If you’re planning to start a business in Spain, one of the first major decisions will be choosing its legal structure. And this is where a common question arises: should you form a Limited Liability Company (Sociedad Limitada (SL)) or Public Limited Company (Sociedad Anónima (SA))?
Don’t worry, it’s a decision faced by many entrepreneurs and business owners. The key thing to remember is that there isn’t a universally “better” option; the right choice depends on your project, the number of shareholders, your initial budget, and your long-term plans.
In this article, we’ll break down the main differences between an SL and an SA, with clear explanations and examples, to help you make an informed decision. For reference, the most common choice, especially when starting out, is the Sociedad Limitada.
Written by Abigail Sked
Paralegal
Limited Liability Company (Sociedad Limitada) or Public Limited Company (Sociedad Anónima)?
Abigail Sked, Paralegal
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Share Capital: How Much Are You Willing to Invest at the Start?
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SL (Sociedad Limitada): You can set one up with as little as €1 of share capital. However, under Article 4 of the Spanish Companies Act, even if you only contribute €1, the company will be liable up to €3,000. In practice, this means that in the case of debts, the company’s resources (and potentially its profits or assets) may have to cover that amount.
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SA (Sociedad Anónima): The law requires a minimum share capital of €60,000, with at least 25% (€15,000) paid in from the outset.
If you’re starting a small-scale project or have limited resources, the SL is usually the most realistic option. The SA, by contrast, is more suited to larger ventures with a strong capital base or the intention to attract investors.
Why you shouldn't set up your Limited Company with €1 of share capital
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Number of Shareholders and Management Style
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SL: More flexible and adaptable, best suited if you have just a few shareholders, want tighter control over decision-making, and wish to avoid excessive bureaucracy.
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SA: A more formal and rigid structure, typically used in larger companies or where there are many shareholders, especially if some are purely investors and not involved in day-to-day operations.
Example: Imagine starting a business with two friends where all three of you work in the company. In this case, an SL will let you manage it easily. But if there are ten shareholders, seven of whom are passive investors only interested in returns, an SA may be more appropriate.
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Transfer of Shares: Who Can join or Leave?
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SL: Shares cannot be transferred freely. If a shareholder wishes to sell their share, the others have a right of first refusal.
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SA: Shares are freely transferable, unless the Articles of Association provide otherwise. This makes the SA more attractive to investors.
Tip: If you want to retain control over who becomes a shareholder, the SL is safer. If, however, you plan to regularly bring in new investors, the SA offers greater flexibility.
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Company Image: How Do Others See You?
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SL: The most common structure for SMEs, freelancers scaling up, or small businesses. It doesn’t carry a negative perception but won’t necessarily impress large clients.
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SA: Often conveys greater size and solidity, particularly when dealing with big clients, financial institutions, or public authorities.
Example: A software company wanting to bid for major public contracts might choose an SA to project stronger financial stability.
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Costs and Ongoing Requirements
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SL: Generally cheaper to maintain, with fewer formalities and less regulation in day-to-day operations.
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SA: Subject to stricter formalities and heavier regulation, particularly regarding the board of directors, shareholder meetings, audits, and transparency requirements, especially if listed on the stock exchange.
Legal and financial obligations of companies in Spain
Can You Start as an SL and Later Become an SA?
Yes, it’s possible to transform an SL into an SA, but it involves several steps: increasing share capital to at least €60,000, securing shareholder approval, preparing a report from the board, formalising the change before a notary, and registering it with the Commercial Registry.
So, Which Structure is Right for You?
Choose a Limited Liability Company (Sociedad limitada) if:
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Your initial budget is limited.
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There are only a few shareholders, and you value flexibility in management.
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You don’t need external investment in the short term.
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You prefer a simpler setup and ongoing management.
Consider a public limited company (sociedad anónima) if:
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You plan to raise capital or issue shares.
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Your project begins with significant initial investment.
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You have many shareholders or want a more corporate-style structure.
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You want to project the image of a larger, more established company.
Need Help Deciding on the corporate structure of your spanish company?
Every business is unique, and the choice of legal form carries important legal, tax, and strategic implications. If you’re at this stage and would like expert advice, we’re here to help.
Get in touch with our firm and tell us about your project. We’ll guide you in choosing the most suitable legal structure and handle the entire incorporation process step by step.
