Self-Employed or LLC in Spain?


There is always a first moment in which you decide to start a business at your own risk, and the question is always which legal form has more tax advantages and lower economic costs; Do I start as a self-employed or do I start a partnership?  This is one of the most frequent questions when it comes to start a new business, and the answer is very relative. The final decision should always be considered with the help of an expert.

Although there are many ways to create a company, the two most used options in our country are: the self-employed or “autonomo” and the Limited Liability Company; although there are also other formulas that must be considered, depending on the circumstances: Community of Assets and Civil Society.  The first of these is the simplest form of association between the self-employed and as such is taxed by the IRPF (Individual Tax Return). The Civil Society is a private collaboration contract between two or more people who wish to jointly carry out an activity for profit and it is taxed by the IS (Corporate Tax).  One against the other have advantages and disadvantages and cannot be determined with total precision the most appropriate legal form to develop an idea since it depends on economic, personal and commercial factors. There are certain elements that can help choose the one that best suits the specific needs.

1.- Partners: As a self-employed person, it is difficult to associate, although you can do it through Civil Societies or community property. But if you have partners, it is recommended the Limited Partnership because it facilitates the entry and exit of partners without existing ones losing control.

2.- Responsibility: The main disadvantage of the “autonomo” with respect to the S.L. is that s/he responds with her/his present and future personal wealth in an unlimited way to the debts and responsibilities that her/his business might incur. The Limited Liability Company, as its name suggests, is limited and therefore only responds with its assets. (Although, in the current economic context, financing is not usually granted to a company without the endorsement of the partners, this implies an extension of the partner’s responsibility to the external financing granted to the company).

3.- Constitution: The procedures to establish themselves as autonomous are much simpler and cheaper than to do it as a Society. In addition to the process is much faster (a couple of days), does not require prior constitution process, as to form a company can take between 5 and 30 days and the bureaucracy to create a company, SL, SA or Cooperative is much more complex: the registration of the company in the Mercantile Registry, the drafting of the Bylaws or the signing of the public deed of incorporation; some procedures that can exceed the € 1,000, although managed from a PAE the cost can be reduced to € 400. The administrative and notarial costs the company is at a clear disadvantage, with the exception of the Community of Assets and Civil Society, which have no creation cost.

4.- Economic contribution: To constitute an S.L. we must provide a minimum social capital of € 3,000, while as a self-employed, no contribution is necessary. It is not necessary that all the capital is contributed in cash, non-monetary contributions such as real estate, computers, machinery can be made… provided that the total value of the capital contributed is at least € 3,000.

5.- Costs: The cost of an accounting firm is lower in the case of the self-employed than in the case of a company because their accounting is much simpler. In addition, since the approval of the flat rate for self-employed workers to the SS (€ 50 per month), during the first year and a half, the self-employed quota is much lower than for an administrative partner of the S.L. (€ 375 per month).

6.- Taxes:The “Autonomo” pays taxes in the IRPF, which is a progressive tax, while the S.L. tax on the IS (Corporate Tax), which is a tax with fixed rates (the general rate is 25%). If the benefits are high, it would be better to set up a company to pay less taxes. But this advantage only really has value if you leave the benefits as patrimony of society. If you want to take the benefit, you will have to pay taxes for your salary or for the dividends that you distribute and in the end,  it will be more or less the same.

7.- Access to bank financing:Companies have, in principle, greater facility to access bank loans, since their accounts are more precise and offer greater economic confidence. Although, in both cases, the guarantee is essential.

8.- Commercial image: The company form gives a better image of an entity, of a project with a long-term vision, with an indefinite life outside the partners, so at the commercial level it is the most indicated option.

Then, unless

  • you are interested in associating with someone
  • there are commercial or financial reasons that advise otherwise

As a rule, the least risky is to start the activity as a self-employed worker for later, in parallel with the consolidation and growth of the business, forming the company.  However, if you know from the first hour that the net profit of your business (= income minus expenses) is going to be substantial, the logical thing is that you opt for the creation of a company. It is a reality that the more you enter, the less it suits you to be autonomous.

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