Corporate Governance

The fundamental difference lies in the fact that a Public Limited Company (SA) requires a minimum capital of €60,000, designed for large corporations, whilst a Limited Liability Company (SL) can be incorporated with as little as €1, making it suitable for more flexible corporate structures. SLs account for almost 97% of companies recently incorporated in Spain, due to their lower capital requirements and greater organisational flexibility.

Below, we detail the main corporate and capital differences:

Foreign investors can operate in Spain without setting up their own corporate entity through branches, representative offices, partnership agreements such as joint ventures, or through commercial agreements with local third parties. At Seegman, our presence in Madrid and Lisbon enables our team to provide comprehensive advice on the implementation of these structures, optimising cross-border taxation and operations throughout the Iberian Peninsula.

The main legal structures for operating without independent legal personality include:

• Branches: Secondary establishments operating on a permanent basis on behalf of the foreign parent company.
• Representative Offices: Establishments focused on preparatory, ancillary and instrumental tasks.
• Joint Ventures (JV) and Economic Interest Groupings (EIG): Partnership vehicles designed to carry out specific projects or improve the economic performance of the partners.
• Joint ventures: Agreements in which investors contribute capital or assets to a business managed by a third party, sharing profits and losses.
• Commercial Agreements: Agency, distribution, franchise or one-off collaboration agreements with Spanish companies.

Both UTEs and EIGs are forms of business cooperation (joint ventures) provided for under Spanish law, differing mainly in the duration of their term and their liability regime.

At a corporate level, their legal structure is defined as follows:

• Temporary Joint Ventures (UTE): These lack legal personality of their own and are formed exclusively for the execution of specific services or projects, being the standard consortium arrangement for the award of construction contracts or major engineering projects.
• Economic Interest Groupings (AIE): Their purpose is to promote, facilitate or increase the profitability of their members’ activities, and they are commonly used to provide centralised services to a corporate group. The partners of an AIE assume joint and several liability towards third parties for debts incurred, although this is subsidiary to the grouping itself.

Company law requires that the shares of an SL be fully paid up at the time of incorporation, whilst the shares of an SA require an initial payment of just 25% of their nominal value. At Seegman, we structure transactions for foreign companies, ensuring strict compliance with the rules governing cash and non-cash contributions, thereby mitigating any risk of corporate liability.

The rules on capitalisation vary substantially between the two vehicles:

The fundamental difference regarding non-monetary contributions lies in the fact that a Public Limited Company (SA) requires an independent expert’s report for their valuation, whilst a Private Limited Company (SL) waives this requirement in exchange for imposing joint and several liability on the shareholders.

To streamline the incorporation of corporate vehicles, the SL allows assets to be contributed without an official valuation, with the shareholders and directors assuming the valuation risk vis-à-vis the company and third parties. Conversely, the SA prioritises creditor protection through formal and rigorous scrutiny. At Seegman, we structure transactions for foreign companies by strategically assessing whether the transactional agility of an SL outweighs the assumption of this joint and several liability by investors.

The law imposes a restrictive regime by default for the transfer of shares in an SL, whilst enshrining broad freedom of transfer for shares in an SA.

In an SL, transfers inter vivos to third parties are heavily restricted and may only be restricted for a maximum of five years. In contrast, restrictions in an SA apply only to registered shares and may never completely block a shareholder’s liquidity.

The acquisition of treasury shares in a public limited company (SA) is permitted up to a general limit of 20% of the share capital, whereas in a limited liability company (SL) it is only legal under specific and exceptional circumstances.

Spanish legislation drastically restricts derivative acquisitions in SLs to prevent the asset stripping of the entity. SAs enjoy much greater financial flexibility, facilitating corporate and market transactions to accommodate investment funds and venture capital.

• Treasury shares in an SL: There is no fixed percentage limit, but it is only authorised in very restricted cases: acquisitions free of charge, transfers by reason of death, court awards, capital reductions or due to the exclusion/withdrawal of a partner.
• Treasury shares in SAs: Broadly permitted provided certain financial conditions are met, with a legal limit of 20% of the total share capital, which is reduced to 10% if the company is listed on the stock exchange.

A public limited company (SA) may only circumvent the strict prohibition on financial assistance in two legally defined exceptions, whereas a private limited company (SL) faces an absolute and insurmountable corporate prohibition.

Financial assistance (loans, guarantees or advances to acquire own shares) is categorically prohibited in an SL. Our presence in Madrid and Lisbon enables Seegman to advise on complex cross-border acquisition financings (LBOs), structuring guarantee packages for foreign investors without breaching this mandatory company law provision.

