Joint ventures in Spain: overview
A Q&A guide to joint ventures law in Spain.
The Q&A gives a high level overview of joint ventures law, including regulation of joint ventures, types of joint ventures permitted in the jurisdiction, whether corporate joint ventures are subject to the corporate law, formalities for formation and registration of joint ventures, statutory limits on duration, anti-trust rules, termination, rules relating to joint ventures with foreign members, and incentives.
This Q&A is part of the Joint Ventures Law Global Guide.
Domestic company joint ventures (JVs)
Although a JV is often structured through the incorporation of a new company, or by using a pre-existing one, merely contractual JVs are also allowed.
Various types of commercial entities can be used by foreign investors' as corporate JVs. The most significant are the:
Public Limited Liability Company (Sociedad Anónima) (SA) and Private Limited Liability Company (Sociedad de Responsabilidad Limitada) (SL or SRL). Both the SA and the SL are companies with capital in which the liability of the shareholders or members is limited to the amount of capital contributed and the general rule is one of limited liability. However, under very exceptional circumstances, the corporate veil can be pierced to protect the interest of third parties. In these exceptional cases, where there has been misuse of the company's legal status by the shareholders or members for fraudulent purposes, the courts may decide to not differentiate between the company's assets and those of the shareholders or members when establishing liabilities.
Although traditionally the SA was by far the most commonly used form, the SL has gained popularity because, among other reasons, its minimum share capital requirement is lower than for SAs.
European Public Limited Liability Company (Sociedad Anónima Europea) (SE), which allows companies that operate in various member states to create a single company under EU legislation capable of operating in the EU in accordance with a single set of rules and a unified management system.
New Limited Liability Company (Sociedad Limitada Nueva Empresa) (SLNE), which is a variation on the SL intended for small and medium-sized enterprises with simplified formation requirements.
General Partnership (Sociedad Regular Colectiva) (SRC or SC). Liability is not limited in a SC. General partners are personally, jointly and severally liable with the whole of their net worth for the debts of the partnership.
Limited Partnership (Sociedad en Comandita) (S en Com or S Com) and Limited Partnership by Shares (Sociedad en Comandita por Acciones) (S Com p A). Both the S Com and the S Com p A are partnerships in which there is at least one general partner and one or more limited partners. General partners are personally liable with the whole of their net worth for the debts of the partnership. Limited partners are only liable for the amount of capital they contribute or promise to contribute to the partnership.
Professional Services Firm (Sociedad Profesional) (SP). This can be formed in accordance with any of the corporate forms for the purposes of a common pursuit of a professional association activity. The professional members are jointly and severally liable with the firm for its professional acts, and are subject to the general rules on contractual and non-contractual liability, without prejudice to the liability of the members under the rules of the corporate form adopted.
Economic Interest Groups (Agrupaciones de Interés Económico) (AIE). These are arrangements in which two or more companies aim to promote and develop each other's economic activities, and are personally liable for the debts of the AIE. The business purpose of the AIE is limited to economic activities that are ancillary to the ones developed by its members.
Temporary Business Alliances (Uniones Temporales de Empresas) (UTE). These do not have their own legal personality, and are arrangements in which two or more companies with a common interest come together to carry out a project or provide a certain service, temporarily setting themselves up as a single company for the duration of the project or service. This means that the members of the UTE are personally liable.
Corporate JVs are subject to Spanish corporate law. The basic text that regulates the various corporate forms is the Royal Legislative Decree 1/2010, of 2 July, approving the consolidated text of the Capital Companies Act, as recently amended by the Law 31/2014, of December 3, to improve corporate governance (Capital Companies Act).
Typically, the law provides only minimum standards or general rules. The founders of a company have a great deal of flexibility in tailoring the structure of the company to their specific needs through the inclusion of certain clauses in the articles of association, for which purpose they should seek proper legal advice.
The Capital Companies Act is supplemented by:
Royal Decree 1784/1996, of July 19, approving the Commercial Registry Regulations.
Law 3/2009, of April 3, on Structural Modifications to Capital Companies, which regulates business restructuring processes under current commercial law practices, including changes in corporate form, mergers, spin-offs, global transfers of assets and liabilities and international transfers of registered offices.
