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Incorporation of limited companies for one euro: is it possible?

LetsLaw / Commercial Law  / Incorporation of limited companies for one euro: is it possible?
Sociedad limitada con un euro

Incorporation of limited companies for one euro: is it possible?

The idea of creating a limited company with only one euro of capital is attractive to many entrepreneurs who wish to start a project with a low initial cost. Spanish legislation has introduced changes in recent years to make the minimum capital requirements more flexible, allowing greater accessibility to the incorporation of new companies

But is it really that simple, and what are the implications of setting up a Limited Liability Company (SL) with such a low capital stock? In this article, we will break down in detail how this possibility works, its advantages, limitations and the practical issues to take into account.

Evolution of the regulation: from 3,000 euros to one euro capital

Law 18/2022, known as the “Crea y Crece Law”, introduces a set of significant reforms with the aim of simplifying and encouraging the creation and growth of companies in Spain. This regulatory framework, approved on September 28, 2022, affects several laws and incorporates specific mechanisms to make the company incorporation process more accessible and agile. 

Until the entry into force of the Crea y Crece Law, Spanish regulations required a minimum share capital of 3,000 euros to incorporate a Limited Liability Company. This amount was designed to guarantee a minimum basis of solvency and credibility before third parties, such as suppliers or financial institutions. However, for many entrepreneurs, especially in technology or service sectors where large initial investments are not required, this barrier posed an unnecessary financial challenge.

In 2022, the change in the Capital Companies Law introduced the possibility of creating an SL with an initial capital of only one euro. This change is part of a general effort to encourage the creation of companies and boost the economy. Although the idea is attractive, the law establishes certain conditions and limitations that the partners must comply with to ensure the viability of this type of company.

Requirements and conditions for incorporating an SL with a capital of less than 3,000 euros

Incorporating an SL with one euro of capital is possible, but requires compliance with a series of additional requirements. The law establishes protective measures to ensure that, despite the low initial capital, the company can operate with financial responsibility and capacity for growth. These are some of the key conditions:

  • Special legal reserve: S.L.s incorporated with less than 3,000 euros must allocate at least 20% of their annual profits to a special legal reserve. This reserve cannot be used freely, but must be maintained until the sum of the share capital and the legal reserve reaches 3,000 euros. This requirement is intended to ensure that the company gains financial strength over time, despite the low initial capital.
  • Additional liability of the partners: until the share capital and the accumulated reserve total 3,000 euros, the partners are jointly and severally liable for the company’s debts up to the difference to the traditional minimum capital of 3,000 euros. This means that, in the event of financial difficulties or uncovered debts, the partners may be liable with their personal assets, although to a lesser extent than in an unlimited liability company.
  • Restrictions on the distribution of dividends: the law imposes restrictions on the distribution of profits in companies with capital of less than 3,000 euros. Dividends may not be distributed freely until the company complies with the legal reserve requirement. This means that, even if the company generates profits, these must be used to a large extent to strengthen the company’s financial situation in its early years.
  • Investing early profits in growth: by limiting the distribution of profits, regulations are incentivizing companies to reinvest profits in their development and in reaching the minimum solvency necessary to operate without legal constraints. This can be beneficial in the long term, although for partners it means lower immediate remuneration.

When is it advisable to incorporate an SL with one euro?

Creating an S.L. with one euro of capital can be a viable and beneficial option, especially in certain industries and business situations. Below are some scenarios in which this structure can be advantageous:

  • Service or low-risk businesses: consulting, digital marketing, graphic design and other service-based businesses can benefit from this option. These activities usually require less initial investment in tangible assets and, therefore, low start-up capital is not an impediment to their operation.
  • Test phase projects: for entrepreneurs who wish to launch a business idea in a test phase or as a pilot project, setting up an SL with one euro makes it possible to assess the viability of the project without committing large amounts of capital.
  • Access to external funding: startups that have access to external investors or alternative funding sources can initially incorporate with one euro, knowing that they will have the necessary financial backing to operate and meet legal reserve requirements in the short term.

However, it is important to remember that companies with such a low initial capital may encounter some practical difficulties, such as less credibility with third parties and suppliers, which may affect commercial relations and the negotiation of terms.

Practical limitations of a one-euro SL

Despite the theoretical advantages, minimum capital SLs have some limitations that entrepreneurs should consider before opting for this structure:

  • Perception of low creditworthiness: for third parties such as customers, suppliers and potential business partners, a company with capital of one euro may raise doubts about its ability to meet its financial commitments. This may translate into stricter contract conditions or additional collateral requirements.
  • Possibility of personal liability: as mentioned above, the partners may have to assume joint and several liability for debts up to the capital of €3,000, which implies a higher risk than in a fully capitalized SL. It is important to assess this issue and, if necessary, analyze capital structuring alternatives.
  • Additional costs and limitations in growth phases: as the company grows, it is likely that it will need to reach the capital and legal reserve threshold of 3,000 euros to operate normally and without restrictions. This may involve constant reinvestments of profits or even new contributions from partners if the business does not generate profits immediately.

Is the one-euro SL an optimal structure?

The one-euro SL is a real and useful possibility for certain projects and entrepreneurs. However, its suitability depends on the specific situation of each business. In capital-intensive sectors, such as industry or advanced technology, one-euro capital may not be enough to cover initial operating costs. On the other hand, in service sectors or sectors with immediate income, it can be an option that allows an agile and accessible start-up.

Conclusions

The incorporation of an S.L. with one euro in Spain represents a step towards the democratization of entrepreneurship, making it easier for more people to launch their business ideas. However, the regulations impose certain limitations and security measures to ensure that the company achieves an adequate solvency base over time.

Ultimately, opting for this structure will depend on the nature of the business, the capital needs and the willingness of the partners to reinvest profits up to the traditional minimum capital of 3,000 euros. 

Because choosing the right structure can have a significant long-term impact, having the support of a team of legal experts can provide the clarity and certainty needed at every step of the process. At Letslaw, we are lawyers who are experts in advising startups and all types of companies. We are prepared to help our clients navigate these decisions with confidence and ensure compliance with all applicable legal requirements.

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