The SL is legally prohibited from listing on stock markets and issuing bonds convertible into shares, structural restrictions that do not apply at all to the SA.

Although SLs may issue or guarantee standard debt instruments subject to certain legal restrictions, their closed nature blocks access to floating capital. The SA is the corporate vehicle par excellence designed to leverage growth through the capital markets.

• Restrictions on the SL: Absolute prohibition on listing on the stock exchange and prohibition on issuing or guaranteeing bonds convertible into equity.
• Capabilities of the SA: Total flexibility to raise finance on the stock markets, including the sale/issue of shares, bonds and other negotiable instruments, notably the unrestricted issue of bonds convertible into shares.

An SA is required by law to reduce its share capital when accumulated losses reduce its net assets to less than two-thirds of said capital for more than one full financial year.

This mandatory requirement for capital restructuring seeks to protect the interests of corporate creditors against technical insolvency in public limited companies. In contrast, limited liability companies (SLs) benefit from a different protection scheme and are not subject to any provision requiring the mandatory reduction of share capital due to accumulated losses. Although there is no obligation to reduce capital due to losses in an SL, Spanish law does impose an obligation on both types of company to dissolve if net assets fall below 50% of the share capital.

The right of creditors to object to a capital reduction is a legally enforceable prerogative in Public Limited Companies (SA), whereas in Limited Liability Companies (SL) creditor protection is provided through the assumption of joint and several liability by the partners.

The legal framework for the protection of third parties against asset stripping is structured differently:

The main operational difference lies in the fact that a Public Limited Company (SA) requires a one-month notice period and a minimum quorum of 25%, whereas a Limited Liability Company (SL) reduces the notice period to 15 days and removes the legal requirement for an initial quorum. At Seegman, we optimise the corporate governance of foreign subsidiaries by drafting articles of association that adapt these majorities and notice periods to the control standards required by the international parent company.

At the corporate level, the rules on incorporation and voting are as follows:

Company law grants minority shareholders of a public limited company (SA) the inherent right to proportional representation on the board of directors, a strategic privilege that is excluded by default in a private limited company (SL).

The structuring options for minority protection vary significantly depending on the chosen vehicle:

• Protection in the SA: The law expressly guarantees that minorities may pool their shares to appoint members to the board of directors in proportion to their shareholding.
• Restriction in the SL: Minority shareholders do not have an automatic legal right to demand proportional representation on the board of directors.
• Via the Articles of Association: To achieve this organic protection in an SL, investors are obliged to agree and expressly reflect this right to proportional representation in the company’s own articles of association.

The incorporation of a new company (NewCo) in Spain requires the execution of a public deed before a notary, based on the prior obtaining of tax identification numbers, the certificate of company name from the registry, and proof of payment of the share capital. Our presence in Madrid and Lisbon enables Seegman to provide comprehensive advice on the execution of these cross-border procedures, ensuring regulatory compliance in relation to anti-money laundering and the control of foreign investments.

The incorporation process requires the submission of the following documentation and the completion of the following procedures:

• Certificate of Name: A certificate of non-objection issued by the Central Commercial Register confirming the availability and exclusivity of the chosen corporate name.
• Tax Identification (NIF/NIE): Mandatory allocation of a NIF for legal entities and a NIE for individuals in respect of all foreign shareholders and future non-resident directors.
• Notarised Powers of Attorney: If the parent company acts through a representative, powers of attorney duly legalised before a notary and apostilled (Hague Convention) or consularised are required, together with a sworn translation into Spanish.
• Monetary Contributions: Bank deposit certificate for the SA; in the SL, this certificate may be waived if the founders assume joint and several liability towards the company and third parties for the capital contributed in the deed.
• Public Deed and Beneficial Ownership: Notarisation of the articles of association, appointment of directors and the mandatory declaration of the identity of the ‘beneficial owner’ (natural persons who own or control more than 25% of the capital) in compliance with Anti-Money Laundering (AML) regulations.

A shelf company is an inactive legal entity, generally structured as a limited liability company (SL), which is already registered with the Commercial Register and has a Tax Identification Number (NIF), designed to be acquired immediately and to bypass the timeframes involved in a standard incorporation.

