10 Legal Recommendations When Buying a Company in Spain

Buying an already established company, a process known as purchasing a “share package” or “social stakes,” is a very common strategic operation in the business world that offers significant advantages.

The main advantage is operational immediacy. This translates into the ability to invoice immediately, take advantage of existing contracts with clients and suppliers, and operate with an already active corporate bank account, thus significantly accelerating the return on investment.

An intangible asset of enormous value inherited in an acquisition is the credit history and consolidated reputation. A company with years of activity has a verifiable track record with financial institutions, which facilitates access to financing lines and better credit conditions. Furthermore, the brand already possesses market recognition, a loyal customer base, and an established digital presence—elements that require years of effort and advertising investment to build from scratch.

The acquisition eliminates one of the most complex obstacles for new businesses: obtaining administrative licenses and permits. Sectors such as hospitality, pharmacies, transport, or nursing homes are subject to strict regulations and numerical limitations on licenses (tenders). Acquiring a company that already has all authorizations in order is, in many cases, the only practicable way to enter the market, avoiding an uncertain, long, and potentially unsuccessful administrative process.

From an economic perspective, although the initial outlay may be higher, the purchase of an existing company offers greater predictability and reduces the risk associated with a startup. The buyer acquires a company with a financial history, allowing for the analysis of cash flows, seasonality, and real profitability, which are fundamental for an accurate valuation. This contrasts with the uncertainty of a startup, where projections are estimates and the initial period of losses is almost inevitable, representing a higher-risk bet for the investor.

Finally, invaluable human capital and technical know-how are inherited. The company has employees who are trained and familiar with the operations, as well as managers who know the intricacies of the sector. The learning curve is completely eliminated, as the tacit knowledge of processes, management systems, and key commercial relationships is acquired. This preserves business continuity and maintains its operational value, something a startup must laboriously build from its foundations.

However, this operation entails inherent legal risks that cannot be underestimated. By acquiring the shares of a company, you acquire the company in its entirety, with all the good and all the bad. Errors, omissions, or hidden debts from previous management become, by legal magic, the responsibility of the new owner. Problems can be of various kinds: undeclared tax debts, pending lawsuits, labor contracts with onerous conditions, hidden liens on assets, or statutory clauses that limit the entry of new partners.

Therefore, an operation of this magnitude can never be approached with improvisation. It requires a meticulous, deep, and professional legal analysis that allows the buyer to make an informed decision, negotiate the price based on reality, and protect themselves from future claims. In this article, from our law firm specializing in commercial law, we break down the 10 essential legal recommendations that every investor should follow when buying a company in Spain.

However, this operation carries the inherent risk of inheriting all liabilities and hidden problems from previous management, such as debts or lawsuits. Therefore, it is fundamental to perform an exhaustive prior legal analysis (due diligence) to make an informed decision and protect yourself from future claims.

Recommendations when buying a company:

1. Exhaustive Review of the Bylaws and Shareholders’ Agreements

The bylaws are the “constitution” of the company. They are the rules of the game that regulate its internal functioning. Ignoring them is like buying a house without knowing the rules of the homeowners’ association. For their part, shareholders’ agreements (or side letters) are private agreements between partners containing clauses that, although not enforceable against third parties, are binding upon them.

It is important to inquire about:

• Share transfer clauses: Are there rights of first refusal (pre-emptive rights) or tag-along rights for outgoing partners? Is the sale subject to the approval of corporate bodies? This may limit your freedom to sell in the future.

• Special political and economic rights: Are there partners with privileged voting rights or preferred dividends? This will affect your decision-making capacity and profit distribution.

• Administrative body: How is it structured? Is it a sole administrator, joint and several administrators, joint administrators, or a board of directors? Check the requirements for appointing and dismissing administrators.

• Shareholders’ agreements: It is vital to request and review these agreements. They usually contain non-compete clauses, confidentiality agreements, or share valuation formulas for exit cases.

2. Conduct Exhaustive Legal Due Diligence

Due diligence is the legal audit process that allows you to “get your hands dirty” with the company. It is the fundamental tool for discovering, verifying, and valuing all assets, liabilities, risks, and opportunities of the target company. Without it, you are buying “blindly.”

Areas to investigate:

• Debts and guarantees: Identification of all financial and supplier debts. It is crucial to locate any guarantees (sureties, pledges, mortgages) that the company has granted in favor of third parties.

• Existing contracts: With clients, suppliers, financial entities (loans, leasing), property leases, etc. Their validity, conditions, termination clauses, and possible penalties must be analyzed.

• Lawsuits and judicial contingencies: Review of all judicial or administrative proceedings in which the company is a party, whether as a plaintiff or, more dangerously, as a defendant. This includes arbitrations and out-of-court claims.

3. Analyze the Tax and Social Security Situation

The company, as a legal entity, is solely responsible for its tax and Social Security debts. By buying it, you take charge of them. The Tax Agency and Social Security can seize the company’s assets to collect debts from fiscal years prior to the purchase.

The following must be checked:

• Filed returns: Review that all VAT, Corporate Tax, personal income tax withholdings, etc., have been filed correctly and on time.

