Your personal assets, protected
The most important difference between operating as a sole trader (autónomo) and through a Spanish Limited Company is liability. As a sole trader, you’re personally liable for business debts with all of your present and future personal assets. In a Limited Company, liability is generally limited to the capital contributed to the company. If the business runs into trouble, your home, savings or car aren’t, in principle, at stake in the same way. For anyone taking on real risk – stock investment, contracts with third parties, staff on the payroll – this difference alone is reason enough to consider making the switch.
More favourable taxation past a certain profit level
As a sole trader you pay personal income tax (IRPF), with progressive rates that can exceed 40% as profit grows. A Limited Company pays Corporate Tax, with a standard rate of 25% – and, as we covered in our previous article, 15% in the first two profitable years for qualifying newly-created companies. Past a certain level of profit, this difference in rates starts to show clearly in what you actually keep after tax, while also opening up more options for planning when and how you draw profits from the company.
More credibility, easier to grow
Operating as a company also changes how you’re seen from the outside. Banks, suppliers and clients tend to view a Limited Company as a more solid, professional structure than a sole trader, which translates into easier access to financing and less friction when signing contracts with larger companies. A Limited Company is also built to grow: you can bring in partners, allocate shares, or prepare the business to take on investment in a far more orderly way than as a sole trader.
If your business is growing, you’re about to hire staff, or you simply want to stop exposing your personal assets to the risks of the activity, now is a good time to weigh up the switch. At EBF we look at your specific situation – turnover, cost structure, growth plans – and tell you whether it makes sense to take the step, and how to do it right from the start. Get in touch, no strings attached.