To acquire legal control and reactivate the commercial operations of this vehicle, investors must carry out the following corporate steps:

1. Notarial Sale and Purchase and Tax Identification Numbers: Formalise the deed of sale and purchase of shares before a notary after obtaining the Tax Identification Number (NIF) or Foreigner Identification Number (NIE) of the foreign buyers and directors, providing proof of the bank transfer of the purchase price and declaring the beneficial owner.
2. Declaration of Sole Ownership: If the company had a sole shareholder, the declaration of the loss or change of identity of the sole shareholder must be notarised and registered with the Commercial Registry.
3. Organisational and Statutory Renewal: Dismiss the inactive management, appoint new directors and amend the articles of association to adapt the company name (requiring a new certificate from the Central Commercial Register), the corporate purpose and the registered office to the investor’s operational needs.
4. Foreign Direct Investment (FDI) Control: Submit the required foreign investment declarations to the competent authorities.

Anti-money laundering (AML) regulations strictly require the identification and declaration before a notary of the ultimate “beneficial owner” who owns or controls the corporate entity. At Seegman, our presence in Madrid and Lisbon enables our team to provide comprehensive advice on the implementation of KYC (Know Your Client) policies, ensuring a swift transaction closure without cross-border registration obstacles.

Individuals who meet the following criteria regarding control or management of assets are considered beneficial owners:

• Asset Control: Those individual investors who own or control, directly or indirectly, more than 25% of the share capital or voting rights of the new company (NewCo) or pre-existing company.
• Effective Control: Those who exercise direct or indirect control over the management of the company through other operational means.
• Directors (Deemed Control): In the absence of an individual shareholder reaching the 25% threshold, the law legally presumes that control rests with the directors. If the appointed director is a legal entity, the individual representing it must be identified without exception.

Spanish company law allows the board of directors of a limited company to be structured in four distinct ways, ensuring excellent organisational flexibility. The articles of association may incorporate all these forms of administration simultaneously from the moment of incorporation. This strategy allows the general meeting to switch from one model to another as the business evolves, without the need for additional amendments to the articles of association.

The four legally permitted management structures are:

• Sole Director: A single person holds all powers of representation and business management.
• Joint Directors: Several directors act entirely independently, each being able to bind the company vis-à-vis third parties separately.
• Joint Directors: Several directors who are required to act and sign jointly to legally bind the company (a maximum of two in the case of a public limited company, with no limit in the case of a private limited company).
• Board of Directors: A collegiate governing body that adopts its decisions by legal and statutory majority, suitable for complex corporate vehicles and investment funds.

The fiduciary duties of care and loyalty constitute the indispensable core of directors’ liability in Spain, obliging them to act as prudent businesspeople and to always prioritise the corporate interest. Breach of these duties gives rise to personal, joint and several liability on the part of the director (including the de facto or shadow director) towards the company itself, its shareholders and third-party creditors.

The substantive scope of both legal obligations is broken down as follows:

• Duty of Care: Requires the director to perform their duties with the level of care, attention and expertise expected of a prudent businessperson, obliging them to manage business risks (including sustainability risks) correctly and to comply with applicable regulations.
• Duty of Loyalty: This imposes the obligation to subordinate any personal or third-party interests to the best interests of the company, operating under the principles of personal responsibility and freedom of choice. It strictly prohibits engaging in conflicts of interest, carrying out irregular related-party transactions or undertaking competitive activities, unless an express and conditional exemption is granted by the general meeting or the board.

The remuneration regime for directors requires that the remuneration system be explicitly set out in the articles of association, with the general meeting required to approve the maximum annual amount for the board as a whole. At Seegman, we structure transactions for foreign companies by drafting executive remuneration policies that safeguard compliance with the articles of association and ensure strategic alignment with the parent company.

The legal framework establishes different rules depending on the nature of the position held:

• Non-Executive Directors: The law presumes that the position is unpaid unless the articles of association provide for a specific remuneration system. Once the general meeting has set the maximum annual cap, it is up to the board of directors to agree on its internal distribution based on the responsibilities assumed by each director.
• Chief Executive Officers (Executive Directors): When a director assumes executive functions, it is mandatory to enter into a commercial agreement between the director and the company. This agreement must set out the remuneration components in full, and must be strictly consistent with the systems provided for in the articles of association and fall within the maximum amount approved by the general meeting.

Corporate legislation imposes a strict annual timetable requiring the accounts to be prepared within 3 months, approved within 6 months and filed with the registry within a further 1 month. Strict adherence to this accounting timetable is essential to keep the company’s registration active and to protect directors from liability in the event of insolvency. Furthermore, if certain business thresholds are exceeded, these accounts must be subject to a mandatory review by an independent auditor.

The timeline for the financial year-end operates under the following mandatory phases: