Editor’s note: This article was first published in May 2010. The Spanish figures it cites are from that time, including minimum share capital of 3,012 euros for a limited company and 60,000 euros for a public limited company. Tax rules and thresholds have changed since, and the minimum for an SL has been 1 euro since 2022.
Self-employed, limited company, public limited company… Many businesses fail to take certain factors into account when choosing the legal structure of their company.
Spain’s Young Entrepreneurs Association (Asociación de Jóvenes Empresarios, AJE) recommends going through these criteria before we settle on a legal form for our business:
1. Liability: When deciding whether to work as a self-employed sole trader (autónomo) or set up a company, you should know that as a sole trader your liability is universal and unlimited. That means we put all our present and future assets at risk. With a company, liability is limited to the capital contributed.
2. Partners: In the past, if you were starting out on your own you registered as self-employed, and if you had partners you set up a company. Now you can set up a single-member limited company or a single-member public limited company (sociedad anónima).
3. Share capital: A single-member limited company needs a contribution of only €3,012 to set it up, whereas a public limited company needs €60,000.
4. Taxation: If you operate as self-employed, you pay personal income tax (IRPF), so the more you earn, the more you pay.
A company doesn’t pay IRPF but corporate tax (impuesto de sociedades), which is a single rate of 30%, or 35% if you go over €90,000.
If you run the numbers and expect your business to bill more than €40,000, the AJE recommends choosing a company as your legal form, because IRPF is progressive and you would pay much more under it.
Further reading
Featured image: Tool Dude8mm, CC BY 2.0, via Flickr.
