Incorporating a startup in Spain: legal guide for founders

Incorporating a startup is not simply a matter of "going to the notary and signing". It is the moment when the legal, tax and corporate foundations are laid that will shape the next ten years of the company: how equity is allocated, how decisions are made, what happens if a partner leaves, what incentives you can offer employees, what tax benefits you can activate, what happens when an investor comes in. This guide gathers the essential legal tips based on our experience advising hundreds of startups in Spain: legal form, share capital, bylaws, shareholders' agreement, emerging company certification (Spain's Startups Law, Law 28/2022), initial taxation, intellectual property, ESOP and the mistakes most frequently seen in the due diligence of the first funding round.

Before incorporating: four decisions to make first

Formal incorporation is the easy part. The hard part is the prior decisions, the ones many founders prefer to postpone:

• Who are the founding partners and how much does each contribute? Time, knowledge, capital, network, pre-existing IP. The founding cap table allocation conditions everything that follows.
• What is the real horizon of the project? Bootstrapped, raise capital, scale internationally, sell within 5 years. This determines whether you need a standard S.L. or something more sophisticated.
• When are you going to start operating? Waiting until you have a product and first sales is usually preferable to incorporating "just in case" with 12 months of expenses and no revenue.
• Who will be the director? It has labor (Spain's Special Scheme for Self-Employed, RETA), tax and liability implications. It is not a minor decision.

Choosing the legal form: comparative table

* Law 28/2022 (Spain's Startups Law) allows an S.L. to be incorporated with minimum share capital of €1 (instead of €3,000), provided that reserves are allocated until reaching €3,000 before any distribution of dividends.

For the vast majority of startups, the Limited Liability Company is the right option: flexible capital, limited liability, simple management and compatibility with all common forms of investment (VC, ENISA, business angels). The S.A. only makes sense when there are very specific IPO plans or when a very broad shareholder base is anticipated.

Share capital and allocation among founders

The allocation of founding capital conditions dilution over the following ten years. Best practices:

• Unequal allocation when contributions are unequal: if one founder contributes 80% of the time and another 20%, the cap table must reflect this. The egalitarian 50/50 "to avoid conflicts" usually generates worse deadlocks.
• Reserve an ESOP pool: even if it is not granted to employees from day one, it is advisable to have thought about the percentage (typically 10-15%) and reserve it in the bylaws before the first funding round, so it does not dilute founders alone.
• Minimum or high capital, not in between: if the €1 regime is used, it is best to keep it very low and contribute the rest via participating loans or contributions to equity. Otherwise, a reasonable capital amount in line with operations.
• Non-cash contributions: if a founder contributes IP, hardware or intangibles, they must be valued correctly (with an independent expert report if total non-cash contributions exceed 10% or if a partner requests it).

Bylaws: what to customize

The bylaws are the public document governing the company. Using standard templates without adapting them is one of the most common mistakes. Key aspects to customize:

1. Corporate purpose: broad enough to cover current and reasonably foreseeable activities, without becoming a catalog. Modifying it later involves a public deed and publication.
2. Management system: sole director (simpler), several joint and several directors (any one signs), joint directors (joint signature), board of directors (collective governance). Each option changes agility and risks.
3. Transfer of shares: pre-emptive right in favor of the partners, valuation (book value, fair market value, market value), cases of free transfer.
4. Reinforced majorities: for capital increases, statutory amendments or sale of the company. They protect minorities and provide stability for investors.
5. Exit clauses: drag along, tag along, forced exit under certain conditions.
6. Financial year: aligned with the calendar year unless there are specific reasons.

Shareholders' agreement: the document that really matters

The shareholders' agreement is the private agreement between the founding partners (and, later, with each investor). It has the advantage of its flexibility: it regulates things that do not fit in the bylaws or that should not be made public. It is where the project's incentives and brakes are designed. Critical clauses:

• Founder vesting: progressive consolidation of their shares (typically 4 years with a 1-year cliff). If a founder leaves before the cliff, they lose everything; between the cliff and 4 years, they consolidate proportionally. It is the best protection against absent founders.
• Exclusive dedication: the founder's commitment to dedicate full time to the project, except for express exceptions.
• Non-compete and non-solicitation: during the relationship and for a reasonable period after departure.
• IP assignment to the company: everything created by a founder or employee related to the business belongs to the company.
• Drag along and tag along: mechanisms for the joint sale of the company. Drag along forces minorities to sell if the majority sells at a given price; tag along allows minorities to join the majority's sale.
• Information rights: periodic reporting to partners and investors (monthly financial, annual strategic).
• Conflict resolution: arbitration or mediation prior to court action; deadlock-breaking mechanisms (russian roulette, texas shootout) for negotiated exits in serious deadlocks.
• Liquidation preference (when an investor comes in): the investor's economic preference in case of sale or liquidation, typically 1x non-participating.

