Managing a subsidiary in Spain involves assuming a role that goes far beyond signing corporate documents. The director is the ultimate guarantor before the law and the Spanish tax authorities, responding in many cases with their own personal assets. In an environment of increasing inspections, knowing the limits of your liability is not an option; it is a measure of asset survival.
Director liability in Spain is the set of legal, loyalty, and supervisory obligations that, if breached, allow the State (AEAT), partners, or third-party creditors to claim company debts directly against the executive’s personal assets.
When do you actually respond with your personal assets?
It is a critical mistake to think that the “S.L.” (Limited Liability Company) is a total shield for the director. Spanish law pierces that shield in situations of operational negligence or poorly managed insolvency.
The director is liable with their present and future assets in three main scenarios defined by the Capital Companies Act (LSC), the General Tax Law (LGT), and the Criminal Code:
- Inaction in the face of losses (Art. 367 LSC): If your subsidiary incurs losses that reduce its net equity to less than half of the share capital and you do not act within two months to dissolve or capitalize, you become jointly and severally liable. Creditors may seize your personal accounts for debts that belonged to the company.
- Derivation by the AEAT: If the company stops paying taxes and ceases its activity without an orderly liquidation, the Tax Agency will initiate a liability derivation process. At that point, the tax debt becomes your personal debt.
- The risk of “Abandonment”: Many executives simply “turn off the lights” when the business goes poorly. In Spain, a de facto cessation without formal liquidation triggers almost automatic presumptions of liability.
Criminal Liability: Compliance as a Defense
Since 2010, companies in Spain have had criminal liability. This means that serious errors or a lack of control can lead to prison sentences for the director.
If the subsidiary commits tax crimes, fraud, or punishable insolvency, you as the director can be criminally prosecuted. The only way to exempt yourself from this liability is to demonstrate that the company had an effective organization and management model (Criminal Compliance) in place before the crime was committed. It is not just a matter of money; it is a matter of freedom.
Piercing the Corporate Veil: Risk for the Parent Company
Many directors believe that if the subsidiary has no assets, the problem ends there. However, the doctrine of “piercing the corporate veil” allows Spanish courts to bypass the subsidiary’s structure and attack the foreign parent company directly if it is proven that the Spanish company was a mere empty shell used to avoid liabilities. Maintaining adequate economic substance is the best defense for the international parent company.
Liability Matrix: A 360° Analysis
| Type of Risk | Regulations | Direct Consequence |
|---|---|---|
| Civil/Commercial | LSC | Seizure of personal assets for debts with suppliers or banks. |
| Administrative/Tax | LGT | Derivation of taxes, penalties, and interest to the executive’s assets. |
| Criminal | Criminal Code | Personal financial fines and possible prison sentences. |
Roadmap for Total Director Protection
- Phase 1: Solvency Control. Monthly audit of equity to avoid technical grounds for dissolution.
- Phase 2: Compliance Implementation. Protocols for payment of withholdings and control of transfer pricing.
- Phase 3: Orderly Liquidation. Never abandon a company; always proceed with a formal dissolution if the project is not viable.
- Phase 4: D&O Protection. Taking out specific insurance, verifying that your financial reporting processes meet the standard required by the policy.
“At EuroAccounts, we provide the legal and technical shield that international executives need to operate in Spain with total peace of mind regarding their assets.”