• Outstanding debts: Request tax debt certificates (Form 290) and Social Security debt certificates to confirm that it is up to date with its payments.

• Inspections and sanctions: Investigate if there are ongoing or planned Tax or Social Security inspections, or if there are sanctions pending notification or payment.

4. 4. Evaluate the Liability of Previous Administrators

The administrators of a company (directors, board members, etc.) have very strict legal obligations. If they breached their duties and caused damage to the company, the partners, or the creditors, they can be held personally liable. The problem arises if that liability extends to events that occurred during their mandate but are discovered after you have purchased the company.

The following risks must be taken into consideration:

• Liability for tax debts: The General Tax Law establishes that administrators can be secondarily liable for the company’s tax debts if they failed to comply with their obligations to file returns or request insolvency proceedings when the company was insolvent.

• Liability for damages to the company: If the previous administrators performed operations harmful to the company (for example, selling assets below market value to a relative), the company (now under your control) could sue them to recover the damages.

5. Verify the Status of Administrative Licenses and Authorizations

For many business activities, the opening and operating license is the most valuable asset. A bakery, a bar, a dental clinic, or a waste management company cannot operate without the proper permits. These licenses are non-transferable and are linked to the company; therefore, by buying it, you inherit them, but you also inherit any irregularities.

One must not forget to check the following points:

• Opening and activity license: Confirm that it is in order, valid, and matches the actual activity being carried out.

• Specific sectoral authorizations: For example, for food handling, for terrace installation, for foreign trade, etc.

• Communications and complaints: Verify that there are no neighbor complaints or open sanctioning proceedings that could jeopardize the renewal or validity of the licenses.

6. 6. Check the Ownership of Real Estate and Registered Assets

It is not enough for the seller to tell you “the warehouse belongs to the company.” It must be verified with documentation. The most important assets of a company (real estate, vehicles, heavy machinery) are usually registered in public registries that attest to their ownership and the encumbrances weighing upon them.

The following must be done:

• Request land registry certificates (notas simples): For all real estate appearing on the balance sheet, a land registry certificate must be obtained from the Property Registry. This document proves who the legal owner is and if there are mortgages, seizures, usufructs, or any other encumbrances.

• Review the Registry of Movable Property: For assets such as vehicles or machinery susceptible to non-possessory pledges.

• Consistency with accounting books: The assets appearing on the accounting balance sheet must match the registered ownership. Sometimes a property actually belongs to a partner and the company only uses it under a lease, which artificially inflates the balance sheet value.

7. 7. Thoroughly Review the Labor Situation

Workers’ rights remain intact after a change in company ownership. You subrogate to all labor rights and obligations. A hidden labor problem can generate very high costs (severance, sanctions) and conflicts with the workforce.

We recommend analyzing the following items:

• Employment contracts: Review that all contracts are duly formalized, with the correct professional category and salary.

• Collective bargaining agreement: Identify which collective agreement is applicable and its conditions (salaries, schedules, extra payments).

• Labor debts: Confirm that the company is up to date in the payment of salaries, Social Security contributions, and other concepts.

• Pending litigation: Investigate if there are open proceedings in the Labor Court or previous claims from workers (former or current) for dismissal, mobbing, etc.

8. 8. Confirm Registered Intellectual and Industrial Property

The value of a company often resides in its trademarks, trade names, patents, or designs. It is fundamental to ensure that these intangible assets are owned by the company and are duly protected.

It is advisable to verify:

• Ownership of trademarks and patents: Obtain ownership titles from the Spanish Patent and Trademark Office (OEPM) to confirm that the company is the owner and that they are in force (renewal fees are paid).

• Scope of protection: Check the classes and products for which a trademark is registered.

• Usage licenses: If the company uses third-party trademarks or technology, license agreements must be reviewed to ensure they are transferable.

• Possible infringements: Investigate if there are conflicts over the use of similar trademarks or lawsuits for patent infringement.

9. 9. Guarantee Correct Registry Entry and Document Consistency

The Mercantile Registry is the public diary of a company’s life. Any discrepancy between what the bylaws, the minutes of the meetings say, and what is recorded in the Registry can generate legal uncertainty and problems in proving the validity of the agreements adopted.

It is highly recommended to cross-check:

• Consultation of registry data: Obtain a certification of the company’s registry data, which includes the current bylaws, current administrators, and powers of attorney granted.

• Deed-Registry consistency: Compare the latest deed of amendment of bylaws with the text registered in the Registry. Sometimes changes are approved that are not subsequently registered, or are registered with errors.

• Minutes of meetings: Review the minutes of the shareholders’ meetings and the administrative body from recent years to ensure that agreements on capital increases, approval of accounts, or appointment of administrators were validly adopted.

10. 10. Negotiate Protection Clauses in the Purchase Agreement

The share purchase agreement is the document that closes the deal and where all previous negotiations are reflected. It is your last and best opportunity to legally protect yourself from the risks identified (and unidentified) during due diligence.

Essential clauses to negotiate:

• Representations and Warranties clauses: These are statements by the seller about the state of the company (e.g., “The seller represents and warrants that there is no pending litigation…”). If they are false, they give the buyer the right to claim.

