Law 2/1995 on "Sociedades de Responsabilidad Limitada" (Limited Liability Companies) which came into force on June 1, 1995, made certain important changes to the legal framework governing the limited liability company (S.L.) which can sometimes be used as an alternative form of business entity instead of the S.A.

Flexibility is one of the main objectives of Law 2/1995, which allows the participation unit holders (members) a wide margin in setting up, in the bylaws, the rules concerning the internal governance of an S.L. An S.L. is intended to be a more closely held entity as evidenced by the fact that:

– Participation units are generally not freely transferable unless acquired by other participation unit holders, ascendants, descendants or companies within the same group. In fact, unless otherwise provided in the bylaws, the Law establishes a preemptive acquisition right in favor of the other partners or the company itself in the event of transfer of the participation units to persons different than those aforementioned.

– Debenture issues cannot be used as a means of raising funds because an S.L. is unable to issue debentures since Law 2/1995 came into force.

– The scope for representation at the General Meeting is limited.

Some salient features of the above-mentioned Law are described below.

– An S.L. cannot have a capital stock of less than €3,005, which must be fully paid up at its organization. Capital Stock must be divided into participation units, but these need not all be the same (and, consequently, they may carry different voting weight).

– Non-voting participation units may be created, up to the limit of half the capital of the company.

– The genuineness of monetary contributions made at the time of incorporation or in connection with any capital increases must be attested to before a notary public.

– No independent appraiser’s report on non-monetary contributions is required, although the founders and shareholders are jointly and severally liable for the genuineness of the non-monetary contributions made. Similarly, in capital increases the directors of the company are liable for the difference between the value of the non-monetary contributions stated in their report and the real value of the contributions.

In addition, Law 7/2003 on "Sociedad Limitada de Nueva Empresa" (New Limited Liability Company), which came into force on June 2, 2003, amended Law 2/1995, creating an specific type of limited liability company, which is the New Limited Liability Company (S.L.N.E.). Law 7/2003 intends to encourage the creation of small and medium-sized companies, simplifying the requirements for their incorporation and for the development of their activity, as it can be inferred from the main characteristics that distinguish the S.L.N.E. from the limited liability company, specified bellow:

– The S.L.N.E. can be registered, by means of the public deed of incorporation and an electronic document, in just 48 hours from the execution of said deed.

– The corporate name shall include the name and two surnames of one of the partners followed by an alphanumeric code, and also the mention "Sociedad Limitada Nueva Empresa" or the abbreviation "S.L.N.E.".

– The capital stock shall not be lower than €3,012 or superior to €120,202, and it will only be paid up through contributions in cash. If the capital stock increases over €120,202, the company shall be transformed.

– Only individuals can be partners of a New Limited Liability Company. In the moment of its incorporation, the S.L.N.E. shall not have more than 5 partners, although this number can be increased later. A partner may only be sole partner in just one S.L.N.E.

– The members of the Administration Body must be partners of the company. This Body will never adopt the form of a Board of Directors.

– The corporate purpose of the company shall be one or all the activities established in Law 7/2003, although any particular and different activity might be included.

– The S.L.N.E. has the possibility of fulfilling accountant and fiscal duties by means of a single register.

– Law 7/2003 indicates that the S.L.N.E. will be able to postpone the payment of some taxes and/or withholdings and prepayments between one and two years without having to grant any security but paying interests for delayed payment.