laws. These directors, under their authority granted by the Shareholders/Partners meeting, represent the company in all its acts and before third parties.It is a faculty of the Shareholders/Partners meeting to appoint the directors. After the appointment, it will also be necessary to receive the director’s acceptance of the position. And then the appointment can take actual effect. This acceptance shall be registered at the Commercial Registry. The registration is not constitutive (as the acceptance shall be enough to be binding before the company), but as a result of it the acceptance of the director will also have effect before third parties. 
The directors may be removed from the Management Body at any time by the Shareholders/Partners meeting even if the removal is not included  in the Agenda.

Steps for appointment of directors
Limited Liability Company:
Generally speaking, By-laws of Limited Liability Companies may provide different types of alternative Management Bodies leaving it up to the Partners Meeting the decision to switch from one option to another at any convenient time without the need to amend the By-laws. The appointment of the directors of the chosen Management Body will also be entirely up to the Partners Meeting and it follows the next steps:

1. Partners Meeting. Approval of appointment with simple majority (unless the By-
    laws establish otherwise)
        - The directors shall hold the position for an indefinite period of time, unless
          By-laws provide for a specific one.

2. Draft and signing of the Minutes of the Meeting and Certification
3. Registering at the Commercial Registry.

Stock Company:
The appointment of directors for a Stock Company follows the same steps established for the Limited Liability one -the possibility to alternate the Management Body without the need to amend By-laws excluded. There are a few particularities worth highlighting:

-  The directors of the Stock company shall hold the position for a period of time
   established in their Bylaws, which shall not exceed six years.
-  Possibility of Appointment by Cooption and Appointment for Proportional

Modification of the By-laws
Any amendment to the By-laws shall be agreed by the Shareholders/Partners Meeting. The procedure in order to modify them, in both Limited Liability Companies and Stock Companies, goes as follows:

1. Shareholders/Partners Meeting: Approval to amend the By-laws - according to
    the majorities established by the Capital Companies Law or by the By-laws.
    It should be noticed that in the particular case of a Stock Company, before the
    Shareholders Meeting, a report in writing from the directors shall be provided
    explaining the reason/s for the proposed modification to the Shareholders.

2. Draft and signing of the Minutes of the Meeting and Certification
3. Public Deed of the Certification to be granted before a notary
4. Registering at the Commercial Registry.

There are special procedures and regulations for specific cases that involve the modifications of the By-laws such as increase in share capital, decrease in share capital and Shareholders/Partners’ attribution of new duties and rights.

4. Limited Liability Companies and Stock Companies: management alternatives.
a) Which are the main alternatives for the management of those companies? For example: Sole Director, Joint Directors, Joint and Several Directors, Board of Directors, etc.

The management of a corporation in Spain can be entrusted to a single Director, several Directors, acting either jointly, or jointly and severally, or a Board of Directors.

In any case, and at any time, an agreement that alters the way of organizing the management of the corporation shall be recorded in a Public Deed and registered at the Commercial Registry.

It is common practice in Spain for companies to have a Board of Directors. Although the use of a Sole Director is becoming popular. In any case, Directors of the corporation (regardless of the management alternative established) may be natural or legal persons.

b) In each alternative which is the power/authority of the director/s to act on behalf of the company?  For example: Sole Director has full authority; Board of Directors can empower one (or more) of them with specific or general authority, etc.

It is the responsibility of the management board to represent the company according to the Law and their By-laws. The attribution of their authority shall be governed by the following rules:  

a) In the case of a Sole Director, full authority necessarily corresponds to it.
b) In the case of several Directors acting jointly and severally, the authority will correspond to each of them.
c) In the case of several directors acting jointly: 
    a. In the case of a Limited Liability Company, if there are more than two
        Directors acting jointly, the authority will be exercised jointly by at least two
        of them according to what By-laws established.
    b.  If this happens to a Stock Company, the authority shall be exercised jointly
d) In the case of the Board of Directors, the authority corresponds to the whole council, who shall act collectively. However, By-laws may give authority to one or more council members individually.

Regardless of the case scenario of the management, Directors shall perform their duties according to the By-laws, with the diligence of a prudent businessman and always promoting the success of the company. A breach of negligence of a Director's duties that causes damages to the company could result in personal liability.

c) Do you have a one or a two-tier board system in your country?  Are you able to choose a one or two-tier board systems?  Please describe the main features of each system in your country.

The only case of “one or two-tier board system” in Spain lies in the European Stock Company. When this type of company is established in Spain, it can opt to adopt either a one-tier or a two-tier system as a way of management. It should be established in their By-laws.

In case it opts for a one-tier system, the regulation regarding the Management Body will be the same as that applicable in the case of Stock Companies. In case it opts for a two-tier system, two management entities will co-exist at the same time: the actual Management Board and the Supervisory Board. The Management will take charge of the day-to-day management and representation of the company. And it could be entrusted to a Single Director, Several Directors acting either jointly or severally, or a Board of Directors.

5. Limited Liability Companies and Stock Companies: liquidation steps. What steps are required to liquidate a Limited Liability Company and a Stock Company?

The liquidation of either a Limited Liability Company or Stock Company involves three main factors:
  A) Dissolution.
An agreement of the general shareholders’ meeting is required deciding upon the dissolution of the company and the beginning of liquidation procedures.  The company’s legal status will not be extinguished but it merely transforms into an adjustment/liquidation one. Even the name of the company will remain the same except for the addition of “In Liquidation” at the end of it. The authority of the directors of the company will be suspended and a liquidator (who could actually be one of the directors, unless the statutes provide otherwise, or it is agreed another way) will be appointed to take over the task of performing the liquidation and will perform the management of the company from then on.
  B) Liquidation procedures.
Pending operations will be completed, credits will be collected and debts paid, assets of the company will be sold accordingly, and the Final Liquidation Balance will be made. Liquid assets resulting from the liquidation shall be divided among the Shareholders/Partners in proportion to the value of their shares/units, unless otherwise provided by the By-laws.
Needless to mention, the liquidators are of course obliged to ensure the integrity of the company’s assets, to take care of the accounting and make all the other and necessary arrangements to accomplish a successful liquidation process.  
  C) Registration at the Commercial Registry.
After completing  the entire liquidation process, the liquidators shall provide a Public Deed of termination of the company and present it for registration at the Commercial Registry.


This information was compiled by Bellavista Legal.