ERL: a formula for starting a business with less risk

[seonajmulislam00]

Almost one and a half million self-employed workers were forced to request temporary aid from the Government as provided for in the Royal Decree . The crisis has hit these businesses hard, and they are now seeking legal solutions to protect themselves against the uncertainty.

While it is true that there is no magic solution that can help you get rid of liquidity problems, the Second Chance Law or the loans offered by banking institutions can help alleviate the suffering.

For those who do not yet have a business, but want to officially register with the RETA, there is a third way: that of the Limited Liability Entrepreneur or ERL . Today at MÁSMÓVIL Negocios we recall this model of legal entity implemented more than five years ago.

Limited Liability Entrepreneur or ERL
You may also be interested in: " What is an Intrapreneur?: Clues to identify and differentiate them from an entrepreneur "

What is an ERL
The fear of failure is one of the most common feelings qatar number data among self-employed people and those who decide to start a business. And with good reason. According to Eurostat data , 47% of these workers fail three years after starting their business .

After five years, the failure rate rises to 62%. Entrepreneurship has always been a risky activity , which puts at risk not only the invested capital, but also all the entrepreneur's own assets in the event of unpayable debts.

With the aim of reducing the risk and promoting this activity in Spain, the Government approved on September 27, 2013 the inclusion of a new figure (law 14/23) in the already existing Entrepreneurs Law . This was the Entrepreneur with Limited Liability .

Under this assumption, the self-employed person would no longer be liable for all present and future assets in the event of failure, and could make riskier decisions without falling into logically conservative attitudes.

According to the law, an ERL is " a natural person who, with limited liability under certain conditions, regularly, personally, directly, on his own behalf and outside the scope of direction and organization of another person, carries out an economic or professional activity for profit, with or without employees under his charge ."

In practice, this figure was intended to promote entrepreneurship in Spain, so that self-employed workers would only be responsible for the results of their business with assets related to their own economic activity .

However, the specifics of the law contain a number of requirements and nuances that partially strip away the idealism behind the proposal. So much so that the supposed protection only concerns the domicile in which the applicant resides .



Requirements for ERL eligibility
Two years after it was put into effect, the Executive decided to update the law to restrict access to it with more specific requirements. However, as we mentioned previously, any natural person with a business or professional activity can request the change .

It is not necessary to be new to RETA to apply for ERL , and this provides a certain flexibility to a job that, by its nature, is usually more exposed to changes in context.

Housing value less than 300,000 euros : only the dwelling for habitual use is included. If the property is located in a town with more than 1 million inhabitants, a coefficient of 1.5 is applied to the base value.
The property cannot be related to the business activity : that is, it cannot appear in the business's annual accounts, nor have been used as collateral for any type of operation.
Commercial register : the property that is to be separated for protection must be indicated at the time of registration in the Commercial Register. Otherwise, there will be no way to prove its independence.
Property registry : the property exempt from liability must also be registered in this other file, in the section designated for said property.
Control of annual accounts : the applicant must file the annual accounts with the Commercial Registry. If more than seven months have passed since the end of the financial year without this taking place, the entrepreneur will lose the limitation of liability.
Special taxation : the ERL is taxed at the highest existing rates, and is at a disadvantage the higher the volume of income. This figure is therefore only recommended for smaller businesses.
Precautions
The apparent simplicity of the ERL has led to a large number of violations in the last seven years , usually caused by ignorance. It is therefore important to highlight a number of particularities of this figure.

The first is that debts incurred prior to the applicant's registration in the Commercial Register are not included in the limitation of liability . Added to this are payment obligations incurred outside of the business activity, and public credits (with the Treasury or the SS).

Furthermore, if the entrepreneur is married, the liability arising from his business may end up reaching his spouse . This explains the insistence on the economic regime of the marriage, and the nature of the assets.

The ERL is interesting under very specific assumptions, and should never be interpreted as a guarantee of protection for all entrepreneurs. In fact, this has been the case in the territory where it was applied: one year after its entry into force, only 51 people had registered .

The data from the registry statistics do not deceive: 27 people registered in 2015, 12 in 2016, 15 in 2017 and 10 in 2018. In 2019, the figure did not even reach double digits.

Experts, after years of observing the operation of the law, have come to the conclusion that the Limited Liability Entrepreneur was not really necessary.

The figure of the Single-Member Limited Company (more than 72,000 in Spain) already protected the entrepreneur from seizure, and also did so with respect to all assets and not just the home . Is the ERL completely useless? The answer is no.