Sky’s the limited

LAST UPDATED: 9 Nov, 2010 @ 11:45
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Sky’s the limited

By Adolfo Martos Gross

Pros of SL

1) Limited liability. In an SL, shareholders are not personally liable for the business debts of the corporation. A shareholder risks what he has agreed to invest in the company and nothing more. But courts can find shareholders liable for the company’s debts if they’ve used the separate arrangement to shelter from creditors. Directors can be liable for social debts if they don’t fulfil their legal duties and obligations, such as applying for bankruptcy.

2) Flat taxation. There is a reduced fixed rate for small and medium sized SL companies, helpful when the business is wealthy, but not at the outset. At this early stage low profits have a better tax rate as autonomo than as a company.

3) Continuity. The death or resignation of a shareholder does not bring the company’s existence to an end, even though it may be impractical to continue without a key player.

4) Easy transference of shares. Shares can be transferred with very little restrictions. But in practice, shares in a closely held corporation have no market, and may only be sold to other shareholders, who may not be willing to pay very much.

5) Credibility: The words SL after a business name may give credibility. But generally clients will trust you, and not the legal entity of your business.

Cons of SL

1) Double taxation: companies pay corporate tax on their profits. When the diminished earnings are distributed as dividends they are treated as income in the hands of the shareholders and taxed again.

2) Excessive formalities: Reams of paperwork are necessary, and understandable in larger companies, but not for a one man band in its first years of existence.

3) Costs: Not only are there incorporation costs and taxes but also annual running costs such as accountancy fees.

4) Complex dissolution process: This has to be agreed by the majority of the shareholders in a General Meeting. If there is any legal reason for dissolution and the GM rejects it, the director can ask a judge to dissolve the company. The share of the net asset to the shareholders is subject to corporate tax and stamp duties.

Why go AUTONOMO?

1) Simplicity: minimum formalities to start / stop working as a sole trader (registration with the SS and the Tax Office) and easier accountancy formalities (no need to file annual accounts with the Company House).

2) Complete control over how the business is run.

3) Lower tax rate for small profits: during the first years presumably you will have small profits which are taxed with a better tax rate than corporations.

4) No set-up costs unless a business name is required.

5) Smaller running costs (Social Security fee) The unlimited liability of the Autonomo is certainly a disadvantage but you can take out professional indemnity insurance, plus clients trust good professionals, not legal entities. And in the future you can change to a limited company should you feel you are incurring too many risks.

If your business involves more than one person then Sociedad Civil (or partnership) is a good alternative to SL for much the same reasons as with autonomos.

Every case is different. But if Limited Liability is not important for your venture I would advise to choose the simpler and cheaper form of autonomo or Sociedad Civil during the first years of the business. There is always time to change your mind later.

You can contact Adolfo at [email protected]

6 COMMENTS

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  1. Only yesterday did the Spanish government announce that autonomos are now eligible for unemployment benefit. Did Spain not think that it might be possible, er, for a self-employed person to become unemployed, just as it is possible for a person on a contract to be? How could one not think that was possible when planning employment law in Spain?…

    Beggars belief this country; it is so backward on so many basic things and yet we hear this ongoing nonsense about “Quality of Life indexes”. A self-employed persons quality of life would be improved if they were made unemployed and could get benefits, would it not?

    Why on earth does Spain drag so far behind the rest of Europe? It should never been allowed to join – it is a joke.

  2. Oh Fred! You so funny. Roflmao! lol lol lol. If I or my wife dropped our self-employed status to become unemployed we would be destitute within six months and a very unpleasant six months it would be. The same will surely be said of the majority of people working down here. Unemployement just doesn’t cover all of most households’ outgoings.

  3. Ben,
    I’m sure your right but I could never work out how so many Spanish guys could remain unemployed and obviously drawing benefit and really seemed to be enjoying life and with enough money to be ‘mellow’ (drunk) most days.

    How they did this and many not having worked for years – we could’nt work it out and I’m not talking about those working on the black either.

    We had both a Policia Local and a Guardia living in our apartment block, neither wife worked and they had at least a reasonable standard of living, which knowing how badly both types of police are paid we found amazing and no they were’nt corrupt and taking backhanders – in fact this applies to lots of working class Spanish – a mystery we never solved in all our years living in Spain.

  4. start up a business in Spain, you must be joking. Spain is so backward their employment laws are so out dated and dangerous. social judges can even change an employees contract.forget business in Spain especially if you are a foreigner, go else where, or at the very least do not under any circumstances employ a Spanish nationals,if you want to avoid endless costly court cases,handled by an incompetent and doubtful justice system. go to a more progressive and civilised country, if you really want to be in business.

  5. Hi!

    So if i want to go “Autonomo” only for holiday season(lets say April- September)..just offering some beach activities , i can start/stop my “Autonomo” several times in a year? And starting from September to next years April i´m not making any kind of business and i do not need social security. In that case how i can make annual report and other taxes like IVA?

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