At the time of setting up a new business, it is important to choose the right legal form for your enterprise. The two main options are trading as a self-employed individual (Autónomo) or as a Spanish limited company (Sociedad Limitada).

There is no straightforward answer to which is better for you, but before taking any steps, consider the following criteria:

Limited Liability

For self-employed individuals, liability is unlimited, meaning there is no distinction between personal and business assets. In contrast, a Sociedad Limitada limits liability to the company’s capital. Only company-owned assets are at risk, not personal ones. However, the administrator must act responsibly and in good faith.

Number of Partners

If there is more than one partner, it is common to form a limited company. This structure makes it easier to sell shares or exit the partnership.

Trust

A limited company must deposit its books and accounts in the Trade Registry (Registro Mercantil), which usually enhances its image with clients and suppliers compared to a self-employed individual.

Investors and Partners

If your business plan involves attracting investors or new partners, a limited company provides a legal framework that ensures their incorporation is handled with proper guarantees.

Deductions

Self-employed individuals face restrictions on deductions for items used for both business and personal purposes (e.g., cars, mobile phones, utility bills). In most cases, a limited company can deduct more expenses, especially if the business structure involves significant costs like rentals, vehicles, or outsourcing. This often makes the SL structure more tax-efficient.

Tax

Tax considerations are crucial. Beyond a certain income threshold, the tax savings of a limited company can outweigh the higher initial and ongoing costs. This topic requires specific calculations and analysis.

Read: In what cases is trading as a limited company more tax efficient?

Final Considerations and Summary

Limited companies are more expensive to establish and maintain. For example, a company with €3,006 in share capital and €60,000 in turnover may cost approximately €1,700 more in its first year and €650 in subsequent years compared to a self-employed individual. These costs stem from the greater fiscal and administrative obligations of a limited company. However, the tax savings often offset these expenses.

Limited companies also provide greater assurance to clients and suppliers, portray a more established and ambitious image, allow for broader tax deductions, and limit liability to the company’s capital. Additionally, they are easier to sell, either fully or partially.