The Corporations Act 1983 governs corporations formed in Andorra. There are three types of company, the Societat de Responsabilitat Limitada and the Societat per Accions both having shareholders with limited liability, and the Societat Colectiva, whose partners have unlimited liability.

Companies with commercial or profit-seeking goals must be owned at least two-thirds by Andorran citizens; this means, people born in Andorra, or Privileged Residents - those with more than 20 years' residence (in the case of Spanish and French nationals, the period of continuous residence is reduced to a minimum of 10 years). In practice, the Andorran majority owner of a business (called a 'titular' in Catalan) can be an Andorran individual or professional adviser who is willing to cede operational control of the business to the foreign 'owner', and sign a share transfer in blank, in return for a fee (called 'prestanom' in Catalan). In practical terms the titular is a nominee; but not in legal terms. Although this system is in everyday use in thousands of companies, and even though formal contracts are entered into between the parties, the inescapable legal fact remains that the titular can wield considerable power if he wants to. Presumably one is on fairly firm ground with a established, professional titular.

However, discussions have taken place on proposed changes to the law under which the limit on foreign participation would be raised to 40%, and non-Andorrans would be able to own 100% of certain types of company, including: audio-visual production and marketing, technological and scientific research, production of medicines, E-commerce, and broadcasting. Further sectors may also be opened up.

It has also been proposed that companies with turnover in excess of Euros 5m annually will be subject to compulsory audit.

In early 2008, it emerged that the government was progressing proposals for legislation that will allow foreigners to control companies in certain business sectors. Government spokesman, Juli Minove announced that the legislation would be introduced shortly, and would allow foreign capital to control new local enterprises in sectors that are not currently served by existing Andorran businesses.

This process crystallized into the Foreign Investment Law, which came into effect on November 7, 2008, and allows the opening up of 200 economic sectors to entrepreneurs and businesses from other countries. As a result of the new legislation, foreigners can now hold 100% - until now the limit was 33% - of the capital of a business in one of the designated sectors.

The Foreign Investment Law completes the legislative package which also contains two laws that have already been adopted: The Law of Companies and The Law of Business Accounting. This package is intended to increase the international competitiveness of Andorra, attract foreign investors into high value added sectors and strengthen the legal framework for business.

The new Company Law regulates the behavior of the companies in the Principality, regardless of whether they are Limited Companies or Plcs. A new Accounting Law establishes accounting requirements for Andorran companies and the associated responsibilities.

The government anticipates the adoption of two additional laws. One is intended to establish a tax rate on the profits of companies of between 5 and 10%. The other will create a value-added tax of around 4% that will replace all of the existing indirect taxes.


Andorra Societat Limitadad (SL)

The Societat Limitadad (SL) is commonly used for local trading and requires a minimum paid up share capital of 6,000 euros, with a minimum of two shareholders. In order to set up an SL, the first step is to obtain approval of the proposed name (some generic words are banned). The name, once approved and registered, will have local protection.

The company's Memorandum and Articles ('estatuts' and 'rao social') are then presented to the Government ('Andorra Govern') in a petition ('suplica') for incorporation. This step is straightforward when a holding company is being created for local assets, but if local trading or complex external financial situations are involved, the Government may look closely, particularly if the foreign party (who is being given 'rights' by the titular) is a newcomer or non-resident.

Once the Government's approval is given, the capital can be deposited and a notary will formalize the incorporation, along with the 'nominee' paperwork.

If there is to be actual trading or other tangible activity in Andorra, the company will need to apply via a 'suplica' to the Commercial Register in the appropriate commune for a trading license, or 'Registre de Comerc' permission. Finally, the Commune has to approve the premises proposed to be used, which requires further paperwork . . .

Once everything is in place, the Government becomes involved once more (another suplica) to approve the formal opening of the business.

It can be imagined that this whole process will take some months even if everything goes smoothly; if not, it can take a year or more. However, for a straightforward holding company, it may be only two or three months.

The Government's annual fee (tax) for the registration of an SL is 463 euros, and if a Registre de Comerc is needed, a further 670 euros is due annually. It can be imagined that professional fees will add substantially to these costs due to the formality and complexity of the process.


Andorra Societat Anonima (SA)

The Societat Anonima (SA) is usually created for larger types of company, or those with many shareholders, and must have a minimum paid up share capital of 30,000 euros.

The formation procedures for an SA are the same as for a Societat Limitada (see above) except that Governmental checks will be more stringent; and the annual fee (tax) for registration is 1,000 euros.


Andorra Societat Colectiva

The Societat Colectiva is a company whose capital is shared between partners with unlimited responsibility. Its formation procedures are similar to those of the SA and SL.


Andorra Partnership

There are no limited partnerships in Andorra. Civil companies can be created by two or more persons to incorporate a partnership with unlimited liability by private contract or deed. In order to trade, it will need a Registre de Comerc permission from its local commune, at a cost of 670 euros annually.

This is a form that can be used by a foreigner wanting to set up in business locally, say as a restaurant; the usual rules about 67% local ownership will apply, and the Andorran titular will need to sign contracts giving the foreigner day-to-day management rights, and control over finances. It suffers from the obvious difficulty that the unlimited liability of a partner under the law cannot be signed away so easily.


Andorra Sole Proprietorship

A citizen or an individual who has exceeded ten years residency is permitted to establish a business as a sole trader, however he will need a trading license from his local Registre de Comerc, at an annual fee of 670 euros.

This form also could be the basis of a foreign/Andorran business relationship; the Andorran in this case owning 100% of the business, but signing away operating and cash-flow rights to the foreigner. The difficulties are obvious; the advantage is that the Government doesn't have to become involved.


Andorra Branch

Only insurance companies can established branch offices in Andorra.