Differences Between Sole Proprietor and Limited Company (SL) in Spain: Which Option Is Best for You?
When starting a business in Spain as an individual entrepreneur, one of the first key decisions is choosing whether to operate as a sole proprietor (autónomo) or set up a Limited Liability Company (Sociedad Limitada, SL). Your choice will depend on factors such as initial investment, liability, and tax obligations. In this article, I break down the main differences to help you determine which option best suits your situation.
1. Legal Liability
- Sole Proprietor: Personally liable for all debts and obligations.
- SL: Liability is limited to the company’s share capital, protecting the owner’s personal assets.
2. Incorporation Process
- Sole Proprietor: Quick and simple. You only need to register with the Tax Office and Social Security.
- SL: Requires a public deed before a notary and registration in the Mercantile Registry.
3. Taxation
- Sole Proprietor: Pays personal income tax (IRPF) with a progressive rate that can exceed 45%.
- SL: Pays corporate tax (Impuesto de Sociedades) at a fixed rate of 25% (15% for new companies during the first two profitable years).
4. Costs and Social Security Contributions
- Sole Proprietor: Since 2023, contributions to Social Security are based on actual income and no longer fixed.
- SL: If you are the administrator and hold more than 25% of the company, you must register as a corporate self-employed worker, which usually involves higher contributions. If you receive a salary from the company, you will be registered under the general Social Security regime, resulting in higher employment costs.
5. Image and Credibility
- Sole Proprietor: Perceived as more informal, although suitable for freelancers and small businesses.
- SL: Offers greater credibility with clients and suppliers, better financing opportunities, and access to public grants.
Which Is the Right Option for You?
There’s no one-size-fits-all answer—it depends on your specific situation. If you’re starting a low-risk business with little investment and don’t expect high profits initially, operating as a sole proprietor may be the best choice. On the other hand, if you plan to scale, seek investment, or want to protect your personal assets, forming an SL might be the smarter move.
The best approach is to assess your situation in detail before making a decision. If you’re unsure, feel free to contact me. I can help you choose the best legal structure and handle all the necessary paperwork—whether you register as a sole proprietor or decide to incorporate a limited company.
Photo by Microsoft 365 on Unsplash