Branches and other ways of operating

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Branches

Spanish substantive law does not include the concept of branch and so the absence of a specific definition regarding the main establishment has led to it being above all the mercantilist doctrine, case law and the Directorate-General for Legal Certainty and Attestations, which have been outlining the notion of branch, developing a concept that serves to understand all possible types of branches and also allows them to be differentiated from other related figures, based on the provisions of article 295 of Royal Decree 1784/1996 of 19 July, which approves the Registrar of Companies’ Regulations (RRM). Hence, a branch will be taken to mean any secondary establishment provided with permanent representation and a certain management autonomy, through which the company's activities are carried out, in whole or in part.

The branch should not be confused with other related figures, such as subsidiaries, material operational centres, agencies, representative offices and permanent establishments. Hence, the branch can be defined as a secondary establishment, lacking any legal personality of its own, since it shares the legal personality of any other branches that may exist and is none other than that of the parent company, of a permanent nature, with the same purpose than that of the parent company, but with a different material installation and its own clientele, which enjoys operational autonomy through management, with sufficient powers to carry out its function, although to do so it is subject to the guidelines of the parent company, and without any of this affecting the business unit of the company.

As it lacks its own legal personality, the branch does not have true share capital nor its own corporate purpose, although it does have the company's own funds to carry out the activities entrusted to it. To carry out its activity, the governing body of the main establishment usually appoints a director of the branch, who acts as the parent company's proxy in the branch, never as its representative, as it lacks legal personality.

The creation of a branch by foreign companies requires the granting of a public deed and its registration with the Registrar of Companies. It is not the foreign company which accesses the registrar, but rather its branch and hence the foreign company must be incorporated in accordance with the law of its nationality, even if it is a type of company not provided for in Spain.

To open and register the branch, it must submit a duly legalised sworn translation into Spanish by a sworn translator of documents which prove: (i) the existence of the company; (ii) its current articles of incorporation / memorandum of incorporation / bylaws; (iii) its directors; (iv) the branch opening agreement; (v) the address of the branch; (vi) the activities to be carried out; (vii) the identity of the representatives appointed to the branch and the powers granted to them.

The branch must deposit annually with the Registrar of Companies the accounts of the foreign company or prove they have been deposited at the place where it is a national in accordance with its legislation, and the accounts of the branch.

Branches of foreign companies may require prior administrative authorisation to carry out certain activities.

The branch will be extinguished when the parent company so agrees and so the branch may be closed in two ways: by way of a decision by the parent company of its own free will or owing its own extinction.

Subsidiary

The subsidiary forms a legal entity independent of the parent company and it is endowed with full personality, in other words, it enjoys true legal autonomy, with capital, articles of incorporation and its own bodies and it may even have a corporate purpose different from that of the parent company. The creditors of the subsidiary will not be able to appeal to the parent company as the obligations of the former do not affect (in principle and directly, except for very limited exceptions) the parent company, which is not directly responsible for them.

Permanent Establishment

PEs are identified not by any legal feature, but by their physical characteristics (which involve direct tax impact): facility or place where operations are usually carried out in a territory where the entity does not reside. In any case, the PE must be an establishment, office or bureau where commercial operations are carried out. Hence, and linking this to the figure of the branch, the latter, by combining the legal note of autonomy with the physical note of independent installation, includes that of the PE; but not the opposite, in other words, not every PE can be identified with a branch, but rather to this end, autonomous internal management from the main company will be required.

Oficina de Representación

They generally exist in banking circles and are establishments that carry out only some of the banking operations, being limited exclusively to carrying out bill collection functions, without being able to carry out deposit operations, nor handle cheques, savings books or credits. Hence, they cannot generate clientele or carry out operations contained in the corporate purpose of the credit institutions, but are merely auxiliary establishments of the entrepreneur and without autonomy.

The Representative Offices (RO) are a good alternative as a measure prior to the final decision to invest in Asturias since the legal procedures are simpler and in this way you can sound out the market or verify any possible competition.

