When you decide to start or expand your business, one of the most important decisions is choosing the right legal form. In Spain, Limited Liability Companies (LLC) and Public Limited Companies (PLC) are the most commonly used options, but they have key differences in terms of start-up capital, partner liability, management, taxation and access to financing.
In this article, we take an in-depth look at the differences between a limited company and a public limited company, their advantages and disadvantages and which one is best suited to your business.
If you need professional advice on setting up your company with the most appropriate structure, at Gutiérrez Pujadas & Partners we have a team of experts in commercial law who can help you throughout the process.
1. What is a limited company (SL)?
The Limited Liability Company (LLC) is the most common legal form among freelancers, small and medium-sized enterprises (SMEs) and start-ups. Its main advantage is that it limits the liability of the partners, protecting their personal assets from possible debts or financial problems.
Definition of an LLC
It is a commercial company in which the share capital is divided into company shares (not shares, as in PLCs), and the partners do not respond personally for the debts of the company, but only up to the limit of their contribution.
Main characteristics of an SL
- Minimum share capital: Since the 2022 reform, it is possible to set up an SL with as little as 1 euro, although it is recommended to contribute at least 3,000 euros to avoid additional obligations.
- Number of partners: It can be formed with a single partner (sole proprietorship) or with several.
- Liability: Limited to the capital contributed. The personal assets of the partners cannot be seized for company debts.
- Administrative body: It can be managed by a sole administrator, several administrators or a board of directors.
- Taxation: It is subject to corporate tax, with a general tax rate of 25%.
Advantages of an SL
- Easy and quick to set up: It can be created in a few days through online processing or with the support of a consultant.
- Low initial investment: Although the legal minimum is 1 euro, it is advisable to contribute more to avoid financial restrictions.
- Less bureaucracy and accounting obligations: Compared to a PLC, the LLC has a simpler management.
- Greater control of the partners over the company: The shares cannot be sold freely without the approval of the other partners, avoiding the entry of unwanted third parties.
Disadvantages of an LLC
- Difficulty attracting external investors: it cannot issue shares on the stock market, which limits its financing.
- Lower business prestige: in sectors such as finance or industry, operating as a limited company may be less attractive to partners and investors.
- Restrictions on the transfer of shares: to sell a share, the approval of the other partners is required.
2. What is a public limited company (SA)?
The public limited company (SA) is a legal form designed for larger companies or those seeking to attract external investment. Its main advantage is that the capital is divided into freely transferable shares, which facilitates the entry and exit of investors.
Definition of a SA
It is a trading company where the capital is represented by shares in the company, which can be bought and sold freely without the need for authorisation from other partners. This makes it the ideal option for companies with accelerated growth or those that wish to list on the stock exchange.
Main characteristics of a PLC
- Minimum share capital: 60,000 euros is required, of which at least 25% must be paid up at the time of incorporation.
- Number of partners: Can be set up with a single partner or more.
- Liability: Limited to the capital contributed, as in the SL.
- Administrative body: Can be managed by a board of directors, sole or joint administrators.
- Taxation: Subject to corporate tax (25%), although some large companies may qualify for specific tax regimes.
Advantages of a SA
- Access to external funding: It can issue shares and attract investors.
- Greater prestige and credibility: In sectors such as banking, industry and international trade, operating as a PLC generates greater confidence.
- Ease of share transfer: A shareholder can sell his shares freely without the need for approval from the other partners.
Disadvantages of a PLC
- Higher incorporation costs: A high minimum capital is required (60,000 euros).
- More bureaucracy and accounting obligations: Mandatory audits are required if turnover thresholds are exceeded.
- Less control for founders: The sale of shares can result in the original partners losing influence in decision-making.
3. Comparison between LLC and PLC: Which to choose?
Below is the translation:
| Aspect | Limited Liability Company (LLC) | Public Limited Company (PLC) |
|---|---|---|
| Minimum Capital | 1 euro (recommended 3,000 €) | 60,000 euros (minimum 25% paid in) |
| Number of Shareholders | Minimum 1 | Minimum 1 |
| Liability | Limited to the contributed capital | Limited to the contributed capital |
| Management | More flexible | More regulated |
| Access to Financing | Limited | Broad |
| Corporate Prestige | Medium | High |
| Taxation | Corporate Tax (25%) | Corporate Tax (25%) |
Which option is best for you?
- If you are looking for ease of management, speed and lower initial investment, the SL is the best option.
- If you need to attract investors and grow your company on a large scale, the SA is the best choice.
4. Do you need help setting up your company?
At Gutiérrez Pujadas & Partners, we offer comprehensive advice on commercial law so that you can choose the corporate structure that best suits your business.
Consult with our experts and take the first step towards business success.
Personalised advice for the creation of a SL or SA.
Management of all administrative and legal procedures.
Tax optimisation for your company.