The Royal Decree of August 22, 1885, approving the Commercial Code.
Law 2/2007 on Professional Services Firms, which regulates the formation of Professional Services Firms.
Law 18/1982, of 16 May, which regulates Temporary Business Alliances.
Law 12/1991, of 29 April, which regulates Economic Interest Groups.
Formation and registration
There are no restrictions on the use of foreign languages for contractual JVs and the parties are free to draft the JV agreement in the language they choose. However, if the parties intend to notarise the JV agreement before a Spanish notary public, a translation into Spanish may be required.
For corporate JVs, the company's formation documents (public deed of incorporation and articles of association) must be registered in the Commercial Registry and drafted in one of the official languages within the Spanish autonomous region (Comunidad Autónoma) where the corporate domicile is located (Spanish, Catalan, Basque and/or Galician).
The incorporation of a corporate JV requires a Spanish notary public to authorise the relevant public deed of incorporation, which is then registered in the Commercial Registry of the province where the corporate domicile is located.
The following public offices are also involved in the formation procedure of corporate JVs:
The Spanish Central Commercial Registry (Registro Mercantil Central), which grants the certificate reserving the company's corporate name.
The Spanish Tax Authorities, which grant the company a Tax Identification Number (NIF).
The Spanish Directorate of Commerce and Investments (Dirección General de Comercio e Inversiones), which, if any of the founding shareholders is not a Spanish resident, receives the relevant official form (D1-A) declaring the foreign investment in a Spanish company and files it for statistical purposes only.
The following basic requirements must be fulfilled in order to incorporate a new capital company:
Certificate of clearance for use of the name of the new company issued by the Spanish Central Commercial Registry.
Opening a company bank account (expressly stating that the company is in the process of being incorporated), depositing the amount corresponding the initial share capital, and obtaining a bank certificate stating that the company has a bank account where the initial share capital has been deposited as a capital contribution to incorporate the company.
Drafting of the articles of association and preparation and execution of the company's public deed of incorporation before a Spanish notary public.
Registration with the Commercial Registry.
In principle, no public officers (such as notaries public) are required for contractual JVs, unless otherwise agreed by the parties, despite the potential involvement of the European or Spanish anti-trust authorities (see Question 6).
Under general legal provisions (such as Article 1,280 of Spanish Civil Code) some acts and contracts must compulsorily be issued in a public document authorised by a Spanish notary public or a competent public officer, with other legal formalities.
These include, for example:
Acts and contracts whose purpose is the creation, transfer, amendment or extinguishing of rights over real estate property.
Leases over this same property for six or more years, if they are to be effective against third parties.
The assignment of actions or rights arising from a public deed.
A corporate JV in the form of a capital company must be registered with the Commercial Registry (see Question 5).
Public sector bodies
A transaction involving several undertakings acquiring joint control of another undertaking, or parts of another undertaking, from third parties, fulfilling certain criteria in relation to change in the quality of control, constitutes a concentration under Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation).
The creation of a JV performing on a lasting basis all the functions of an autonomous economic entity (a "full-function" JV) constitutes a concentration under the Merger Regulation.
National merger control law is largely aligned with the Merger Regulation's provisions on JVs. Therefore, should the establishment of a JV exceed the notification thresholds set forth in the Spanish Competition Act 15/2007, of 3 July, the establishment of the JV must be notified to the Spanish National Markets and Competition Commission (Comisión Nacional de los Mercados y de la Competencia).
A JV instrument can generally be used to invest in most areas of the Spanish economy. However, some fields are subject to additional industry-specific legislation that should be considered and carefully assessed before investing. These include, among others, industries relating to air carriers, radio, television, telecommunications, gambling, minerals of strategic interest and mining rights, private security, the manufacturing, marketing or distribution of weapons and explosives, and activities related to national security.
Under Article 1,255 of Spanish Civil Code, parties to contractual JVs can establish the covenants, terms and conditions deemed convenient, provided that they are not contrary to the laws, morals or public order. Subject to any specific additional industry-specific legislation that may be applicable, as long as the general provisions of the Spanish Civil Code in relation to contracts are fulfilled, the parties are free to agree on the purpose of the contractual JV.