Temporary Joint Ventures (UTE)

It is a system of collaboration between entrepreneurs for a certain, determined or indeterminate period of time, for the carrying out or implementation of works, services or supplies. Under this associative contract, the UTE lacks legal personality, but it constitutes an autonomous company which acts under single management, endowed with a specific legal regime. Since it lacks any legal personality, the liability regime is assigned jointly and severally to its participants.

A special tax regime is attributed to the UTE when it meets the following requirements. (i) The companies participating in the UTE may be natural or legal persons, national or foreign; (ii) it must be formalised in a public deed that contains identification of the grantors, the articles of incorporation which record the name of the UTE, the purpose of the UTE, fiscal address, term, name of the manager, address and powers of attorney granted by the participants in the UTE, the percentage stake of the participants and other lawful agreements; (iii) registration with a special registry of the Spanish Tax Agency.

The UTE also has the capacity to hire staff in order to implement the purpose for which it has been established.

Joint Ventures through a Limited-Liability Company or Public Limited Company

On numerous occasions, foreign investments are channelled through incorporated joint ventures used as a vehicle by the S.A. and the S.L., thus being subject to the indications contained in this document relating to incorporation, basic characteristics and specific aspects of the corporate bodies of these commercial companies.

Silent Participation Agreements

Silent Participation Agreements (CEP) are a form of commercial cooperation whereby a natural or legal person (participant) contributes assets, rights or capital with the objective of participating in the business or company of another (manager), with both being subject to the success or failure thereof. It is one of the oldest associative modalities, whereby no common asset is created nor any new legal personality.

Commercial procurement

This is an alternative to setting up a company or branch or entering into commercial partnership agreements with existing entrepreneurs. These contracts, although endowed with similar features, maintain differentiating aspects between them.

• Distribution agreements: they lack specific regulation, allowing the parties great freedom regarding their content.
  
  Under this agreement, one of the parties undertakes to acquire products from the other contracting party for subsequent resale.
  
  We can talk about several types of distribution agreements:
  
  (i) Commercial concession or exclusive distribution:
  
  The supplier undertakes to deliver its products exclusively to a single distributor in a given territory, and not to sell those products itself in the territory of the exclusive distributor.
  
  (ii) Sole distribution agreement:
  
  It has an exclusive distributor in the territory, as in exclusive distribution, but unlike the latter, the supplier reserves the right to supply the products which are the object of the agreement to the end users.
  
  (iii) Authorised distribution agreement:
  This is a selective distribution agreement as the distributors are carefully selected based on their ability to market technically complex products or to maintain an image or brand, but it does not imply exclusivity for the seller in the territory.
• Agency agreement: the Council Directive of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (Directive 86/653/EEC) was transposed into Spanish legislation by Law 12/1992 27 May on the Agency Agreement, defining it as that whereby “a natural or legal person, called an agent, undertakes vis-à-vis another in a continuous or stable manner, in exchange for remuneration, to promote commercial acts or operations for third parties, or to promote and conclude them for third parties, as an independent intermediary, without assuming, unless otherwise agreed, the risk of said operations.”
  
  The agent does not act in his own name and on his own behalf, but in the name and on behalf of one or more entrepreneurs in a certain territory. It is the agent’s obligation, either personally or through his employees, to negotiate and, if so stated in the agreement, to conclude any commercial operations or agreements which he is responsible for on behalf of the entrepreneur. The following obligations are established, inter alia:
  
  The agent is authorised to negotiate the resolutions or operations contained in his agreement, but not to conclude them on behalf of the entrepreneur unless he has been specifically authorised to do so.
  
  Any agent can act on behalf of several entrepreneurs as long as it is with respect to goods or services that are not identical or similar and concurrent or competitive as, that being the case, specific consent is required.
  
  The agency agreement may be exclusive, taken to mean the agent's commitment not to promote commercial operations of the same nature sought by other entrepreneurs and within their territory. In this case, any commercial operation carried out by the entrepreneur in the agent's territory and which falls within the exclusivity agreed with the agent, the success-based commission agreed upon will accrue in favour of the latter.
  
