As global economies emerge from the pandemic and seek to recover from the damage sustained, Spain is planning to introduce the new Company Law – ‘Ley de Creación y Crecimiento de Empresas’, which has numerous implications on the formation and continuation of companies in Spain.
The Covid pandemic has negatively impacted companies and the economic climate throughout the world. To assist in the creation of new companies and a better economic environment, the Spanish government has adopted the Recovery, Transformation and Resilience Plan. This national program includes the new ‘Crea y Crece’ Law with significant reforms of the current Company formation legislation.
- What is the ‘Crea y Crece Law’ and when it will enter into force?
- What changes with the Crea y Crece Law?
- What is the purpose behind the implementation of Crea y Crece law?
- What are the potential problems with the Crea y Crece law?
- Time to start now your company in Spain
‘Ley de Creación y Crecimiento de Empresas’ (“The Creation and Growth of Companies Act”), or the ‘Crea y Crece Law’, is one of the main areas of reform in the Recovery, Transformation and Resilience Plan. The aim of the law, as explained by the Vice-President of the Government of Spain and Minister for the Economy and Digital Transformation, Nadia Calviño, is to boost the number of companies being created, facilitate their expansion and to improve the Spanish business environment. The draft law is currently undergoing parliamentary processing and if the usual deadlines are met, is expected to be approved during this year, hopefully in summer 2022.
The most noticeable change to be introduced by the Crea y Crece Law is the increased accessibility for the incorporation of limited liability companies – LLCs or Ltds (SL in Spanish). Following in footsteps of many other European countries it will be possible to set up an LLC with a share capital of 1 EUR, rather than the previous minimum of 3.000 EUR.
Whilst the minimum share capital requirement has dropped, companies must allocate 20% of all profits each fiscal year to the reserve to safeguard their creditors’ interests. The obligation will be met once the legal reserve reaches the minimum sum of 3.000 EUR, thus matching the previous requirement for LLC formation.
If liquidation occurs prior to the company reaching the full amount shareholders hold joint liability for the difference between the company’s subscribed capital and the full amount, having considered all company assets.
Beyond the reduction of the minimum starting share capital, recent changes will also allow the incorporation of LLCs over the internet.
The incorporation of a company will be promoted through:
- Entrepreneur’s Contact Points (“PAE”): electronic or in-person counters where it will be possible to carry out the procedures to set up, run and cease a company.
- Single Electronic Document (“DUE”): an electronic document that will replace the multiple forms required by the administrative bodies and will contain all the information needed to create a company.
- Information Centre and Business Creation Network (“CIRCE”): an information system that enables the incorporation of a company to be carried out online.
Consequently, the time required for LLC creation as well as the associated notary and registry costs will be reduced. It is planned that LLCs will be incorporable in fewer than 10 working days, matching the time limitation for any modifications that affect the company.
The Crea y Crece Law will also establish new measures to fight against late payments in business transactions as they are one of the primary causes of liquidity and solvency issues.
The law extends the obligation to issue and send electronic invoices to all companies and self-employed workers in their commercial relations to guarantee greater traceability and control of payments, reduce transaction costs, and improve the operability of companies. Additionally, the electronic invoices form part of Spain’s plan for digitalization.
Moreover, companies that don’t comply with the legal payment terms and the 60-day deadline for payment of debts will be unable to access public subventions, including those outlined in the country’s recovery plan. Additionally, within six months from the approval of the Law, the Late Payment Observatory will be created, thereby acting as the national organ in charge of monitoring payment deadlines.
The new Crea y Crece Law promotes alternative financing through mechanisms such as crowdfunding, collective investment and venture capital.
- Crowdfunding regulations in Spain now match European regulations, reinforcing the protection of investors and reducing management costs by facilitating the pooling of investors.
- Measures introduced to strengthen and reinforce collective investment by extending the recognized schemes for closed-end funds.
- Promotes venture capital by broadening the type of companies in which these entities can invest in, including financial and technological companies.
According to the government of Spain, Crea y Crece law will result in the increased formation of new companies, thus boosting the business climate and assisting in Spain’s post-pandemic recovery. The law also seeks to simplify the route to growth and expansion for small companies by improving on current regulations and removing unnecessary administrative and economic obstacles.
Furthermore, the law predicts financial support to the companies and their business growth to assist companies fighting against liquidation and some of the current challenges businesses are facing in the current economic climate.
Through doing so, the law will simplify the business field of Limited Liability Companies in Spain, through the implementation of reforms that affect the creation, growth, and financing of companies with the primary intention of attracting and promote innovative entrepreneurs.
These changes will assist Spain’s push to become an increasingly attractive location for foreign investors and aspiring start-ups.
Although the law will facilitate the creation of new companies by significantly lowering the initial share capital, some have already mentioned the insufficiency of the novelties presented by the Crea y Crece.
Celia Ferrero, vice president of ATA (“Asociación de Trabajadores Autónomos”), highlighted that the real problem of many companies is not the creation itself, but what follows that, the part not acknowledged in the law.
Moreover, the initial share capital is not the only economic obstacle for new companies, but just the first of many in Spain. After the creation, companies are obliged to pay heavy taxes, administrative fees and comply with many bureaucratic regulations and procedures, which impose high costs for maintaining a company in Spain.
Others are also criticizing the idea of lowering the initial share capital to only one euro because of worries the novelty will have negative repercussions.
Supposedly, there is not enough supervision and guarantees regarding the new companies that will join the market after the minimal share capital gives nearly everyone a chance to create a Limited Liability Company.
Furthermore, the short-time period predicted for company incorporation may be difficult to achieve in practice and will only be hindered by the increased influx of applications.
If you are interested in creating your own business in Spain, or moving an existing business to Spain, and would like more information, contact us today to find out how we can help you, providing you with any guidance and assistance you might require.
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Written in collaboration with James C.S. Barnes