How to Set Up a Business

In this article we are going to explain how to set up a business from scratch through the two main legal alternatives in Spain. 

When you want to set up a business adventure, it is normal for doubts to arise in relation to starting up of the business, the volume of sales or turnover, the viability, the number of employees that will be required… and of course doubts arise about all the legal, tax, accounting and labor implications. 

In this article we will explain in detail and in a simple and accessible way what are the two most demanded options to set up a business, we will define what are the obligations for the creator or creators from a tax, accounting, labor and commercial point of view and finally we will point out what are the advantages and disadvantages of each of the two alternatives to set up a business. 

The first option that we will explain to set up a business is to register as a Self-Employed Worker. 

What is a Self-Employed Worker? 

Self-employed workers are individual entrepreneurs. This means that they are like a company, but they are the only members because they work on their own. 

With self-employed workers, doubt always arises due to the word worker, because when hearing this term, we unconsciously equate the figure of the self-employed worker with the figure of the normal worker. But, this is a mistake. Self-employed workers are individual entrepreneurs or self-employed workers, while salaried workers are employed, that is, they work on behalf of another person. 

How is it done?

Self-employed workers have a special social security regime that is the Special Self-Employed Workers Regime or RETA, while employed workers fall under the General Social Security Regime. 

What are the Formal Obligations of the Self-Employed? 

When talking about the formal obligations of the self-employed, it is important to distinguish between those of a labor nature and those of a tax nature. 

We are talking about obligations of a labor nature in relation to the contribution to social security through the payment of the self-employed fees. The self-employed are responsible for entering their social security contributions individually. A reform is currently in the process of being approved by the government regarding the amount of the self-employed fees. Leave us a comment if you are interested in us preparing an explanatory video or an article on the most outstanding aspects of the content of this reform. 

As long as the self-employed worker as an individual entrepreneur hires workers, since it is a perfectly real possibility, he will be responsible for withholding and paying into social security the withholdings for the individual contribution of each worker, as well as the withholdings on account for the personal income tax of each worker. 

Also at the time of registering as a self-employed worker, it will be necessary to register with the IAE, that is, the tax on economic activities, in the corresponding section. 

The self-employed worker will also be responsible for the accounting of his business and for keeping a VAT book up to date, in which all activity will be recorded in terms of invoices issued for the collection of fees for the sale of his goods or the provision of your services and invoices received in connection with your business.  

What are the pros? 

As an individual entrepreneur, any self-employed worker can hire workers. 

Self-employed workers have a lower bureaucratic and formalistic burden and, therefore, lower fixed costs. 

What are the cons?

It is a formula designed for individual entrepreneurs, there is no possibility of association. 

Before moving on to the second alternative, if you find the article interesting, leave us a comment or a like, because you will help us a lot and you will give us a signal so that we continue preparing articles that will be as useful to you as this one!

The second most demanded alternative to give legal form to a business is to set up a Commercial entity. 

What is a Commercial Entity? 

A commercial entity is a legal form of association with the aim of pursuing a common business purpose for the profit of its partners or shareholders. 

Which are the best known? The Public Company and Limited Company. 

That’s right, the Public and the Limited Liability Company are the best known although, to tell the truth, approximately 90% of the companies that are constituted today are limited, leaving the public in the background designed for listing on the stock market. If you find it interesting that we prepare an article in which we delve into the differences between Public Companies and Limited Liability Companies, leave us a comment and we will be happy to prepare it!  

What are the Formal Obligations of Commercial Companies? 

Very succinctly, just like self-employed workers, commercial companies have labor, tax, and accounting obligations, and unlike self-employed workers, they also have commercial obligations. 

All companies must register with VAT and the IAE, within the heading corresponding to their activity. 

They will be responsible for keeping the mandatory accounting books up to date, which are the Daily Book and the Inventory and Annual Accounts Book. 

They will be equally responsible for the obligations towards their workers in the same way as self-employed workers and unlike these, they must keep up to date commercial books that are the Shareholders Book, Minutes Book and Contracts Book with the Sole Shareholder.

Likewise, its governing bodies, the General Shareholders’ Meeting and the Administrative Body, must meet at least once a year -1 per quarter if the administrative body is a Board of Directors- with the purpose of, at least, formulating and the approval of the Annual Accounts. 

What are the pros?

Setting up a commercial company is the ideal option to create a business when there are more people who want to undertake and carry out the activity together. Whether as workers or as investors, when more than one person is associated, it is necessary to set up a company to regulate the will of association of the partners or shareholders. 

What are the cons? 

As there are more formal obligations of commercial companies, the bureaucratic and administrative burden of their day to day is greater than that of self-employed workers, therefore the fixed costs are higher. 

And so far the two most demanded alternatives when establishing a business in Spain. 

If from Gestoría Madrid Norte or from SCI Real Estate & Law we can help you with the set up of your business, either as a self-employed worker or with the incorporation of your commercial company, do not hesitate to contact us and we will help you with everything you need. 

Thank you very much!