Startups Law – Key Points in Commercial Matters

On 23 December 2022, Law 28/2022, of 21 December, on the promotion of the startup ecosystem came into force (hereinafter, the "Startups Law").

The main objective of this law is to support the creation and growth of startups in Spain, which until now have faced numerous bureaucratic, tax, employment and commercial obstacles to their launch and development. For this reason, this law was created with the aim of establishing a series of tax, commercial, civil and employment measures to encourage the creation and growth of Startups.

Which companies does the Startups Law apply to?

For the Law, and consequently the benefits it contains, to apply, companies must have startup status and this status must be certified by the Empresa Nacional de Innovación, S.M.E., S.A. (ENISA), which will verify that the requirements established in the law for this status are met, which can be summarised as follows:

• Being a start-up company or, if not, no more than five years must have elapsed since registration in the Commercial Registry or Cooperatives Registry, or seven years for biotechnology, energy, industrial and other strategic sector companies or those that have developed their own technology designed entirely in Spain.
• Not having been created through a restructuring process (merger, demerger or transformation) of other companies that are not considered startups.
• Not being listed on a regulated market.
• Having its registered office, corporate domicile or permanent establishment in Spain.
• Having at least 60% of the workforce with an employment contract in Spain.
• Developing an innovative entrepreneurial project with a scalable business model in accordance with article 4 of the Law itself.

The law establishes that, if the company belongs to a group of companies, as defined in article 42 of the Commercial Code, the group or each of the companies forming it must meet the above requirements.

 What benefits apply to startups?

Although the law establishes various tax, employment, civil and commercial benefits, in this article we will focus on the benefits applicable in commercial matters, which can be summarised as follows:

1. Simplification of bureaucratic procedures to attract foreign investment

In the case of individuals who do not have Spanish nationality and reside abroad, in order to invest in startups, it will not be necessary to obtain an NIE (foreigner identity number) first; it will be sufficient to have been assigned a tax identification number, for which the Spanish Tax Agency will set up an electronic procedure.

Foreign investors that are legal entities must have a tax identification number (NIF), but their representative will only need to obtain a tax identification number, without the need for an NIE.

However, it is important to bear in mind that if the investment in a startup is not proven within six months of the investor being assigned a tax identification number, the Spanish Tax Agency may revoke the tax identification number assigned to the foreign investor.

2. Greater flexibility for treasury shares in startups that are limited companies for the purpose of implementing a remuneration plan

The treasury share regime for limited liability companies is made more flexible so that they can implement a remuneration plan. To this end, the company's general meeting may authorise the acquisition of its own shares, up to a maximum of 20% of the capital, for delivery to directors, employees or other collaborators of the company, for the sole purpose of implementing a remuneration plan.

For this, the system of remuneration through the delivery of shares must be provided for in the articles of association and approved by the general meeting, by means of a resolution that will include: (i) the maximum number of shares that may be allocated to this remuneration system each year, (ii) the reference value of the shares and (iii) the duration of the plan.

The following requirements must also be met:

• The shares to be acquired must be fully paid up.
• Equity, once the acquisition has been made, must be equal to or greater than the amount of share capital plus restricted, legal or statutory reserves.
• The acquisition must take place within five years of the authorisation resolution.

The application of this measure, together with the tax benefits provided for in this regard, will considerably encourage the creation of stock option plans as a form of remuneration for directors and employees.

3. Reduction of the deadlines for registering acts and resolutions in the Commercial Registry

On the other hand, the deadline for registering startups is reduced and all their corporate acts to five working days, counted from the day after the date of the entry of presentation or, where applicable, the date of return of the withdrawn document, compared with the fifteen working days that apply to other companies.

In addition, if standard articles of association are used (as defined in the twelfth final provision), the deadline may be reduced to six working hours following the electronic receipt of the deed, working hours being those within the opening hours set for the registries.

However, it is important to bear in mind that, if there are justified technical reasons or the matter is particularly complex, preventing compliance with the aforementioned deadlines, the Commercial Registrar must notify the interested party as soon as possible and in any case before the deadlines established above for assessing and registering, where applicable, have elapsed.

4. Registration of shareholder agreements

With regard to shareholder agreements that regulate the relationship between shareholders and with the company, the law provides for the possibility of registering the shareholder agreements of startups incorporated as limited companies, giving them public registry status, provided they do not contain clauses contrary to the law.

Provision is also made for the registration of statutory clauses that include an ancillary obligation to subscribe to the provisions of shareholder agreements in startups, provided that the content of the agreement is identified so that it can be known not only by the shareholders who signed it but also by future shareholders.

5. Reduction of notary and registry fees

With regard to the costs inherent in incorporating companies, notary and registry fees are reduced to 60 and 40 euros respectively, for those entrepreneurs who incorporate limited liability companies using the standard articles of association adapted to the needs of startups (referred to in the twelfth final provision) and use the electronic processing system of the Business Creation Information and Network Centre, provided that their share capital is less than 3,100 euros.

It is also established that the publication of the registration acts referred to above in the BORME (Official Gazette of the Commercial Registry) is exempt from fees.

6. Losses that reduce equity

Finally, article 13 establishes that until three (3) years have elapsed since incorporation, startups will not be subject to grounds for dissolution due to losses that reduce equity to less than half of the share capital, provided that it is not appropriate to file for insolvency.

The application of these benefits will significantly reduce the bureaucratic burden that entrepreneurs face when starting a business, encouraging and incentivising the creation and development of startups in our country and encouraging foreign investment in this type of company.