Law 18/2022: the minimum capital of a limited company is reduced

This reform introduces new developments in the fight against late payments (chapter IV), in the participative financing of companies (chapter V), as well as in collective investment (chapter VI), modifying multiple laws. In this article, we want to focus on the main reforms that affect the process of incorporating companies.

The reform, as mentioned in the statement of reasons, aims to promote entrepreneurship and facilitate the creation of new companies and encourage the increase in business size. With this objective, the Capital Companies Act is amended in the following points:

This is the main novelty, and the most striking. From the entry into force of the new regulation, it will be possible to establish limited liability companies with a minimum share capital of €1, unlike the previous regulation which required at least €3,000; according to the new wording of articles 4 and 5 of the Capital Companies Act. With this reduction, the aim is to reduce the costs and economic effort in the incorporation of companies.

However, the capital, for the purposes of liability towards creditors, remains set at the previous €3,000; reducing it to €1 only for incorporation purposes. Thus, the new wording of article 4 of the Capital Companies Act establishes certain limitations or requirements when it is incorporated with €1, as it states that “As long as the capital of limited liability companies does not reach the amount of three thousand euros, the following rules shall apply:

At least 20 percent of the profit must be allocated to the legal reserve until such reserve together with the share capital reaches the amount of three thousand euros.

In the event of liquidation, voluntary or compulsory, if the company’s assets are insufficient to meet the payment of social obligations, the partners shall be jointly liable for the difference between the amount of three thousand euros and the subscribed capital amount.”

Therefore, this measure is intended to facilitate incorporation, without reducing the joint liability of the partners, which remains set at €3,000. It is also important to clarify that this measure only affects limited liability companies, not public limited companies.

As a consequence of the reduction of the minimum capital of SLs to €1, article 4bis is repealed, eliminating the successive formation system of companies, which from now on is meaningless, establishing a transitional period for companies thus constituted to convert to the new modality.

According to the Second Transitional Provision, those companies that have been constituted in accordance with article 4bis, “may choose to amend their statutes to no longer be subject to the successive formation regime and be governed, while their share capital does not reach the amount of three thousand euros, by the rules established in section 3 of article 4 of the revised text of the Capital Companies Act”.

But until their statutes are amended, and the share capital does not reach the amount of €3,000, the companies constituted in accordance with article 4 bis of the Companies Act will be subject to the following rules:

1. “At least 20 percent of the profit for the year must be allocated to the legal reserve without any limit on the amount.
2. Once legal or statutory allocations have been covered, dividends may only be distributed to shareholders if the net equity value is not, or as a result of the distribution does not become, less than one thousand eight hundred euros.
3. The annual total of the remuneration paid to shareholders and directors for the performance of such roles during those years may not exceed 20 percent of the net equity of the corresponding year, without prejudice to the remuneration they may be entitled to as employees of the company or through the provision of professional services that the company itself contracts with those shareholders and directors.
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 will be jointly liable for the payment of the capital amount plus the difference between this and the amount of three thousand euros.”

The system for the incorporation of new company formations is removed, which, with the new measures adopted by the reform, facilitating and speeding up the incorporation of companies, no longer makes sense. Those new companies formed before the reform came into effect will be governed by the general rules for limited companies, according to the Third Transitional Provision.

This measure makes a lot of sense as these companies have hardly been used in practice.

The obligation is established for Notaries to be registered with the Notarial Electronic Agenda in order to carry out the incorporation of companies through CIRCE, with the aim of incorporating companies electronically, streamlining communications between the different bodies and administrators involved in the incorporation, including Notaries and the Commercial Registries.

In conclusion, the current reform aims to streamline and reduce the costs of company incorporation, as we have already seen, but this does not mean that the liability limit of the partners towards third parties is reduced, which remains set at €3,000. These are measures to promote company incorporation, without affecting the subsequent actions of the partners and the company.