From Sole Trader to SL (Limited Company): transferring assets, contracts and the legal roadmap

Switching from sole trader to Sociedad Limitada (SL) often makes sense as the business matures. From certain profit levels (in practice, around €40,000–€60,000 per year), it can be more efficient to pay corporation tax (23–25%) rather than progressive personal income tax. An SL also limits liability to paid-in capital, which protects personal assets and improves standing with clients and suppliers. The trade-off is more demanding administration: bookkeeping under the Spanish GAAP, statutory ledgers and annual accounts, periodic tax filings and greater formalities. This is why the key is not only to incorporate the company, but to plan an orderly transfer of what already exists.

Transferring assets and rights: what to move and how

Assets used in the business (equipment, domains and website, brand and other intangibles, licences, customer list, stock) should be moved to the SL with an appropriate legal title. There are three common routes, which you can combine as needed:

Asset sale. The sole trader sells the assets to the SL at market value. For the individual, the sale of stock counts as business income; the sale of fixed assets generates a capital gain or loss. The SL recognises the assets as fixed assets and depreciates them. As a general rule the transaction carries VAT (21%), with specific rules for real estate.
Note that this is not always the most efficient route. The company records a deductible expense while the individual realises taxable gains in personal income tax. An alternative is a non-cash contribution to the company, either on incorporation or via a capital increase, which is usually more efficient tax-wise. However, in a future distress scenario (for example, insolvency) the amount recoverable on liquidation can be affected and the shareholder may face different exposure compared to a cash contribution. We address this trade-off below.

Leasing assets. The sole trader keeps title and rents certain assets to the SL under a contract. They issue invoices with VAT and the company deducts the expense. This is useful for real estate or specific equipment when you do not want to transfer ownership immediately. It does not apply to stock.

Non-cash contribution to capital. On incorporation or a later capital increase, the sole trader contributes the assets in exchange for shares. There is no cash outflow and, if what is transferred is a business as a going concern (the bundle of means that allows activity to continue), the transaction is not subject to VAT and usually does not trigger immediate income for the contributor. You must value the assets and file the 600 form (ITP/AJD) under the exemption regime.

Your choice affects taxes, accounting and cash. In many cases, the non-cash contribution is the cleanest way to move the “business in operation”.

Existing contracts: continuity without hiccups

The transition is incomplete if contracts do not follow the activity. The general rule is subrogation by means of a mutually agreed addendum with each counterparty.

Office or premises lease. The usual approach is to subrogate the lease in the SL’s name or sign a new one. Record it in writing with the landlord, notify the change and adjust terms if needed.

Clients and suppliers. Check if agreements allow assignment, subrogation or require prior consent. Notify the change of contracting party (company name and tax ID) and, if necessary, sign an annex or addendum documenting the novation.

Employees and contractors. If there is staff, the SL can subrogate the employer position, preserving seniority and conditions. You will need to register the company as an employer with Social Security and process the relevant movements.

Finance and licences. Notify banks and creditors to subrogate loans or facilities. Transfer municipal licences and sector approvals to the new holder. The idea is that on day one with the SL everything keeps running.

Tax implications: a quick map

VAT. Sales of stock and fixed assets usually carry VAT. In contrast, transferring a going concern via non-cash contribution is not subject to VAT. Review real estate and special cases carefully.

Personal income tax. The sale of stock is taxed as business income; the sale of fixed assets as capital gain or loss. If you rent assets, rents are taxed as business income. In non-cash contributions under the special regime, taxation is deferred because the shares inherit the assets’ tax basis.

ITP/AJD. Capital contributions require filing the 600 form, typically exempt from payment. Transfers of real estate may trigger transfer tax or municipal capital gains tax.

Depreciation in the SL. Once integrated, assets are depreciated under the tables, creating a deductible expense for corporation tax.

Legal and operational roadmap

1) Incorporate the SL. Reserve the name, open a bank account and deposit capital, prepare bylaws and sign the deed. Obtain a provisional tax ID and register with the Mercantile Registry. You can also make non-cash contributions at this step.

2) Design the asset transfer. Choose between sale, lease or non-cash contribution. Value the assets, draft contracts or the contribution inventory and handle the 600 form where applicable.

3) Adjust the tax position. Register the SL for tax purposes (form 036), classify activities and review the sole trader’s status (whether they will continue providing services to the company or move to payroll, IAE codes, etc.).

4) Social Security. Register as company-owning self-employed where relevant, and also register the company and process staff movements if there is subrogation. You will need to obtain a Contribution Account Code to pay employee contributions.

5) Contracts and notices. Novate or subrogate the lease, sign annexes with clients and suppliers, and notify banks and licences. Set the effective date from which all invoicing will be by the SL.

6) Accounting and invoicing. Issue invoices from the SL with its tax ID, organise ledgers and closings and prepare periodic returns (VAT, withholdings) and the annual corporation tax return. Keep an eye on the mandatory e-invoicing timeline (VERIFACTU).

7) Basic legal and compliance. Update the legal notice, policies and ownership details on the website and commercial documents. Review data protection and data processing agreements if controller roles change.

Practical details that prevent headaches

- Realistic timeline. Do not change everything on a random Monday. Sequence incorporation, transfer and notices with buffer time and allow a short period of controlled overlap if needed.
- Separate bank account. Run the SL through its own account from day one. Avoid commingling funds.
- Evidence and records. Keep proof of asset transfers, signed inventories and notices sent. They save time in audits or reviews.
- Clear client messaging. Explain that the relationship remains the same, only the contracting entity changes. State from which date and what details to use for invoices and payments.

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Conclusion

Moving from sole trader to SL is not only a tax decision. It is about properly structuring the business that already works so it can grow with more protection and a better framework. If you plan the asset transfer, align contracts, map the tax impact and follow a clear roadmap, the transition will be almost invisible externally and much more robust internally.

> This guide is informational and does not constitute legal or tax advice. Each case requires specific analysis.