Incorporation procedures step by step

The complete process, well coordinated, takes between 2 and 4 weeks. Online services such as CIRCE (Information and Business Creation Network Center) can shorten it in some cases to 1-2 days, but it is worth assessing whether speed compensates for the loss of customization in the bylaws.

Emerging company certification (Law 28/2022)

Law 28/2022 on the promotion of the emerging companies ecosystem (Spain's Startups Law) introduced a new figure: the emerging company certified by ENISA. It provides access to a very advantageous tax and administrative package if the requirements are met:

• Newly created company or less than 5 years old (7 years for biotechnology, energy or industry).
• Effective place of business in Spain and at least 60% of the workforce with a contract in Spain.
• Innovative character: the activity must be genuinely innovative (it is not enough to be a new company in a traditional sector).
• No dividends distributed nor trading on a regulated market.
• Annual turnover below €10 million.
• Application and express approval from ENISA, the body in charge of issuing the certification.

Initial taxation: what you can't miss

• Reduced 15% Corporate Income Tax (IS) rate: applicable to newly created companies during the first two financial years with a positive base (general regime) or the first 4 financial years (certified emerging companies).
• R&D&I deductions: up to 25-42% of investment in research, development and technological innovation. It is one of the most powerful tax levers for R&D-intensive startups.
• Patent Box: 60% reduction on income derived from the licensing of patents, know-how, software and intangibles (art. 23 of Spain's Corporate Income Tax Law, LIS).
• Hiring bonuses: reductions in social security contributions for permanent contracts with young people, women in under-represented sectors, persons over 45, persons with disabilities, etc.
• VAT (IVA): quarterly filing (Form 303). If sales are intra-Community, registration in the EU VAT Operators Register (ROI) and Form 349.
• Personal Income Tax (IRPF) withholdings: 15% rate for professionals in general; 7% for new professionals during the first 3 years.

Intellectual and industrial property: protect it from day 1

IP is often the most valuable asset of a startup. Critical steps:

• Express IP assignment to the company: all code, trademarks, designs, domains and pre-existing developments of the founders must be transferred to the company by deed or assignment agreement. Without this, ownership may be in doubt during due diligence.
• Trademark registration at the Spanish Patent and Trademark Office (OEPM) or EUIPO (EU) depending on territorial scope. It is preferable to register before launching on the market.
• Strategic domains registered in the company's name.
• Patents: if the project has patentable components (deep tech, biotech, hardware), consider national, European (EPO) or international (PCT) registration before any public disclosure.
• Contracts with external developers must include a full IP assignment clause, not just a use license.
• Non-disclosure agreements (NDAs) with suppliers, candidates and partners from very early stages.

Employees and stock options (ESOP)

Startups often partially compensate key employees with stock options or equity. Spain's Startups Law improved their tax treatment:

• Exemption up to €50,000/year for the delivery of shares or stakes to employees (art. 42.3.f) LIRPF) in certified emerging companies.
• Tax deferral until the moment of exercise or transfer of the options, not the grant.
• Valuation of shares: in emerging companies, the most recent funding round sets the reference value.
• Structured ESOP plan: pool reserved in the bylaws, individual contract with each employee, typical vesting of 4 years with a 1-year cliff, exit conditions (good leaver / bad leaver).

Designing the ESOP requires coordinating tax law, labor law and corporate law. A poorly structured plan can generate tax debts for the employees who receive the options and conflicts for the founders.

Common mistakes at incorporation (seen in due diligence)

• Unbalanced founding cap table (50/50 without nuance, symbolic allocations to uncommitted people) that paralyzes decisions or complicates future rounds.
• Generic bylaws without clauses tailored to a business that will receive investment (transfer, majorities, drag along).
• No shareholders' agreement or one that contradicts the bylaws. Investors require the latter in due diligence.
• No founder vesting: the first fund that comes in will demand it retroactively, and the negotiation is always worse.
• IP in the founders' personal name instead of assigned to the company. It blocks due diligence until it is regularized.
• Not applying for emerging company certification: tax benefits and appeal to investors who benefit from the 50% deduction are lost.
• Contracts with external developers without IP assignment: software built by third parties remains theirs if there is no express assignment.
• Forgetting the director's registration in Spain's Special Scheme for Self-Employed (RETA) or getting the choice wrong between labor and corporate registration of the director.
• Poorly documented non-cash contributions (IP, equipment, contacts): without a technical valuation, Spain's Tax Agency (AEAT) may reclassify them.
• Failing to formalize FFF contributions before the first funding round: investors do not want to see a cap table with 15 undocumented micro-contributions.

Incorporation checklist

Frequently asked questions

Conclusion

Incorporating a startup is a legal operation that seems simple and yet shapes the project's destiny for the following years. The difference between a company that reaches Series A with a clean cap table, assigned IP and emerging company certification, and another that arrives with deadlocked partners, third-party IP and no tax benefits is enormous: not on paper, but in the real cost of each round, each key hire and each strategic decision. Investing in doing things right from incorporation is always cheaper than fixing them later.