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Other alternatives for operating in Spain

7.1. FORMS OF BUSINESS COOPERATION

One of the most common forms of business cooperation between companies is the joint venture (J.V.). Spanish law does not expressly regulate this mechanism, as it is an atypical contract that finds its basis in the principle of freedom of contract provided for in article 1255 of the Civil Code.

Under the current legislation, the main forms through which a joint venture may be set up between one or more parties are as follows:

  1. Through a temporary business association
    (see section 7.2 below);
  2. As an economic interest grouping
    (see section 7.3 below);
  3. Through a silent participation agreement
    (see section 7.4 below);
  4. By setting up a company
    (see section 7.5 below);

7.2. TEMPORARY BUSINESS ASSOCIATIONS (UTES)

  • Concept/purpose: under Spanish law, UTEs are temporary business alliances set up for a specified or unspecified period of time, for the purpose of carrying out a specific project or service. UTEs allow several companies to operate together on one common project. This form of association is very common for engineering and construction projects but can be used in other sectors as well.
  • Legal personality: UTEs are not companies in the strict sense and have no legal personality.
  • Fiscal transparency regime: while they have no legal personality, in order to qualify for the special fiscal transparency regime provided for UTEs, their formation must be recorded in a public deed and they must be registered on the Special Register of UTEs at the Spanish Ministry of Finance. Furthermore, they must comply with bookkeeping and accounting requirements similar to those of Spanish companies. They may be also registered at the Commercial Registry. Formalities for formalization of a UTE are similar to those for a company or branch, adjusted to reflect the special characteristics of this type of arrangement.
  • Regulation: UTEs are governed by Law 18/1982 on the Tax Regime of Temporary Business Groupings and Associations and Regional (Industrial) Development Companies, amended, among others, by Law 12/1991, Law 43/1995 and Law 62/2003.

7.3. ECONOMIC INTEREST GROUPINGS (EIGS)

  • Concept/purpose: EIGs are created with a view to facilitating the pursuit or enhancing the profitability of the activities of their members. EIGs may not act on behalf of their members nor may they substitute them in their operations. Consequently, the EIG is most commonly used to provide secondary services, such as centralized purchasing, sales, information management or administrative services, within the context of a broader association or group of companies.
  • Legal personality: one of the key differences between UTEs and EIGs is that EIGs are commercial entities with a separate legal personality.
  • Formation requirements: Spanish law sets out certain requirements for the formation of EIGs:

–  They may not interfere with their members’ decisions on personnel, finance or investment matters, nor are they allowed to manage or control the activities of their members.

 They may not directly or indirectly hold stakes in their member companies, unless it is necessary to acquire shares or holdings in order to fulfill the EIG’s purpose, in which case the shares or holdings must be transferred immediately to its members.

  They must be formed by notarial deed and registered at the competent Commercial Registry

  • Member liability: EIG members are considered personally and jointly and severally liable for the entity’s debts, albeit secondarily to the EIG’s liability. Their main obligation is to contribute to the EIG’s capital on the agreed terms and to share in its expenses.
  • Governing bodies:

  the members’ meeting; and

–  the managers, who are jointly and severally liable with the EIG for all tax obligations accrued and for any damage caused, unless they are able to prove that they acted with due diligence.

  • Regulation: EIGs are mainly governed by Economic Interest Groupings Law 12/1991, of April 29.
  • European Economic Interest Grouping (EEIG): this has a separate legal identity, with the characteristics regulated by EU Council Regulation (EEC) 2137/85, which establishes the basic rules governing EEIGs.

7.4. SILENT PARTICIPATION AGREEMENT (C.E.P.)

  • Concept: this form of business association, which is not subject to any legal formality at all, consists of a financial collaboration whereby one or more entrepreneurs (silent partners) take an interest in the operations of another (the active partner), contributing an agreed portion of capital to the active partner and sharing in the profits or losses in the proportion determined by them.
  • Contributions: the contributions, whether cash or in kind, do not qualify as capital contributions as such, but rather simply represent the right of the silent partner(s) to share in the results of the business concerned. Silent partners are therefore not shareholders of the active partner.
  • Formal requirements: as provided in the Commercial Code, this type of agreement does not require any legal formality to be fulfilled (public deed or registration at the Commercial Registry). However, in practice, the parties tend to record the agreement in a public deed in order to provide proof to third parties.
  • Regulation: Articles 239 through 243 of the Commercial Code, contained in Title II “Silent Participation Agreements” (Book II of the Commercial Code).