The designation of corporate JVs' corporate purpose (objeto social) under the Capital Companies Act is one of the essential elements in the articles of association of a Public Limited Liability Company or Private Limited Liability Company. The corporate purpose must respect the provisions of the Spanish Civil Code, meaning it must be licit, possible, and determined. A corporate purpose should be precisely drafted since it establishes the general framework for the corporate JV's activities. The completion of the stated business purpose automatically leads to dissolution of the company, unless the articles of association provide for an indefinite duration. If the business purpose is modified in such a way as to be replaced, the dissenting shareholders and non-voting shareholders (if any) can withdraw from the company and are entitled to be reimbursed for their shares.
Share capital and participation
Forms of participation
Under the Capital Companies Act, participation in the share capital of a corporate JV (whether a Public Limited Liability Company (SA) or Private Limited Liability Company (SL)) is through making a contribution to its share capital and results in rights and obligations as a shareholder.
The Capital Companies Act establishes that only goods or rights capable of being economically assessed can be contributed. These contributions can be divided into monetary and non-monetary contributions. Monetary contributions are more frequent and must be denominated in EUR (or, if in foreign currency, the equivalent in EUR must be determined).
The Capital Companies Act establishes that non-monetary contributions must be described in the public deed of incorporation or the execution of a capital increase, establishing the:
Attributed value in EUR.
Number of shares assigned as payment.
In addition, movable or immovable assets, credit rights and companies or business establishments can also be contributed by a corporate JV member as non-monetary contributions, subject to the procedures stated in the Capital Companies Act.
In an SA, a report by an independent expert is needed on the non-monetary contribution, except in some specific cases. In contrast, no independent expert's report on non-monetary contributions is required for SLs, although the founders and partners are jointly and severally liable for the genuineness of the non-monetary contributions made.
The General Partnership structure allows the existence of an industrial partner that only contributes with its work to the company, which would be prohibited for SAs and SLs.
Duration and limits on membership
Public sector bodies
It is possible for a public sector body to enter into a JV agreement, subject to the required authorisations of the corresponding public administration (state, autonomous region or city council) and, where relevant, the requirements related to a majority shareholding of the public sector in the JV, the public budget assigned, and so on.
In addition, Spanish PPP (public private partnership) laws and regulations apply, and in particular, the public sector contracts legislation. The public sector contracts legislation regulates the management of public services (for example, mixed public-private companies (sociedades de economía mixta), public-private collaboration contracts (contratos de colaboración entre el sector público y el sector privado) and so on).
Non-competition and anti-trust clauses
Non-competition clauses between the parent undertakings and a JV may be necessary for the implementation of the concentration for the lifetime of the JV, where the obligations correspond to products, services and territories covered by the JV agreement or its articles of association. Such non-competition clauses reflect, among other things, the need to:
Ensure good faith during negotiations.
Fully utilise the JVs assets and enable the JV to assimilate know-how and goodwill provided by its parents.
Protect the parents' interests in the JV against competitive acts facilitated by the parents' privileged access to the know-how and goodwill transferred to or developed by the JV.
The geographical scope of a non-competition clause must be limited to the area in which the parents offered the relevant products or services before establishing the JV. This geographical scope can be extended to territories which the parent companies were planning to enter at the time of the transaction, provided that they had already invested in preparing this move.
Similarly, non-competition clauses must be limited to products and services constituting the economic activity of the JV. This can include products and services at an advanced stage of development at the time of the transaction, as well as products and services that are fully developed but not yet marketed.
If the JV is set up to enter a new market, reference will be made to the products, services and territories in which it is to operate under the JV agreement or articles of association. However, the presumption is that one parent's interest in the JV does not need to be protected against competition from the other parent in markets other than those in which the JV will be active from the outset.
In addition, non-competition obligations between non-controlling parents and a JV are not directly related and not necessary to the implementation of the concentration.
The same principles as for non-competition clauses apply to non-solicitation and confidentiality clauses.
Although there are no specific conditions to be satisfied by a contractual JV to avoid being deemed to be a de facto company/partnership, a JV agreement should include the following assertions that expressly indicate that the relationship between the parties is merely contractual and not intended by the parties to create a legal person:
The relationship of the parties under the JV agreement is that of independent contracting parties.