• Indemnification clause: Establishes the economic compensation mechanism in case of breach of representations and warranties or the appearance of hidden liabilities.

• Price and adjustment clause: Mechanisms to adjust the purchase price based on working capital or debt level at the time of delivery.

• Confidentiality and non-compete clause: To prevent the seller from using company information or setting up a competing business after the sale.

The Smartest Investment is Legal Security

Buying a company is an operation of high technical complexity that goes far beyond a simple agreement on a price. As we have seen, the legal, tax, and labor risks are numerous and can have a devastating financial impact if they are not identified and managed in time. Legal due diligence is not an expense; it is the smartest investment a buyer can make: it is the price of peace of mind and the security that your investment is protected.

The false economy of skipping specialized professional advice can be very costly in the medium and long term. A law firm specialized in commercial law will not only help you identify problems but will also provide you with the legal tools (especially through the purchase agreement) to allocate risks, negotiate the price with solid arguments, and have avenues for recourse if something goes wrong.

At our firm, with years of experience in company purchase and sale operations, we accompany our clients throughout the process, from the initial analysis and due diligence phase to the negotiation and signing of the public deed, ensuring that their investment is made on solid foundations.

¿Estás pensando en comprar una sociedad en España? No dejes tu inversión al azar. Contacta con nuestro equipo de abogados mercantiles para una consulta personalizada. Analizaremos tu caso concreto y te proporcionaremos la seguridad jurídica que necesitas para tomar la mejor decisión.

How can we help you?

IN DIEM Lawyers has extensive experience and a high degree of specialization in the area of Corporate Law and M&A, offering comprehensive advice in processes of acquisition, participation, and investment in commercial companies.

Our legal team conducts exhaustive legal audits (Due Diligence), where we meticulously examine all critical aspects of the target company: legal, tax, labor, contractual, and intellectual property status. We thus identify hidden liabilities, tax debts, pending litigation, or irregularities that allow for price negotiation based on reality and avoid surprises after the purchase. Our goal is to provide you with a faithful and detailed picture of the company, giving you the necessary information to make an informed and secure investment decision.

Likewise, we translate the findings into the drafting and negotiation of the purchase agreement, where we shield your interests. We incorporate key protection clauses, such as representations and warranties on the state of the company, indemnities for breach, price adjustment mechanisms, and non-compete agreements for the seller. Our experience allows us to anticipate risks and legally structure the operation to minimize your future exposure, guaranteeing that the acquisition is carried out on solid foundations and that your investment is protected from the very first moment. We accompany you until the signing of the public deed, ensuring compliance with all legal requirements.

Publications on Companies in our blog

Expert lawyers in Companies and M&A: Málaga, Seville, Madrid, Las Palmas de Gran Canarias, Almería, Huelva, Marbella, Estepona,…

IN DIEM Lawyers has extensive experience and a high degree of specialization in the area of Corporate Law and M&A, offering comprehensive advice in processes of participation and investment in commercial companies.

Among the services we offer are:

• Acquisitions and mergers of companies and business lines: We assist in operations to structure the transaction to maximize each of the advantages, from a business and legal point of view, with the appropriate corporate strategy and due diligence services.
• Analysis and strategic planning: We study the most appropriate options to choose the jurisdiction that best suits the tax, operational, and legal needs of your business.
• Comprehensive management of the acquisition process: We draft and formalize articles of association, shareholders’ agreements, family protocols, etc.
• Intervention in conflicts and defense of shareholders: We advise in conflict processes, as well as in the protection and defense of shareholders’ rights.
• Tax and legal optimization: We design structures that minimize legal and tax risks, taking advantage of the benefits of international treaties and local regulations.

IN DIEM Abogados has a team with experience in previous roles such as Judge, State Attorney, Public Prosecutor, or University Lecturer, which will provide you with peace of mind and confidence, as you will have the best team—competitive and highly prepared—to achieve your objectives and meet your needs.

We are at your disposal for anything you need. You can reach us via IN DIEM Lawyers Phone (+34) 916 353 892. For urgent cases, you can contact us on IN DIEM 24-Hour Emergency Lawyers Phone: (+34) 610 667 452.

Did you know that IN DIEM Abogados offers an online service and an urgent service?

We offer our clients the option of being assisted via video call or videoconference, as well as by telephone, according to our clients’ preference, so that the assistance is as personal as possible, with absolute immediacy, without the need to travel. This service is complemented by communication via email, which facilitates the analysis and delivery of documentation.

Likewise, we offer urgent and 24-hour services for our companies, handling national and international contracting operations.

For more information on the Online Legal Advisory Service HERE, the 24-hour and Urgent Service, HERE, and some recognitions, we leave you this link.

Anything else about IN DIEM Lawyers? Here’s a short presentation video…

You will find us in Seville, Madrid, Las Palmas de Gran Canaria, Málaga, Huelva, Punta Umbría, Tomares, Coria del Río, Dos Hermanas, Mairena del Alcor, Estepona, Marbella, Mairena del Aljarafe… it will be a pleasure to serve you…!!