Frequently asked questions about the difference between a Limited Company (SL) and a Public Limited Company (SA)
1. How long does it take to set up a company in Spain?
The time it takes to set up a company in Spain varies according to the legal form and the administrative procedures. A Limited Company (SL) can be set up in 3-7 days if it is done through the telematic system (CIRCE). On the other hand, a Public Limited Company (SA) usually takes between 15 and 30 days, due to the need to deposit a minimum capital of 60,000 euros and comply with more legal requirements. Factors such as obtaining the definitive tax identification number (NIF), registration in the Companies Register and the drafting of statutes can influence the time taken.
2. What are the tax implications of a Public Limited Company and a Limited Company?
Both companies are subject to Corporation Tax, with a general tax rate of 25%. However, there are differences in terms of tax benefits and accounting obligations:
- Limited Company: It can take advantage of tax incentives for SMEs, such as the reduced rate of 15% in the first two years with profits.
- PLC: Some large companies can benefit from special tax regimes and deductions for reinvestment of profits.
In addition, PLCs listed on the stock exchange are subject to additional tax and accounting regulations.
3. Which of the two structures is better for a startup or an SME?
For start-ups and SMEs, the Limited Liability Company (LLC) is usually the best option due to its lower initial investment (from 1 euro, although €3,000 is recommended) and its more flexible management.
- LLC: Requires less capital and allows for a simpler structure, ideal for growing businesses.
- SA: It is only recommended for start-ups with high investment potential, as it facilitates the entry of partners through the issuance of shares.
If the objective is to attract large-scale investment, it may be advisable to start with an SL and then transform it into an SA.
4. In what cases is it mandatory to carry out audits?
Public Limited Companies (SA) are required to undergo an audit if they meet certain requirements, while in a Limited Liability Company (SL), an audit is only mandatory in specific cases.
According to Spanish legislation, a company must audit its accounts if it fulfils two of these three criteria for two consecutive years:
- Turnover of more than 5.7 million euros.
- Assets of more than 2.85 million euros.
- More than 50 employees.
Listed companies, regardless of their legal form, are subject to mandatory auditing.
5. Can a limited company become a public limited company?
Yes, a Limited Liability Company (LLC) can become a Public Limited Company (PLC) if the company grows and needs more flexibility in terms of investor entry.
Steps in the process:
Approval of the transformation at the general meeting of partners.
Drafting of new statutes adapted to a PLC.
Contribution of capital up to the minimum required of €60,000.
Public deed before a notary and registration in the Commercial Register.
This transformation is advisable when the company is seeking access to external financing and greater credibility in the market.
6. What are the main risks of a Limited Company and a Public Limited Company?
Limited Companies (Ltd) and Public Limited Companies (PLC) have different risks depending on their structure and level of protection.
Risks of an Ltd:
- Difficulty in obtaining external financing.
- Limitations in the transfer of shares.
- Less recognition in international markets.
Risks of a PLC:
- Higher incorporation and maintenance costs.
- Stricter legal requirements (audits, financial reports).
- Loss of control if too many shares are sold to third parties.
Choosing the right structure depends on the business model and the objectives of the company.
7. What are the advantages of a public limited company over a limited company?
Public limited companies (PLCs) offer benefits that make them attractive to companies with high growth ambitions.
- Access to financing: They can issue shares and attract investors without having to modify their structure.
- Greater prestige: More credibility in sectors such as banking, technology or industry.
- Flexibility in the transfer of shares: Shareholders can sell their shares without restrictions.
- International expansion: Facilitates foreign investment and participation in public tenders.
However, it requires a higher initial investment (€60,000) and more accounting obligations.
8. What taxes does a Public Limited Company and a Limited Company pay?
Both companies are subject to the same basic tax rules:
- Corporation tax: 25% on profits.
- VAT: Applied according to the activity of the company (21%, 10% or 4%).
- Tax on Economic Activities (IAE): Only mandatory if the annual turnover exceeds 1 million euros.
- Withholdings and income tax: In case of hiring employees or paying dividends.
Public Limited Companies with high incomes can access tax deductions and special regimes for large companies.
9. What are the costs associated with the creation of a Limited Company and a Public Limited Company?
The costs of incorporation vary according to the type of company:
Costs of a Limited Company:
- Minimum capital: 1 euro (recommended 3,000 €).
- Notary and Companies Registry: 300-600 euros.
- Administrative expenses: 200-500 euros.
Costs of a PLC:
- Minimum capital: 60,000 euros (minimum 25% paid up).
- Notary and Companies Registry: 600-1,500 euros.
- Audits and accounting obligations more expensive.
Choosing between a limited company and a PLC depends on the budget and the projection of the company.
10. How can I choose the best option for my company?
The decision between a Limited Company (SL) and a Public Limited Company (SA) depends on several factors:
- If you are looking for a simple option with little initial investment → SL.
- If you need to attract investors and expand quickly → SA.
- If you prefer total control over the company → SL.
- If you expect to invoice millions and operate on a large scale → SA.