Limited companies with only one euro of capital? Watch out for the small print
On 27 July, the Spanish government approved the draft bill known as the “Crea y Crece Law” (Create and Grow Law). Its goal is to promote the creation and growth of companies in Spain. The bill is currently in the public information stage (here) and will remain so until 6 September. It is foreseeable that the Government will not approve the final version of the Bill until next year, when it will be sent to Congress for final approval.
The novelty that has dominated all the headlines concerning this new law (starting with the Government’s own press release) is that, once it is in force, limited liability companies (SL) will be set up in Spain with a share capital of one euro and not 3,000 euros as at present.
Really? Only one euro to set up an SL in Spain? When something is too good to be true, it is better to look at the small print. In this case, the small print is the content of the new article 4 of the Capital Companies Act, which is introduced by the Crea y Crece Law. This new article includes a few details to bear in mind.
It is true that the minimum capital of the newly incorporated SL will be one euro.
…In the event that the company is liquidated and if its assets are insufficient to meet the payment of its social obligations, the partners will be jointly liable to meet these obligations for the amount between €3,000 and the amount of the subscribed capital.
In other words, if the subscribed capital is €1, the partners of the SL will be liable for an amount of €2,999 for the obligations that the SL could not meet with its assets in the event of liquidation.
In short, the partners will not pay up the capital, but they will still be liable up to €2,999 for the liabilities that the SL may incur if the assets of the SL are not sufficient to cover those liabilities.
Furthermore, the new article also provides that, if the SL is set up with a share capital of less than €3,000, it must set aside to the legal reserve a figure at least equal to 20 percent of the profit until this reserve together with the share capital reaches the amount of €3,000.
Thus, in practice, the liability for the SL’s obligations in the event of liquidation of the shareholders will be transferred to the SL itself (the net assets that the SL does not have as share capital will be taken as reserves).
Also, and by the way, companies in successive formation regime are eliminated. Given that 126 of these types of companies were created in 2019 and 107 in 2020 (out of 94.840 companies created in Spain in 2019 and 80.134 created in 2020), there will probably not be many tears shed for their disappearance.
In short, the new “Crea y Crece Law” should not be interpreted as limiting the liability of the partners of an SL to one euro. It will remain at €3,000 in case the SL is liquidated and cannot meet its obligations. The money will not be paid out, but the liability will remain. In addition, the SL will be encouraged to meet its obligations in case of liquidation through its reserves instead of through its diminished share capital.