While conducting their activity, the parties act on their behalf and at their own risk. They cannot act as employees, agents, representatives, commission agents or depositories of the other party. The parties cannot act in the name and in representation of the other party, nor can they recompense the other party in front of third parties without express consent.
Limiting member liability
In general, a JV agreement can establish that a JV member can participate in the venture without incurring in any risk, loss or reward. However, the JV agreement cannot exclude certain mandatory legal provisions that may find a JV member to be liable in specific circumstances depending on the specific transaction or business field (such as being a producer, or transactions involving consumers).
The legal liability regime of members of corporate JVs can vary depending on the corporate form used to structure the JV (see Question 2).
In addition, under the Capital Companies Act, the right of the shareholders/members of any capital company to participate in the distribution of dividends is a fundamental right that cannot be simply eliminated. Dividends of a Public Limited Liability Company to shareholders with common shares must be made in proportion to their shareholding interest. For Private Limited Liability Companies, the distribution of dividends to members must be made in proportion to their shareholding interest, unless otherwise agreed in the company's articles of association.
Specific rules and guidelines may apply to a JV agreement depending of the specific nature of the agreement. For instance, with for a research and development JV, the following may be applicable:
Regulation (EU) 1217/2010 on the application of Article 101(3) of the TFEU to certain categories of research and development agreements.
Notice providing guidelines on the applicability of Article 101 of the TFEU (formerly Article 81 of the EC Treaty) to horizontal co-operation agreements (OJ 2001 C3/02).
Guidelines on the assessment of horizontal mergers under Regulation 139/2004 (OJ 2004 C31/05).
Governance and limits on directors
In principle, the parties of a JV agreement are entirely free to regulate the JV, subject to the Spanish Civil Code's general provisions on contracts (see Question 9).
The JV agreement usually contains provisions on:
The composition of the governing bodies of the company.
Voting majorities and veto rights.
The transfer of the shares (such as pre-emptive, tag-along and drag-along rights).
Mechanisms for resolving deadlocks (such as put and call options).
Although the parties have contractual freedom, there are numerous legal considerations that affect such provisions' enforceability and effectiveness. Provisions agreed by the parties in the JV agreement that relate to the company's functioning as against third parties (such as voting majorities requesting unanimity, or lock-up obligations beyond a certain period of time) cannot be duly reflected in the company's articles of association. Therefore, a JV agreement will always state that, if any of its provisions are not included in the company's articles of association, and there is a discrepancy, the JV agreement will prevail.
Depending on the nature of the company incorporated (Public Limited Liability Company (SA) and/or Private Limited Liability Company (SL)), the following mandatory corporate law provisions may apply:
Unanimity cannot be required to pass shareholder or board resolutions.
A prohibition on the transfer of participation units (participaciones sociales) of an SL cannot last for more than five years from the incorporation date (or from the date of the share capital increase which created them).
The transfer of the shares (acciones) of an SA cannot be prohibited.
Participation units of an SL are generally not freely transferable unless acquired by other participation unit holders, their ascendants or descendants or companies within the same group. Unless otherwise provided in the articles of association, the Capital Companies Act establishes a pre-emptive acquisition right in favour of the other members or the company itself in the event of transfer of the participation units to other persons.
Shares of an SA can be freely transferred, unless the articles of association provide some limitation, which cannot result in a prohibition on transfers of the shares.
A director is normally not required to be a shareholder, unless the articles of association expressly provide otherwise.
In principle, there are no limits or restrictions to the eligibility for an individual as a member of the board of directors/statutory auditors, provided the legal rules in relation to incompatibilities and conflict of interests are followed.
The following individuals are not eligible to be company directors for Public Limited Liability Company and Private Limited Liability Companies (Capital Companies Act):
Legally incompetent individuals.
Individuals disqualified under the Insolvency Proceeding Act during the disqualification period established in the ruling deciding the insolvency proceeding.
Persons convicted for crimes against freedom, property, socio-economic order, public safety or the administration of justice, or any kind of falsehood.
Those who by reason of their post cannot engage in trade activities.
Public servants with functions under their supervision that relate with the activities intrinsic to the companies in question, and judges or magistrates and other persons bound by legal incompatibility.
