Differences Between a Limited Company, a Subsidiary, a Branch Office and a Representative Office

If you’re planning on undertaking any kind of business activity in Spain and your company is located abroad, it’s important for you to be familiar with the most common ways companies can operate in the country. Below is an explanation of the features and differences for the main types of companies.

What is a limited company?

Limited companies (or a sociedad limitada) are one of the most widely used corporate structures in Spain. They are a type of commercial enterprise in which the share capital is divided into shares and in which third-party liability is limited to the share capital contributed by the shareholders.

The fundamental characteristics of a limited company are as follows:

• At least €3,000 in capital.
• At least one partner, with no maximum limit.
• The partners can be natural or legal persons.
• The liability of the partners is shared and limited to the share capital.
• The partners can be employees or investors.
• The capital is divided into shares, which can be transferred with some limitations.

What is a subsidiary?

A subsidiary (or a filial) is a company that belongs to another company, namely its overseas parent company. It has its own legal personality and may do business through the methods regulated in Spain, be that as a limited company, joint-stock company or any other form.

It has legal autonomy from its parent company, although the parent company controls it.

What is a branch office?

A branch office (or a sucursal) is described in the Mercantile Register Regulations as a secondary establishment that has permanent representation and managerial autonomy, which it uses to conduct the company’s activities.

Therefore, a branch office is a secondary or additional establishment but one that has permanent representation and a certain degree of autonomy. The main differences between a branch office and a subsidiary are that a branch office does not have a legal personality and that responsibility lies with the parent company.

The fact that it does not have a legal personality of its own makes the branch office a full accessory of the foreign parent company.

What is a representative office?

A representative office (or an oficina de representación) is simply a basic establishment for a foreign company that can carry out tasks such as market research in preparation for implementing plans and drawing up contracts. However, it cannot carry out the activities of the company that has created it.

It is very important that a representative office does not carry out any activities that go beyond ancillary activities as the Spanish tax authorities may then consider it to be a permanent establishment and demand payment of taxes in Spain.

In addition to the above, there are other ways through which a foreign company can conduct business in Spain such as:

• Direct sales. It is possible for a foreign company to sell directly in Spain from abroad without needing to have an establishment in the country.
• Hiring an agent. Foreign companies can hire a Spanish agent for business purposes. In such cases, an agency contract can be signed with a person or company to develop business activities in exchange for remuneration.

The way in which business is conducted will determine the commercial, legal and tax obligations that have to be fulfilled in Spain.