Successive formation limited company

Successive formation limited company

In the field of limited liability companies there are a series of elements that commercial companies must meet, and this is derived from Royal Legislative Decree 1/2010, of 2 July, which approves the revised text of the Law on Limited Liability Companies. Thus, Limited Companies and Autonomous Companies must comply with a series of provisions set out in their own articles of association, whether it be the company name, registered office, administration system or, as we will see below, the amount of share capital.

It is precisely this last figure that will determine whether a company is in a successive formation regime.

What is a successive formation limited company?

As we have already mentioned, a limited company must have a share capital figure set out in its Articles of Association. In this regard, Article 4 of the Capital Companies Act states that “The capital of a limited liability company may not be less than three thousand euros (…) the capital of a public limited company may not be less than sixty thousand euros”.

In accordance with the above, it is imperative that the Articles of Association establish a minimum share capital of 3,000 euros in the case of a limited liability company and 60,000 euros in the case of a public limited company.

Focusing the article on the case of Limited Companies, the personal principle governing this type of company gives such importance to the share capital that even the law itself obliges the partner or partners that set it up to contribute the entire share capital, unlike Public Limited Companies, which only require the payment of at least one quarter of the share capital at the time of granting the corresponding deed of incorporation or capital increase.

Without prejudice to the above minimum capital rule, the legislator decided to introduce an exception to the above criterion, on the understanding that the entrepreneur in most cases would not have a minimum of 3,000 euros to contribute to a company. This exception is defined in Article 4 Bis of the Capital Companies Act.

Consequently, a limited company in successive formation is one that has been incorporated with a lower amount of share capital than that determined by law.

Incorporation procedures

The procedure for setting up a limited company under the successive formation regime does not differ in any way from that of a company with a minimum capital of 3,000 euros, and it is also necessary to draw up a set of articles of association, apply for a company name, open a bank account and go to the notary and registry. 

Articles of association

When drafting the body of the articles of association, it must be borne in mind that they must be supplemented by a declaration, and as Article 23 of the Capital Companies Act states, “the articles of association shall contain an express declaration that the company is subject to this regime”. 

Consequently, the articles of association must expressly state that the company is subject to the regime applicable to this type of company.

Special regime applicable to the successively formed private limited company

Apart from the differentiating component of the Articles of Association, a differentiating regime applies to successively formed limited liability companies, duly determined in Article 4 Bis of the Capital Companies Act:

1. There is an obligation to allocate at least 20 percent of the profit for the year to the legal reserve, with no limit on the amount.

2. Dividends may only be distributed if the value of the net assets is not or, as a result of the distribution, is not less than 60 per cent of the minimum legal capital.

3. (c) In the case of remuneration for members or management, the annual sum of such remuneration may not exceed 20 per cent of the net assets for the financial year in question.

4. “In the event of liquidation, voluntary or compulsory, if the company’s assets are insufficient to meet the payment of its obligations, the shareholders and directors of the company shall be jointly and severally liable for the payment of the minimum amount of capital established by law”.

At Letslaw by RSM we are specialists in commercial law and we assist our clients in the process of incorporating companies, including companies under successive formation.