7.5. Participating loans

  • Concept: It is a form of financing for companies subject to the terms and conditions described below.
  • Contributions: as with a Silent Partnership Agreement, the funds corresponding to the principal of the participating loan are not considered share capital and therefore the lender is not considered a shareholder. However, participating loans will be considered equity for the purposes of determining whether the company is subject to a ground of mandatory capital reduction27 or of mandatory winding-up28. In addition, in the order of payment of debts, participating loans rank below ordinary creditors.
  • Interest: the lender will receive variable interest which will be determined on the basis of the business performance of the borrower. The indicator for determining said performance will be: net income, business volume, total equity or such other indicator as may be freely agreed upon by the parties. The parties may also agree on a fixed interest rate not related to the performance of the business.
  • Repayment: the parties may agree to a penalty clause in the case of early repayment. In any event, the borrower may repay the participating loan early only if the repayment is offset by an increase in equity of an equal amount and if it does not arise from the revaluation of assets.
  • Tax implications: any fixed and variable interest that accrues on or after January 1, 2015 as a result of the arrangement of participating loans will be deductible for corporate income tax purposes, unless the interest arises from participating loans in which the lender and borrower are companies in the same group within the meaning of article 42 of the Commercial Code. Such deduction is subject, however, to the restrictions on the deductibility of finance costs laid down in article 16 of the Corporate Income Tax Law (For more information, see section 2.1.2.4 of Chapter 3).
  • Regulation: article 20 of Royal Decree-Law 7/1996, on urgent measures of a tax nature and for the promotion and deregulation of economic activity.

7.6. Joint ventures through Spanish corporations or limited liability companies

A significant number of joint ventures use corporations and limited liability companies as vehicles. Therefore, we recommend reading the comments made in other sections of this Guide on the formation, basic characteristics and features of the corporate bodies of corporations and limited liability companies. (see this Chapter and Annex I).

7.7. Distribution, agency, commission agency
and franchising agreements

There are various ways to operate in Spain without having to set up a company or enter into an association with other existing entities or establish a physical center of operations in Spain, including most notably the following.

7.8. Distribution agreements

Distribution agreements are an interesting alternative to forming a company or branch or entering into commercial cooperation agreements with previously existing businesses given the low initial investment required. There are several types of distribution agreement. Given the current lack of specific legislation on this area, many such agreements allow the parties broad discretion to decide on their contents.

In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

  • Concept: under a distribution agreement, one of the parties (the distributor) undertakes to purchase goods belonging to the other party for resale.Distributors are legal entities that form an intrinsic, albeit not truly integrated, part of the commercial network of the supplier, united by a business relationship and a shared desire to increase sales.
  • Classification: there are three main categories according to the types of distribution networks or system:

  Commercial concession or exclusive distribution agreement.

The supplier not only undertakes not to provide his products to more than one distributor within a specified territory, but also not to sell those products himself within the territory of the exclusive distributor.

–  Sole distribution agreements.

The only difference between sole and exclusive distribution agreements is that under a sole distribution agreement, the supplier reserves the right to supply the agreed products to users in the territory in question.

  Authorized distribution agreements under the selective distribution system.

Owing to their nature, certain products require special treatment by distributors and sellers. The form of distribution used in both cases is called “selective distribution”, so-called because distributors are carefully selected on the basis of their capacity to handle technically complex products or to maintain a particular.

7.9. Agency agreements

  • Concept: article 1 of Agency Agreements Law 12/1992 transposed Directive 86/653/EEC into Spanish law and provides the following definition of agency agreements:

“Under an agency agreement, an individual or legal entity, known as an agent, agrees with another on a continuous or regular basis, in exchange for remuneration, to promote commercial acts or transactions for the account of another or to promote and conclude them for the account and in the name of others, as an independent intermediary and without assuming the risk and hazard of such transactions, unless otherwise agreed.”

Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more principals.

An agent must, of his own accord or through his employees, negotiate and, if required by contract, conclude on behalf of the principal, the commercial acts or operations he is instructed to handle. Agents are subject to a number of obligations, including the following:

  An agent cannot outsource his activities unless expressly authorized to do so.

–  An agent is authorized to negotiate the agreements or transactions detailed in the agency agreement, but can only conclude them on behalf of its principal when expressly authorized to do so.

  An agent may act on behalf of several principals, unless the related goods or services are similar or identical and competing, in which case express consent is required.

  • Restraint-of-trade provisions: restraint-of-trade provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years as from termination of the agency agreement. However, if the agency agreement has been agreed to for a shorter period of time, the restraint-of-trade provision may not last longer than one year.
  • Obligations of the principal:

–  To act loyally and in good faith in its relations with the agent.

–  To provide the agent with all the documentation he needs to engage in his activity.

  To provide the agent with all the information required to perform the agreement.

–  To pay the agreed compensation.

