I.- Introduction.
The new Law 14/2013 for supporting entrepreneurs and their internationalisation, which was passed by the Spanish Parliament, and published in the Official State Gazette on the 28 September 2013, introduces a new legal concept: the Limited Liability Entrepreneur (hereinafter, referred to as “ERL” after its initials in Spanish). Individual entrepreneurs undertaking this condition may limit their liability for the debts arising out of his/her professional or entrepreneurial activities.
II.- Effectiveness of the limitation of liability.
The limitation of liability only encompasses the entrepreneur’s principal residence, always provided that it is not affected by any commercial or professional activity and its value does not surpass the amount of Euro 300,000 (valued in accordance with the tax base of the Tax on Capital Transfers and Documented Legal Acts). In the case of residences located in cities of more than 1 million inhabitants, the maximum value amounts to Euro 450,000.
On the other hand, said limitation has two important exceptions:
- It is not applicable to debtors that have acted fraudulently or negligently when fulfilling their duties with third parties, always provided that it has been so stated by a final judgement or in negligent bankruptcy proceedings.
- It is not applicable to public law debts that the limited liability entrepreneur may hold, although for the execution of the seizure of the real estate property, certain particularities must be fulfilled.
III.- Requirements.
In order to enjoy the benefits of the aforesaid limitation of liability the entrepreneur must fulfil the following requirements:
- To register as an ERL in the companies house of his/her province stating the details of his/her habitual residence.
- To state his/her condition as ERL in his/her business stationery (invoices, letters, etc.) by means of the addition of the rubric “Emprendedor de Responsabilidad Limitada” (Limited Liability Entrepreneur, in Spanish) or the initials “ERL”” to his/her name and surname.
- To state in the property registry that the habitual residence is not subject to the debts arising out of his/her professional or entrepreneurial activities.
- To draft, approve and file at the companies house the annual accounts in accordance with the provisions applicable to limited liability companies with a sole partner. If the annual accounts are not filed at the mercantile registry within seven months following the end of the fiscal year, the entrepreneur will lose the benefit of the limitation of liability.
IV.- Conclusion.
Although this new legal concept limits the principle of universal liability for debts set forth in article 1.911 of the Spanish Civil Code, said limitation of liability may in practice have little effectiveness, since it is not applicable to those individuals that have mortgaged their dwellings in order to obtain credit for his/her professional or entrepreneurial activities. Furthermore, even if the execution is subject to certain particularities, public law debts are not affected by said limitation of liability when it is precisely under difficult economic situations that entrepreneurs normally have debts with the Tax Agency and the Social Security Administration.
Additionally, taking into account that the Entreprenuers Act has also introduced the so-called Successive Formation Limited Liability Company, this latter option may be more interesting for those entrepreneurs that wish to start a professional or entrepreneurial activity, but have limited financial resources.
Vilá Abogados
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14th of October 2013
