Business & Economy
Spainwide Business Newsletter, February 2004
By Thomas Leacy
Feb 10, 2004, 03:06

Spainwide Business Services

1. Fianzas

When you are signing a rental contract for a house or office, it is important to remember that in Spain you are required to pay a deposit or “fianza” at the beginning of the term which acts as a guarantee of payment of any outstanding bills on finalising the contract as well as a safeguard that the property will be returned to the owner in the same state as before the effective occupation of the property. The fianza then is a monetary deposit which will be equivalent to a minimum of one month's rent for housing and two months’ for offices and business premises although in certain circumstances it is quite frequent for the owners to request up to 12 months. This money must be lodged by the owner in a non-interest bearing account with the Comunidad Autónoma and, for the first 5 years will not require a reviewal to bring it in line with increases in the actual amount paid in rent. Thereafter, rental increases will require the necessary and corresponding increase in the fianza. At the end of the rental contract, and on ensuring that there are no outstanding debts and that the property is in a good state of repair, the fianza must be returned to the tenant, accruing interest after one month of the finalisation of the contract.

2. Doing Business in Spain

The first decision a foreign investor in Spain must make is whether to incorporate a subsidiary (i.e., a separate corporation) or a branch. Both have full legal status and their profits are taxable in Spain. If the investor decides to incorporate a subsidiary, the next decision is whether to incorporate a public limited-liability company (Sociedad Anónima, or S.A.) or a private limited company (Sociedad de Responsabilidad Limitada or S.L. or S.R.L.). The structure of the S.A. is for larger operations and the S.L. for smaller. Three other kinds of mercantile entity can be formed, but they are not so frequently used: General Partnership (Sociedad Regular Colectiva), Limited Partnership (Sociedad en Comandita), or Limited Partnership by Shares (Sociedad en Comandita por Acciones). Shareholders in corporations (S.A.) and limited liability (S.L.) companies are not liable for the company's debts. The main differences between them are in their minimum capital requirement (60,101.01€ for an S.A. versus 3,005.06€ for an S.L.), flexibility permitted at general meetings, transfer of shares, and management of an S.L.

2. Arbitration

In the past many commercial contracts have been rendered non-functional for practical purposes due to an over-reliance on the traditional legal system which can sometimes mean a wait of years for any dispute to be settled in court. For this reason, and especially in the case of franchises, many contracts now include an arbitration clause in case of dispute between the parties. The main advantages to this are:

1. Speed-most disputes are settled within a few months

2. Savings-as the process is quicker the corresponding legal costs are lower for both parties.

3. Confidentiality-the arbitration process itself is carried out by private institutions who do not publish the results of the individual cases.

4. Expertise-the arbiters themselves are, generally speaking, experts in the particular field of concern.

In the case of a dispute the parties contact the arbitration institution who in turn send them a list of various arbiters considered most appropriate for the particular case. The parties themselves will state their preferences with regard to the list. If they cannot agree on an arbiter, the arbitration institution itself will choose the arbiter with the greatest preference rating. Thereafter, a date is fixed for the hearing itself, giving sufficient time for each party to prepare their defence. Finally, the arbiter, on hearing the defence of both parties, will make a decision which will be legal and binding for all purposes.

For more information on these or other business or legal matters in Spain, please contact Thomas Leacy, Spainwide Business Services, Tel:34 91 547 1254 for a personal interview.

© Copyright 2004 by & Thomas Leacy