  To accept or reject transactions proposed by the agent.

  • Compensation: one of the essential elements of the agency agreement is that the agent’s work must always be compensated. The compensation may consist of a fixed amount, a commission or a combination of both.

7.10. Commission agency agreements

  • Concept: this is the mandate under which the authorized agent (commission agent) undertakes to perform or to participate in a commercial act or agreement on behalf of another (the principal).

    Commission agents may act:

–  In their own name, acquiring rights against the contracting third parties and vice versa; and

–  On behalf of their principal, who acquires rights against third parties and vice versa.

  • Main obligations of commission agents:

  To protect the interests of their principals as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
–  To account for amounts that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
–  In general, commission agents are not liable to their principal for the performance of the related agreements by third parties, although this risk can be secured by a commission del credere.
–  Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to sell, and from selling the goods that they have been instructed to buy.

  • Commission: the principal undertakes to pay a commission and to respect the retention and preference rights of the commission agent. The claims of the commission agent against the principal are protected by the right to retain the goods.
  • Differences and similarities between agency agreements and commission agency agreements:

–  Main similarity: in both cases, an individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former‘s intermediary in concluding the transaction.
–  Main difference: agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

7.11. Franchising

  • Concept: franchising is a system for marketing goods and/or services and/or technology. It is based on close, ongoing cooperation between independent undertakings (the franchisor and its individual franchisees). Under this system, the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity previously carried out by the former with sufficient experience and success, using the concept and system defined by the franchisor.
    In return for a direct and/or indirect consideration, this right entitles and obliges individual franchisees to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the franchisor by contract.
    Commercial concession or exclusive distribution agreements will not necessarily be considered franchises where an entrepreneur undertakes to acquire products (usually brand products) under certain exclusive rights in an area in order to resell them, again under certain conditions, as well as to offer after-sale services to purchasers of the products.
    In addition, the following are not considered to be franchises: (I) the grant of a manufacturing license, (II) the licensing of a registered trademark to be used in a particular area, (III) transfers of technology or (IV) a license to use a commercial emblem or logo.
  • Legislation: the applicable Spanish legislation is (I) Law 7/1996, of January 15, regulating retail trade, regarding the basic conditions for carrying on franchise activity and creating the Register of Franchisors* (as amended by Law 1/2010, of March 1); (II) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register of Franchisors; and (III) Royal Decree 378/2003, which refers to Regulation (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements and concerted practices and Regulation (EC) no. 1400/2002, of July 31, 2002, for the motor vehicles sector.
  • Registration

– Franchisors with registered office in Spain or in another EU Member State: register of franchisors of the Autonomous Community where their registered office is located, if the Autonomous Community has established the obligation to communicate data or, otherwise, the register of franchisors of the Ministry of industry, trade and tourism.
The communication must be made within three months after the start of the activity.

 Franchisors with registered office in a country that is not an EU Member State: register of franchisors of the Ministry of industry, trade and tourism.

  • Types of franchising agreementindustrial franchising agreements (for the manufacture of goods), distribution franchising agreements (for the sale of goods) and service franchising agreements (relating to the provision of services).

    The advantages offered by a franchising agreement include the fact that a franchising agreement is a form of product and/or service distribution that enables a uniform distribution network to be swiftly created with limited investment. Franchising also enables independent traders to set up installations more rapidly and with greater chances of success than if they did so themselves without the know-how and assistance of the franchisor.

    Antitrust law requirements must be thoroughly considered when defining the content of franchising agreements.

According to the experts, franchising has seen spectacular growth in Spain in recent years, giving rise to what is now a well-established franchising system.


27 In accordance with article 327 of the Capital Companies Law, “in a public limited company, a capital reduction shall be mandatory where losses have reduced its equity to below two-thirds of its share capital and a fiscal year has elapsed without equity have been restored”.
28 In accordance with article 362.1e) of the Capital Companies Law, a capital company must be wound up “as a result of losses that reduce its equity to an amount below half of its share capital, unless the share capital is sufficiently increased or reduced, and provided that it is not appropriate to petition for an insolvency order”.
* Following the suspension of the activities of the Franchiser Registry due to technical problems and a review of the present role of Registries, the Ministry of industry, trade and tourism, the authorized body, has reached the decision to eliminate the obligation to report data to the Registries of Distance Sales Companies and Franchisors regulated in articles 38 and 62 of Law 7/1996, of January 15, 1996, on Retail Trade Organization and, therefore, to eliminate said registries. While the relevant legal amendments are being implemented, these obligations and, therefore, registry activities shall continue to be suspended indefinitely. The measure is aimed at supporting the companies operating in both sectors and eliminating as many obstacles as possible to commercial activity.