Foreigners wishing to set up a company in Spain must have a legal representative, that is appointed to act on behalf of the company.
Legal representation is how companies fulfil their legal, contractual and financial obligations. The organization and management of the company in its relations with third parties (signing contracts, maintaining bank accounts, clients, suppliers, etc.) and internal affairs (employees, partners, etc.).are tasks that must be carried out by authorised persons. In this case, the authorised person is called a legal representative.
Our article explains everything you need to know about the role of a company legal representative.
What is the company’s legal representative?
Every company registered in Spain must have a legal representative, that is, a person who acts on behalf of the company in the exercise of its functions and powers by the law and the company’s articles of association.
In other words, a legal representative is a person appointed to act on behalf of the company. This means that the legal representative is authorised to enter into contracts or conduct business on behalf of the company and that the company is responsible for the consequences.
However, being a legal representative does not just mean that. A legal representative is also responsible for the consequences of the company’s actions. This means that the job entails considerable risk.
Legal representatives are liable under civil, administrative and even criminal law for wrongdoing, both on the part of the company and their actions.
As a general rule, legal representatives are liable for damages caused by acts or omissions contrary to the law or the articles of association or for breach of the duties deriving from their office, provided that there is intent or fault.
For example: not keeping the accounts under the rules of the Spanish Commercial Code or confusing the company’s assets with their own (…). In these cases, liability is not automatic: a causal link between the action/omission and the damage caused must be proved.
There are other legal cases in which legal representatives are directly liable (there is an automatic liability): directors are liable for the company’s obligations if they do not call a shareholders’ meeting within two months from the date the company is in a state of dissolution (e.g. due to losses that reduce the net assets to less than half of the share capital) for the shareholders to increase the share capital or dissolve the company or if they do not request the judicial dissolution of the company or its bankruptcy within two months from the date the meeting is scheduled to be held if the meeting has not been held, or from the day of the meeting if the resolution is against the dissolution of the company.
Responsibilities
These are some of the company’s legal representative responsibilities:
- To exercise honestly and in good faith the rights and duties imposed on him/her to safeguard the legitimate interests of the company/companies;
- Act in the best interests of the company; not take advantage of the company’s information, secrets and business opportunities; and not abuse his/her position, power or property for personal gain or the benefit of others;
- Act (legally) to protect the company’s assets;
- Authorise legal representation of the company and conduct legal proceedings by the company;
- Conclude all types of legal cases related to the nature and scope of the company’s business.
Who can become a company legal representative?
Only a national or foreign citizen who has an NIE (foreigner’s identification number) may be appointed as a legal representative.
Natural persons or companies may be appointed as administrators or legal representatives, provided that such companies are represented by a natural person for the performance of their position.
Usually, foreign investors choose someone within their business to fulfil this role, even if there is no one with management experience in Spain.
While others hire a suitably experienced and trusted lawyer that can act as a legal representative for the client.
Possible risks
It is important to understand the role, potential liability and risks associated with the position. When acting on behalf of a company, liability can be civil, administrative and criminal.
For example, if the company fails to pay taxes in Spain, this can lead to criminal or civil sanctions against the legal representative. In civil proceedings against the company, it is the legal representative who must appear in court.
As the legal representative acts as the “face” of the company before all Spanish authorities, liability is not limited to tax matters. From a legal point of view, the legal representative is also responsible for labour and social security matters, as well as for compliance with municipal obligations, such as the business licence.
Importance of legal representative
Overall, the legal representative plays an important role in the management of a company and should not be underestimated. Choosing the right and trustworthy person as a legal representative is crucial to minimise risk. Choosing the wrong legal representative can cause great damage to a company.
The functions of a legal representative include, but are not limited to, the legal protection of company assets, issuing powers of attorney on behalf of the company, authorising legal representation by the company and the conduct of legal proceedings by the company, and entering into contracts and accepting liability for legal obligations on behalf of the company.
Selecting a suitable and qualified legal representative with such broad powers and potentially unlimited liability is therefore extremely important.
Conclusion
It follows that legal representation is a two-way street. While the actions of the legal representative bind the represented company, the legal representative risks being held liable for the company’s wrongful administrative actions. The appointment of a legal representative must therefore be based on trust, diligence and communication. Therefore, this should not be taken lightly by all concerned.
If you need a bigger piece of advice regarding a legal representation of your company, please contact our tax advisors in Barcelona by email or phone.
