THE LIMITED LIABILITY ENTERPRENEUR

One of the main advantages of using a limited company with respect to carry on the business compared with doing it as a self-employed person is that the personal assets of directors and partners are protected against any corporate debt. The recent Entrepreneur Law creates limited liability through which individuals may avoid liability for business debts concerning their main house under certain conditions.

To choose this option, which is also voluntary as it was on a cash basis for VAT ( see previous article ) , you must meet certain requirements.

Requirements to be an entrepreneur with limited liability:

•        It has to be an individual, regardless of their professional activity.
•       You can not benefit from the limitation of liability if the debtor acted with fraud or gross negligence in the performance of its obligations to third parties.

·         To be an entrepreneur with limited liability , it must also meet a number of obligations:

o   The Limited Liability Entrepreneur should do the registration in the Companies Registry (Companies House) indicating the property which is intended to exclude liability for the debts.

o Must show in all documentation status “Limited Liability Entrepreneur” (“Emprendedor de Responsabilidad Limitada”) or by adding to the name and tax identification data the acronym " ERL ".

o   Entrepreneurs who take advantage of this system , shall deposit and , if necessary, to audit , the activity  annual accounts in the Companies Registry . If they do not within seven months from the end of the year , they will lose the benefit of the limitation of liability in relation to debts incurred after the end of that term.

o   You must also register the property liability exception in the Land Registry as appropriate according to the house address.

What protects the limited liability?

Will benefit from this limited liability and therefore can not be seized for debts of the business or professional activity , the residence of the debtor provided it is not affected to the activity and its value does not exceed € 300,000.

(In the case of dwellings in population of more than 1,000,000 inhabitants shall apply a coefficient of 1.5 to the value of the previous paragraph).

Now, unless creditors give their consent, there is no limited liability for the debts incurred prior to its registration in the Companies Registry as limited liability individual entrepreneur.

In case of tax debts or with the Social Security Department the entrepreneur can not benefit from the limitation of liability.

For further details don’t hesitate in contact VP Advisers