In addition, auditors and auditing firms must abstain from participating in the decision making process of an audited entity under the Spanish Royal Legislative Decree 1/2011, of 1 July 2011, which approves the amended text of the Auditing Act. In particular, auditors and auditing firms are not considered sufficiently independent in relation to a company when signing an audit report or other cases of legal incompatibility, when the auditor:
Holds a leading or managing position in the audited entity.
Has working or supervising posts in the audited entity.
Is granted powers of attorney of a general nature by the audited entity.
For two years after the finalisation of the audit, the auditors signing the audit report and the audit companies on behalf of which the audit was carried out, cannot become part of the governing bodies of, occupy a work post, or have a direct or indirect financial interest in:
The audited company.
Entities of the group of which the audited company is part.
Entities controlled by any means by the audited company or by one or more individuals or legal persons that act jointly or under direction by agreements or statutory clauses with the audited company.
Spanish Royal Legislative Decree 1/2011, of 1 July, which approves the refunded text of the Auditing Act, states that, in order to be registered at the Official Auditors Registry it is necessary to:
Be of legal age.
Have Spanish or EU nationality, subject to the legal right of establishment.
Not have criminal records for crimes of intent.
Be authorised by the Spanish Institute of Accountants and Auditors.
Parties can freely regulate the conditions under which the JV will terminate, both in the JV agreement and in the articles of association of the corporate JV.
However, for corporate JVs, the Capital Companies Act establishes that capital companies must be wound-up if any of the following apply:
A cessation of activity.
Termination of the venture that constitutes the JV's corporate purpose.
Achievement of the corporate purpose is clearly impossible.
There is a governing body standstill, making functioning impossible.
Losses reduce the JV's net worth to an amount lower than half of the share capital, except if the capital is increased or decreased in a sufficient way, and provided it is not legitimate to request the declaration of insolvency.
There is a capital decrease to a sum below the legal minimum, when this is not otherwise legally required.
The par value of non-voting participation units or shares exceeds half of the paid-up share capital and the due proportion is not established within two years.
Any other cause established in the articles of association.
Article 1,256 of the Spanish Civil Code establishes that the validity and the fulfilment of contracts cannot be left to the will of one of the contracting parties. For a JV to be terminated for just cause on request of one party, it is necessary for the other party to have breached one if its material obligations, and will be subject to the agreement's specific provisions.
The termination of a JV agreement is not subject to any public sector body's approval. A JV can be terminated whenever its members consider it appropriate, taking into account what it is established in the JV agreement or the document regulating the functioning of the JV (see Question 21).
Choice of law and jurisdiction
In principle, there are no constraints to the choice of the law and the jurisdiction applicable to the JV. However, corporate JVs are subject to Spanish corporate law (see Question 3).
Depending on the subject and nature of a conflict that may arise between the parties (such as conflicts regarding real estate), as well as on where the conflicting parties are located, the rules of private international law may establish a different applicable law or forum to those chosen by the parties. Both EU and Spanish legislation should therefore be taken into account.
JVs with foreign members
Validity and authorisation
JVs with foreign parties are allowed in Spain.
As a general principle, there is no requirement for a minimum or maximum number of parties to be local. However, certain applicable industry-specific legislation requires a minimum of parties to be local or a minimum percentage of the JV to be held by local parties (such as for EU nationals in relation to air carriers).
Other than in relation to certain industry-specific legislation, JVs with foreign parties do not require special authorisations.
Effect of foreign membership
As a general principle, other than in relation to industry-specific legislation, the rules applicable to domestic company JVs are applicable even if one or more members of the JV was incorporated under or governed by the laws of a foreign country.
However, depending on the kind of JV, additional requirements would have to be met by the foreign member of the JV, such as being granted a Spanish Tax Identification Number for a non-resident, having to appoint a tax representative in Spain and filing certain declarations of foreign investments.
Economic or financial incentives
In order to foster investment, employment, competitiveness and economic growth, the Spanish Central Government and Spain's other public authorities have developed and consolidated a wide and complete range of aid instruments and incentives, placing special emphasis on research, development and technological innovation (R&D&I). According to The Organisation for Economic Co-operation and Development (OECD), Spain is one of the leading countries with the best tax incentives for these kinds of activities, for both large corporations and small and medium-sized companies.