  One of the essential aspects of the agency agreement is that the agent's work must always be remunerated. Remuneration may consist of a fixed amount, a commission or a combination of the two previous systems.
• Commission agreement: this is an agreement whereunder the proxy (the commission agent) undertakes to carry out or take part in a commercial agreement or act on behalf of someone else (the principal). 
   
  The commission agent can act in his own name or on behalf of the principal, in other words, he is the one who acquires the rights vis-à-vis the third parties with whom he contracts and is personally bound, or on behalf of the principal, who is the one who acquires the rights vis-à-vis third parties and the latter over him.
  
  In general, he is not liable vis-à-vis the principal for the fulfilment of the agreement by a third party that has been concluded with him, although this risk can be insured by way of the guarantee commission.
  
  In turn, the principal is obliged to pay a commission and to respect the retention and preference rights of the commission agent. The commission agent's credits vis-à-vis the principal are protected through a lien on the goods.
• Franchise agreement: franchising is a type of agreement whereby one company (the franchisor) transfers to another (the franchisee) the right to market certain products or services within a certain geographical area and under certain conditions. With this being in return for financial compensation.
  
  This right empowers and obliges the franchisee, in return for a direct or indirect economic consideration or both, to use the commercial name and/or brand of products and/or services, the know-how and the technical and business methods, which must be the franchisor's own, substantial and unique procedures, and other industrial and/or intellectual property rights, supported by the continuous provision of commercial and technical assistance, within the framework and for the term of a franchise agreement agreed upon between the parties for this purpose, and all this without prejudice to the supervisory powers of the franchisor which may be established contractually.
  
  The applicable Spanish legislation is: (i) Law 7/1996 of 15 January on the Regulation of Retail Trade, relating to the regulation of the franchise regime and creating the registry of franchisors (amended by Law 1/2010 of 1st March, reforming Law 7/1996 of 15 January on the Regulation of Retail Trade), a registry which was eliminated by Royal Decree-Law 20/2018 of 7 December on urgent measures to promote economic competitiveness in the industrial and commerce sector in Spain; (ii) Royal Decree 201/2010 of 26 February, which regulates the carrying out of commercial activity under a franchise regime and the communication of data to the registry of franchisors; and (iii) Royal Decree 378/2003 of 28 March, which implements Law 16/1989 of 17 July on Antitrust, in terms of category exemptions, unique authorisation and antitrust registration, which refers to Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of section 3, article 81 of the EC Treaty to certain categories of vertical agreements and concerted practices and to Regulation (EC) No 1400/2002 of 31 July 2002 on the application of section 3, article 81 of the EC Treaty to certain categories of vertical agreements and concerted practices in the motor vehicle sector.
  
  Notwithstanding the above, by dint of Royal Decree 553/2019 of 27 September on the liquidation and extinction of the Financial Fund to Aid Domestic Trade (F.C.P.J.) at present it is only required that, giving minimum notice of 20 business days prior to the signing of any franchise agreement or pre-agreement or handing over by the future franchisee to the franchisor of any payment, the franchisor should submit to the future franchisee, in writing, the information necessary so that it can decide freely and with full knowledge of the facts to join the franchising network and, in particular, (i) the main identification data of the franchisor; (ii) description of the sector of activity of the franchised business; (iii) experience of the franchising company; (iv) content and characteristics of the franchise and its operation; (v) structure and extent of the network and (vi) essential elements of the franchise agreement.
  
  The commercial concession or exclusive distribution agreement whereunder an entrepreneur undertakes to acquire, under specific conditions of certain exclusivity in an area, normally branded products, and also resell them under certain conditions, will not necessarily be considered a franchise, as well as to provide the buyers of these products with assistance once the sale has been made, will not necessarily be regarded as a franchise.

Nor will the following be regarded as a franchise (i) the granting of a manufacturing license; (ii) the transfer of a registered trademark for use in a certain area; (iii) the transfer of technology, or (iv) the assignment of the use of a commercial banner or label.