How to Close a Business in Spain

How to Close a Business in Spain

The procedure for shutting down a business depends very much on the conditions of its creation and on the country, since, of course, all legal systems are different. To shut down a business for economic reasons, one must first determine whether it is an an autonomous or an individual entrepreneur business, or if, on the contrary, it's a trading company.

Once that's established, here at OneHowTo we will explain in detail how to close a business in Spain focusing on closures due to economic reasons.

How to close a sole proprietorship for economic reasons

In Spain, a sole trader or entrepreneur - known as "autónomo" or "empresario individual" - has to follow different steps to liquidate and subsequently close their business entity. Since they are the sole proprietors, they are responsible for their business' finances and legal responsibility is all theirs.

The steps to close a sole proprietorship are as follows:

  • Make a list of debts incurred and pay them before the final closure of the company.
  • Make an inventory of goods under the company's name and settle them.
  • If the sole trader or entrepreneur has employees, they should pay them the relevant compensation when they leave. The proprietor can avoid paying that compensation for economic reasons; if they do not have money, it must be justified in the dismissal letter.
  • Unsubscribe as "autónomo" in the offices of the Social Security, and unroll from the Industrial Registry.

How to close a corporation for economic reasons

The rule book of mercantile corporations in Spain stipulates that one of the possible causes for closing a corporation may be that their capital is reduced to such an extent that it is less than half of the social capital with which it was founded.

If the closure is due to economic reasons, the steps the corporation should follow are as follows:

  • Call a general meeting in an ordinary or extraordinary session to discuss the cessation of business activity.
  • As soon as you agree to dissolve the society, you should make an inventory of the goods the company has in order to carry out its liquidation.
  • It is important that the company pay all the debts incurred. If the debts can't be paid, the company will have declare its bankruptcy. The assets of the company will be liquidized and the responsibility of the administrators in the company's closure will be determined.
  • When the company has liquidated all its assets and paid off all its debts, they must inform the Business Register of the termination of their business and the closure of the society.
  • When the company has been liquidized, the termination of activity must be communicated to the Census of Employers, Professionals and Withholders of the Tax Agency - in Spanish, the Agencia Tributaria. Each autonomous community has its own census.

It is necessary to record in public documentation the dissolution of the corporation, which means that the involvement of a notary is required.

Redundancy payment

One of the most problematic issues to be addressed when a company closes for economic reasons is the dismissal of workers who carry out their work within the company. Compensation for this type of dismissal is 20 days salary per year worked, setting a limit of 12 months.

The law stipulates that the employer can avoid pay-out of the compensation provided they do not have the money, which should be stated in the letter of dismissal. The worker will not be left unpaid because the Salary Guarantee Fund (Fondo de Garantía Salarial or FOGASA) takes responsibility of the payment of compensation in such cases.

This is how to close a business in Spain for economic reasons; if you have any doubts, please tell us in the comments section.

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