Gradually established limited liability company of the “Entrepreneur Support Act”
Law 14/2013 to support the entrepreneur and internationalization, which the Spanish Government recently passed, primarily aims to promote foreign investments. In particular, the Law regulates the specific residence permit for foreign investors who may apply for and receive a residence permit in exchange for purchasing property with a value of at least 500,000€; invest in Spanish Government bonds in an amount greater than 2 million Euros; or invest in business projects of general interest.
Other provisions of the Law set measures to improve certain legal areas, especially Company Law areas. The main new aspect is the creation of a new kind of company: the Gradually Established Limited Liability Company (or “SLFS” as abbreviated in Spanish).
Law 14/2013 amends Articles 4, 5, and 23 of the redrafted text of the Corporations Act. The Gradually Established Limited Liability Company offers the possibility of waiving the obligation of making a minimum capital contribution of 3,000€ (established for Limited Liability Companies).
The SLFS receives its name from its destiny to become a Limited Liability Company once it reaches a capital with a value of at least 3,000€. In this way, the SLFS acts as a bridge towards the incorporation of a limited liability company (“LLC”).
Its legal structure is similar to that of an LLC except for a few obligations aimed at guaranteeing sufficient protection to third parties.
The main innovative elements that characterize this subtype of LLC are:
a) Capital in an amount greater than zero and less than 3,000€:
- The Law provides that “notwithstanding the above (ius commune provisions on capital contributions to the L.L.C.), limited liability companies may be incorporated with a share capital below the legal minimum.”
- However, this capital cannot be zero. The Law requires a contribution – however minimal. Furthermore, Article 23 provides that the bylaws should reflect the amount of capital, including the number of stocks and their par value.
- When the SLFS capital reaches 3,000€, the company will automatically become an LLC and will be subject to the legal structure of the LLC. Below this amount, capital may fluctuate.
Exemption from the obligation to prove monetary contributions:
- According to the LLC structure, contributions in an open account in the company’s name do not require proof. The new Law limits these obligations with the SLFS because the capital does not require proof, although the founders and stock purchasers are jointly and severally liable towards the company and third parties for the contributions.
- Although the initial contribution does not require proof, any additional contribution requires proof through a bank certificate in the name of the company.
b) Restrictions of the SLFS regime:
- In exchange for simplifying the structure, the annual remuneration to partners and directors as well as the possibilities of profit distribution face restrictions. The LLC’s ius commune regime, based on Article 274 of the Law of Capital Companies, demands a 10% legal deposit of the profit with a limit amount of 20% of the share capital. For the SLFS, the legal deposit limit is set at 20% with no maximum limit.
- Whenever the company’s equity is equal to or higher than 60% of the legal minimum capital, dividends shall be distributed.
- The sum of the annual dividends distributed to the partners shall not exceed 20% of the company net assets. This limit does not apply to employees or to the professional services provided to the company.
In case the company is liquidated, partners and directors are jointly and severally liable to reach the 3,000€ minimum share capital, allowing the company’s effective liquidation.
This new company subtype is very innovative because it brings more flexibility to the system, thus encouraging entrepreneurial activity. Simultaneously, it provides consolidated protection to third parties by offering guarantees to creditors.
Monika Bertram & Hélène Dagousset
Mariscal Abogados, Spanish lawyers in Madrid, Spain