Aid instruments and incentives are usually structured by means of grants or subsidies that partially cover the costs of the project, or by loans establishing variable grace periods and repayments schedules, according to the nature of the project. The tax incentives include deductions and reductions in the tax base.
The deductions can even generate a tax credit to be refunded from the tax authorities if the JV does not generate enough corporate income tax to apply them. From 2015, these kinds of incentives have been implemented to boost film productions and musical show productions.
An example of the financial incentives for developing innovation projects is provided by the Centre for Industrial Technological Development (Centro para el Desarrollo Tecnológico Industrial) (CDTI), a public enterprise controlled by the Ministry of Economy and Competitiveness of Spain, which promotes innovation and the technological development of Spanish companies. Depending on the characteristics of the project and the financing structure, in some cases the assistance to the project may be a partially refundable aid with financial coverage of up to 60% of the total approved budget, or even up to 75% in some circumstances.
Spain's fiscal pressure is below the average for the EU member states and the Eurozone, with a corporate income tax rebate system that includes:
A generous patent box system.
The tax deductibility of intangible assets at the general annual rate of 5% including goodwill depreciation.
A wide participation exemption regime.
In addition, Spain has signed tax treaties with numerous countries, and this makes investment attractive since international double taxation is avoided.
If the JV is used as a holding platform to invest abroad, both the JV and its foreign shareholders may benefit from the special tax regime applicable to Foreign Securities Holding Companies (ETVE), which consists of a special corporate income tax regime granting the whole exemption to incomes consisting of dividends and capital gains generated by the foreign subsidiaries. When the non-resident shareholder of the JV transfers its shares on the ETVE, the capital gain generated by such transfer is not taxable in Spain, as it is not deemed to be generated in Spain.
The combination of both aspects makes the special corporate income tax regime of the ETVE very attractive for foreign investors that choose Spain as a platform in Europe to invest into South America (there is an extensive network of double taxation treaties with South American states, as well as a common language and culture).
Currently there is no tax on capital contributions made to Spanish companies.
The fact that Spain is an EU member state enables potential investors to benefit from European aid programmes, as well as from European tax directives, which make investment in Spain even more attractive.
The regulatory authorities
Registro Mercantil Central (RMC)
Main activities. Spanish Central Commercial Registry.
Comisión Nacional de los Mercados y de la Competencia (CNMC)
Main activities. Public regulatory authority committed to preserve, guarantee and promote the existence of a true competence in the Spanish national market, to regulate all the markets of the Spanish economy, and to protect consumers.
Banco de España
Main activities. Spanish national central bank and supervisor of the Spanish banking system.
Ministerio de Economía y Competitividad
Main activities. Spanish Ministry of Economy and Competitiveness.
Centro para el Desarrollo Tecnológico Industrial (CDTI)
Main activities. This is a public enterprise from the Spanish Ministry of Economy and Competitiveness which promotes innovation and technological development of the Spanish companies.
Agencia Tributaria (AEAT)
Main activities. Spanish state tax agency.
Ministerio de Hacienda y Administraciones Públicas
Main activities. Spanish Ministry of Treasury and Public Administration.
Ministerio de Empleo y Seguridad Social
Main activities. Spanish Ministry of Labour and Social Security.
Description. Official website of the Spanish government, which contains official up-to-date legislation.
Spanish Congress (Congreso de los Diputados)
Description. Official website of the Spanish Congress, which contains official up-to-date legislation and new legislative initiatives.
Spanish Ministry of Justice
Description. Official website of the Spanish Ministry of Justice, which contains official up-to-date legislation. It also contains translations into English and French of the most relevant legislation, which is for guidance only and may be potentially out of date.
Jordi Casas Thió, Partner
Roca Junyent SLP
Professional qualifications. Spain, lawyer; Law Degree, Universitat de Barcelona, 1992; Université de Poitiers, 1991; Université Libre de Bruxelles, Institut d'Études Européennes, 1993
Areas of practice. Corporate law; distribution agreements; mergers and acquisitions; private equity; refinancing.