Setting up a limited company with 1 euro for startups: pros and cons

Setting up a limited company with 1 euro for startups: pros and cons

The recent reform of the Law for the Creation and Growth of Companies in Spain, known as the “Crea y Crece” Law, has sparked a wide range of opinions and debates about its impact on the country’s business landscape. At the heart of this reform is the reduction of the minimum share capital required to set up a limited liability company to just 1 euro.

While this measure has been touted as a way to encourage entrepreneurship by reducing incorporation costs and offering greater flexibility to founders, it is crucial to critically examine both the advantages and disadvantages associated with this reform.

Advantages of setting up a limited company with one euro

The reduction of the minimum share capital to 1 euro has been touted as a way to encourage entrepreneurship by reducing incorporation costs and offering greater flexibility to founders. Undoubtedly, this measure offers clear advantages. The financial flexibility it provides allows entrepreneurs to start a business with minimal investment, which can be particularly attractive to those with limited financial resources.

Moreover, by removing a major barrier to market entry, this reform can encourage entrepreneurship and increase the number of new businesses in the country. Simplifying the company formation process can also save time and money for both entrepreneurs and regulators, making the business environment more dynamic and accessible.

Disadvantages of setting up a limited company with one euro

However, behind these seemingly clear advantages lie significant drawbacks. The reduction of minimum share capital may create uncertainty about the solvency and financial stability of start-ups, which could deter potential investors, customers and business partners from doing business with them.

In addition, the lack of mandatory disclosure of the value of the reserve requirement makes it difficult for third parties to assess the financial soundness of companies, which could affect their access to external financing and business opportunities.

In addition, companies incorporated with a minimum share capital of 1 euro could face difficulties in accessing government grants and support due to concerns about their financial stability and ability to meet commercial obligations. This could limit their ability to raise additional funds and resources to expand and grow.

And while reducing the minimum share capital may offer financial flexibility to founders, partners remain personally and jointly and severally liable for corporate debts in the event of the company’s insolvency, which could put their personal wealth at risk and discourage entrepreneurial risk-taking.

By allowing companies to be set up with minimal initial investment, it stimulates innovation and broadens the scope for business development in various sectors.

In addition, this measure can democratise access to entrepreneurship by making it more accessible to people with limited financial resources or those who wish to try their hand at entrepreneurship without committing a large amount of capital.

However, the lack of transparency about the reserve requirement and the additional financial liabilities for partners in the event of insolvency may raise doubts about the stability and solidity of these companies in the eyes of potential partners, investors and customers.

In summary, the reduction of the minimum share capital to 1 euro can open new doors for entrepreneurs by offering unprecedented financial flexibility and encouraging entrepreneurship. This measure can be particularly beneficial for those with limited financial resources, as it allows them to enter the business world with a minimal investment.

However, the perceived solvency of companies incorporated with a minimum share capital of 1 euro may be questioned by third parties, which could generate mistrust and affect commercial and financial relations. The lack of financial transparency, especially with regard to the value of the reserve requirement, also raises concerns about the long-term stability and viability of these companies.

In addition, access to government subsidies and support could be hampered due to doubts about the ability of these companies to meet commercial and financial obligations.

Only time will tell whether this reform will truly boost growth and innovation in the Spanish business landscape, and it will also give a boost to many entrepreneurs who are wondering when to establish a limited company, but it is clear that a proactive and strategic approach is needed to ensure its long-term success.