Business Legal Structures: A Comprehensive Guide to Company Formation

Posted on May 10, 2024 in Law & Jurisprudence

Companies Subject to Legal Techniques of Business Organization

Main Corporate Forms

  • SA (Sociedad Anónima)
  • S. RESP LIMITED (Sociedad de Responsabilidad Limitada)
  • SLNE (Sociedad Limitada Nueva Empresa)
  • OTHER: Sole Proprietorship, Limited by Shares, Mutual Guarantee, Labor, Cooperatives, and Societas Europaea

Decision to Establish a Company

Initial Idea

A project is developed around an idea, which arose as the result of the detection of a business opportunity. This varies depending on the circumstances. There are many factors that can lead a person to start a concrete business.

Factors Determining the Choice

  • Repetition of experience
  • New business opportunities in underserved markets, creation of new or high growth rate markets
  • Expertise in business sectors or specific markets
  • Experience of the future entrepreneur as an employee of another business or seeking to become independent
  • Having an innovative product estimated to generate a market
  • Businesses or activities of low complexity that allow anyone to be self-employed in that activity

Business Plan

It is a working document in which the business idea is developed. This includes:

  • Description of the company, business, or entrepreneurship:
    • Reference of experience and purpose of the promoters
    • Technical description
    • Geographical location
    • Economic and financial structure
    • HR organisms
    • Legal structure
  • Definition of the product or service to be supplied: description, needs covered, differences with competing products, rights on the product name or service to market
  • Planning of the commercial aspects: market analysis, market plan, establishment of distribution networks, procurement plan, purchase plan

Choosing the Legal Form

Factors to take into account: number of partners, rate of social capital, constitution requirements, tax obligations, social security regime, hiring, liability to third parties.

Companies

The association of natural or legal persons creating and running a business of producing goods and services for the market to make a profit.

Types of Companies

  • Personal: those that do not limit the responsibility of the partners. The quality of membership is given by the person.
  • Capitalists: limit the liability of the partners. The quality of membership is determined by the capital injection.

Legal Forms

Personality

  • Partnership: minimum 2 people, no legal minimum capital. It is based on the confidence of partners, whose quality is transformable without the consent of the other general partners. Partners are liable privately, jointly, and severally for the company’s debts incurred as a result of the exploitation of the company.
  • Limited Partnership: minimum 2 partners, no legal minimum capital. Liability is limited for the collective membership type and comandiatrios (limited liability). Its principal characteristic is to have 2 types of partners: general partners who are responsible for the management and administration, and limited partners who do not participate in management.
  • Limited Liability Company (SL): minimum 1 partner, limited to €3,000 minimum capital contribution. It is the most used in SMEs. It is the middle ground between the personalistic and capitalist society (SA). The capital is divided into shares which limit the amount of liability of the partners. It can be passed freely. Members can only intervene if elected.

Capitalists

  • Anonymous Society (SA): minimum 1 partner, minimum €60,000 capital, liability limited to capital provided. It is totally capitalist. Organs: general meeting, shareholders general meeting, extraordinary general meeting, board of directors, special seals. The capital stock is divided into easily transferable shares. Partners are not personally liable for the debts. Their liability is limited to payment of the outstanding shares.
  • Publicly Owned and Traded Company: governed by the securities market law besides other laws. It has capital with no limits and bond issues.
  • Limited Liability Company (S. RESP LIMITED): capitalist character, but a hybrid with limited liability. Unipersonal companies are allowed. Minimum capital of €3,000.
    Differences with the SA:
    • Full payment is required of the shares.
    • No obligation may be issued.
    • Has the potential to be more closed and personal since you can set limits on the shares.
    • Cannot go public.
    In other aspects, it works like the SA, with a general meeting, etc.
  • New Limited Liability Company (SLNE): This company can be practically formed within 48 hours, through electronic means, and there is free advice. Its capital is minimum €3,000 and maximum €120,000. Maximum of 5 partners at the time of creation, who must be natural persons. The object is limited. It has many tax advantages.

Other Types

  • European Limited Company: aims to create a legal entity that can act across borders. The social capital is > €120,000, no minimum partners. It has great complexity and requires harmonizing different laws.
    Its constitution can be made by:
    • Fusion
    • Creation of a holding company (SA, SL)
    • Subsidiary
    • Transformation of an SA into a European company
    Its registration must be in the Mercantile Registry. Its darker side is the tax regime.
  • Mutual Guarantee Society: serve as financing for SMEs, requires a lot of endorsement for capital to give credit to SMEs.
  • Worker Society: minimum 3 partners, may be SA or SL. In the majority of cases, the social capital is the property of the workers providing their services. It is paid for personally and directly, and the employment relationship is indefinite and full-time. Shares may be of two types: those of workers and the rest. Liability is limited to the equity contributed.
  • Cooperative Society: are commercial societies with a social market character. They have infinite targets. They are distinguished by grade 1 (consisting of natural or legal persons) and grade 2 (grouped several cooperatives). Their organs are: General Assembly, Board of Governors. They have compulsory and voluntary reserves.

Top Models Compared

U.S.

Every state has its own law, but there is a unified way: we distinguish:

  • Corporation (capitalist): registration is free. Minimum capital is not required. They have legal personality and limited liability. We distinguish:
    • Quoted
    • Closed
  • Partnership (personal): limited liability in most cases

UK

There is a general law. We can distinguish:

  • Capital
  • Personnel

Germany

  • Societies with personality: they have no legal personality and limited partnership. Collective principles follow the same rule as Spain.
  • Capitalist societies: they have legal personality

Italy

: = distinction between capitalism and personalistic