Create and Grow Law: Companies from €1

The Council of Ministers has approved the submission to the Spanish Parliament (Cortes Generales) of the Preliminary Draft Bill of the Create and Grow Law (Ley Crea y Crece), formerly called the Business Growth Law, which will make it possible to set up companies with just one euro and in less than ten days through regulatory improvement, the removal of obstacles to economic activities, the fight against commercial late payment, and financial support for business growth.

Another new feature it proposes is that companies that fail to meet the statutory payment deadlines will be unable to access aid under the Recovery, Transformation and Resilience Plan. To this end, a State Late Payment Observatory will be created, which will be responsible for monitoring payment periods.

It also includes measures to improve instruments for financing business growth that are alternatives to bank financing, such as crowdfunding, participatory financing, collective investment, and venture capital, as well as measures to simplify existing legislation, remove obstacles, streamline procedures, and expand the list of activities exempt from licensing requirements.

Setting up companies in less than 10 days and with just one euro

The most important measure of the new Create and Grow Law is the possibility of incorporating a commercial company with a minimum share capital of €1, instead of the €3,000 currently required to incorporate a limited liability company (S.L.). In addition, these companies may be set up in less than 10 working days by electronic means, without the need to appear in person at any public body or notary’s office. To this end, the Law advocates promoting the use of the electronic processing system of the Business Creation Information Center and Network (Centro de Información y Red de Creación de Empresa, CIRCE) and the Single Electronic Document (Documento Único Electrónico, DUE), as a one-stop shop that has been managed and developed since 2003 by the Directorate General for Industry and SMEs of the Ministry of Industry, Trade and Tourism, as well as strengthening the obligation for all notaries to be available on the Notarial Electronic Agency.

Likewise, any amendment affecting such a company, such as a capital increase or capital reduction, will also be limited to that 10-working-day period. That period will be counted from the day following the date of the filing entry (asiento de presentación) or of the return of the withdrawn document.

Along the same lines of reducing administrative hurdles to setting up a company or starting a self-employed activity, the Law also reduces or replaces certain authorizations or ex ante control systems for economic activity with responsible declarations (declaraciones responsables).

Companies must allocate 20% of their profits until they reach €3,000

Although, under the Create and Grow Law, companies may be set up with a minimum share capital of one euro, they will be required to allocate 20% of their profits to the legal reserve until the reserve, together with the share capital, reaches the minimum figure of €3,000.

In addition, if the company has debts and is dissolved without the resulting assets being sufficient to pay those debts, the shareholders will be jointly and severally liable for the difference between the amount of €3,000 and the amount of the subscribed capital.

Changes to companies under the successive formation regime and New Enterprise Companies

The Create and Grow Law also provides for the repeal of the rules governing companies under the successive formation regime (sociedades en régimen de formación sucesiva). Accordingly, companies that, prior to the date of entry into force of this law, are subject to Article 4 bis of the Consolidated Text of the Capital Companies Law may choose to amend their bylaws so as to cease to be subject to the successive formation regime and to be governed, for as long as their share capital does not reach €3,000, by these same rules, applying the new paragraph 3 of Article 4 of the Consolidated Text of the Capital Companies Law.

In addition, the rules on New Enterprise Companies (Sociedades Nueva Empresa) are abolished, as the drafters of the bill consider them to have become obsolete and to have been surpassed in efficiency and flexibility by the general rules on limited liability companies. Therefore, New Enterprise Companies already in existence when this law enters into force must be governed by the provisions regulating limited liability companies and will use the designation SRL.

Financial support measures

The Preliminary Draft Bill of the Create and Grow Law also contains specific measures to support financing instruments for business growth, including venture capital and micro-patronage or crowdfunding platforms. The Law introduces greater flexibility for these platforms to provide their services in Europe. In addition, investor protection is strengthened, and the creation of vehicles to pool investors is permitted in order to reduce management costs. To broaden the range of eligible business projects, the thresholds for the amounts permitted per financed project and per investor are raised.

Incentives to comply with payment deadlines

One of the main problems faced by small businesses and self-employed workers is late payment, or the failure of large companies to meet payment deadlines. They are caught between ending commercial relationships with large companies that fail to meet these deadlines and losing them as clients, with the economic impact this would entail. To mitigate this, the Create and Grow Law provides that companies that do not comply with payment deadlines (currently 60 days from the date of receipt of the goods or provision of the services, which cannot be extended even if both parties concerned so agree) will not be able to access aid under the Recovery, Transformation and Resilience Plan.

To ensure compliance, a National Late Payment Observatory will be created, which will oversee and monitor developments in payment data and promote good practices in this area.

The Law also includes measures to combat late payment in commercial transactions by extending the obligation to issue and send e-invoices to all companies and self-employed workers in their commercial relationships, which will ensure greater traceability and control of payments.

Tax advantages

This bill incorporates significant tax measures to attract and bring back domestic and international talent, attract investment, and encourage the creation of digital hubs in Spain. Thus, the tax rate under Corporate Income Tax (IS) and Non-Resident Income Tax (IRNR) is reduced from the general rate of 25% to 15% for the first four tax years from the year in which the tax base is positive.

The tax exemption for stock options is raised from €12,000 to €50,000 per year where startups deliver shares (acciones or participaciones) resulting from the exercise of call options, and the conditions for creating treasury shares in limited liability companies are relaxed.

The maximum base for the tax credit for investment in newly or recently created companies is also increased (from €60,000 to €100,000 per year), as is the credit rate (which rises from 30% to 50%) and the period during which a company is regarded as recently created, which increases from three to five years as a general rule, or to seven years for companies in the sectors mentioned above.

In addition, deferral of the Corporate Income Tax or IRNR liability is permitted for the first two tax years from the year in which the tax base is positive, without guarantees or late-payment interest, for periods of 12 and six months, respectively.

Finally, the obligation to make IS and IRNR installment payments is eliminated for the two years following the year in which the tax base is positive.

Taxation of digital nomads

Entrepreneurs and remote workers who relocate to Spanish territory will be able to reside and work in Spain for five years, as well as to opt for the special tax regime and be taxed under the IRNR.

With the aim of bringing talent back, the general requirements for accessing this regime are relaxed, with the requirement of no prior residence in Spain going from ten to 15 years down to just five years.

In addition, the possibility of opting for this regime is extended to other members of the family unit of the principal impatriate: his or her spouse or the other parent of his or her children, children under 25 years of age, and children with disabilities, regardless of their age.

Easier use of stock options

Startups find it difficult to attract and retain staff with specialized and scarce profiles. In terms of remuneration, they cannot pay high salaries because they lack liquidity, and they cannot promise a share in the company’s profits because of the limitations that commercial and tax law impose on such plans.

This law breaks down these barriers by making it easier to create treasury shares in limited liability companies, which is the legal form of most startups, and by granting more favorable tax treatment to remuneration paid in the startups’ own shares.

Contributions in cases of multiple activity

Double Social Security contributions in cases of multiple activity (pluriactividad) are eliminated for three years for entrepreneurs who simultaneously work as employees for an employer.

Public tenders

Public authorities will take into account the characteristics of startups when specifying the economic and technical solvency requirements for companies participating in innovative public procurement and pre-commercial public procurement procedures, whether or not they are governed by Law 9/2017, of November 8, on Public Sector Contracts, so as not to create obstacles to their participation in the tender.

When will the new Create and Grow Law enter into force?

The Preliminary Draft Bill of the Create and Grow Law has now been submitted to the Spanish Parliament for approval and is expected to be passed in 2022.