Since 2022, an S.L. may be incorporated with a minimum share capital of 1 euro and, since 2018, it has not been necessary to provide a bank certificate evidencing payment of the capital in the deed of incorporation. This flexibility, although it facilitates and speeds up the incorporation of S.L.s, gives rise to legal consequences that many entrepreneurs are unaware of, and they are also often unaware of what documentation is actually sufficient to evidence that the capital has been paid up when payment takes place and, therefore, to avoid those consequences.
Consequences of not paying up the share capital of a Spanish S.L.
Failure to pay up the share capital upon incorporation of an S.L. may have legal consequences for the shareholders, depending on which of the following two situations applies:
a) If the full capital is not paid up upon incorporation, the shareholders are liable to the company and to its creditors for the capital that remains unpaid; and
b) If at least 3,000 euros is not paid up, the shareholders are jointly and personally liable for any amount below 3,000 euros (that is, up to a maximum of 3,000 euros) until that amount has been paid up, vis-à-vis the company’s creditors “in the event of voluntary or compulsory liquidation, if the company’s assets are insufficient to meet its obligations”.
This means that, in those cases, the shareholders are liable:
• personally: with their own assets.
• jointly and severally: a single shareholder may be required to pay the entire unpaid amount.
• indefinitely: the liability continues for as long as payment has not been evidenced before the Commercial Registry.
In practice, this means that, if the company defaults, one of its creditors may proceed directly against a shareholder and claim all unpaid capital from that shareholder before proceeding against the company itself.
How is outstanding share capital payment evidenced?
The shareholder’s liability does not cease until payment has been properly evidenced before the Commercial Registry. But how is this done? It may be assumed that transferring funds to the company’s bank account and keeping the bank receipt is sufficient, or that annual accounts filed with the Registry showing that the capital has been paid up eliminate the risk, but the reality is more complex. Although apparently straightforward, the payment of share capital requires technically rigorous evidence in order to avoid unexpected contingencies.
A bank receipt proves that a transfer took place but, for the Commercial Registry, as the body responsible for the constitutive publicity of certain acts, it is not sufficient for the payment to be enforceable against third parties. Nor is it sufficient for the payment to be reflected in the annual accounts filed with the Registry because, when reviewing the filed accounts, the Commercial Registrar may issue an adverse qualification on the basis that the payment of capital shown in the annual accounts has not been evidenced, since the accounts do not allow the Registrar to verify whether payment was made by the shareholders who were obliged to make it, that evidence of payment must pre-date the filing of the accounts, and that the accounts are accounting documents.
How to evidence payment before the Commercial Registry
The only safe way to bring the shareholders’ liability to an end is to formalise and file with the Commercial Registry a bank certificate evidencing payment. In other words, the notary must verify the effective delivery of the funds, confirming that the bank evidence shows payment by the person who was obliged to make it, incorporate it into a public document executed by the person with authority to do so on behalf of the company (the sole director, joint and several directors or joint directors, the secretary of the board where there is one, or any person holding sufficient powers), and the notarial document must then be filed with the Commercial Registrar so that the payment is recorded by marginal note on the registration sheet for the share capital and published in the Official Gazette of the Commercial Registry. This causes the liability to cease because the fact of payment automatically becomes enforceable against third parties.
Furthermore, evidencing payment before the Commercial Registry has other favourable consequences for the company, such as preventing the annual accounts from being rejected for filing because the capital appears as paid up without having been evidenced before the Commercial Registry, and avoiding uncertainties that may frustrate future transactions, since potential investors and financial institutions carrying out financing transactions do not accept registry uncertainties of this kind and usually want to verify that the capital has actually been paid up.
In conclusion, payment of share capital in S.L.s has important consequences and evidencing it is not as simple as it may appear: economic reality and registry reality do not always coincide. Anticipating this risk and regularising it is essential.
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