Business Structures: SA, Cooperatives, SMEs, and More

Posted on Dec 11, 2024 in Economy

Advantages and Disadvantages of a Sociedad Anónima (SA)

As an advantage, as well as being limited to capital contribution, SAs have the following characteristics:

Easy to sell shares: The existence of markets like the stock exchange allows for quick trading of shares, enabling holders to recover their investment at any time.
Access to financial markets: It is the only company type that can access the financial market by issuing bonds and debentures or going public. This ability to capture the savings of small investors provides SAs with substantial resources to finance their growth investments.
Separation of ownership and management: This allows for hiring professional managers and facilitates business continuity with the ease of financing in the success of the corporation.

However, the separation between ownership and management is also often a source of problems and conflicts because the objectives of shareholders and managers do not always coincide.

Cooperative Societies

Cooperative Societies are companies with variable capital and a democratic management structure. Several people with common interests associate to develop a business, and they are non-profit. On the fiscal side, the main difference between cooperatives and commercial companies is the possibility of a series of tax benefits.

The name of the company will necessarily include the words “Cooperative Society.”

Classes

a) Primary cooperatives: Except in cases where other laws establish a minimum, first-degree cooperatives should be integrated by at least three partners.

b) Second-degree cooperatives: These must be constituted by at least two cooperatives.

The statutes set the minimum capital that the cooperative can have. The partners’ liability for corporate debts is limited to the capital contributions they have signed, whether or not paid in full, unless otherwise stated in its statutes.

The constitution of a cooperative requires the execution of a public deed before a notary and registration in the Administrative Register of Cooperatives, the Ministry of Labor and Social Affairs.

Advantages and Disadvantages of Cooperative Societies

Besides tax benefits, the main advantage of these companies is that their union was created to make a mutually beneficial activity for the partners, with the motivating effect that this entails. The involvement of social workers in management and implementation of the tasks reinforces their identification with the aims of the cooperative.

One of the drawbacks, nationally, is the multiplicity of rules that exist to regulate these companies. There are regions that have developed their own law on cooperatives. Another drawback is that the partners may be unwilling to make long-term investments in excess of the time they expect to be in the company.

Sociedad Anónima Laboral (SAL)

Features of SALs

No member may hold more than one-third of the capital, except in the case of partners that are public entities or non-profit organizations, in which case it may reach 50% of the capital.
The number of annual hours worked by permanent workers who are not members may not exceed 15% of the total annual hours worked by the working partners.
A special reserve fund must be set up with 10% of annual profits, which can only be used to offset potential losses.
These companies enjoy tax benefits and other benefits, such as subsidized credits for making investments.
Third-party liability is limited to the contributions they have made or committed to.

In the name of the company, the words “Sociedad Anónima Laboral” or “Labor Limited Liability Company” must appear. The incorporation of a labor society should be formalized in a public deed and entered in the Register and the Register of Companies.

Benefits of Growth: Economies of Scale

Economies of scale are obtained by decreasing the average cost as the company grows and increases the amount of production. The reasons for these economies are:

1. Production

Large size provides a high degree of mechanization and allows for:

Greater benefits of division of labor and specialization, with the consequent improvement in the skill and ability of employees, less wasted time on task changes, etc.
Use of multi-purpose machines, automation of processes, and using high-capacity robots to perform several tasks simultaneously, with consequent savings in costs and personnel.

2. Commercial

Large companies reduce their costs by doing large-scale shopping and getting better prices from their suppliers. This, combined with the advantages on the production side, allows for more resources for promotion and advertising, market research, etc. By devoting more resources to the knowledge of the market, they are better able to renew their products based on demand or differentiate them from competitors.

3. Financial

Large companies have greater access to different funding sources and obtain better terms because their size makes them preferred customers, benefiting from lower interest rates.

Advantages and Disadvantages of Vertical Integration

Several advantages of vertical integration exist:

When integration is backward in the value chain, the company becomes its own provider, which means security and safety in supplies (both in quality and quantity).
If integration is forward, the company can control the distribution of its products.

But there are drawbacks. First, you lose the advantages of specialization, as the company has to lead and manage new activities, away from their specialty. Moreover, new management costs arise from the need for coordination between the various activities that are integrated.

Advantages of Small and Medium-Sized Enterprises (SMEs)

Given their proximity to the customer, they have a better position in local markets, where personalized service and more direct and human contact are valued.
They are more flexible to adapt to changing circumstances in the economy. Thus, in times of crisis, they react more quickly than large companies.
Employee relations are more fluid and human (greater involvement and communication) and therefore have fewer industrial disputes.
They have greater adaptability to meet very specific market demands, which are not served by larger companies.
They require less initial investment.

Disadvantages of SMEs

Financial resources to which they have access are expensive. They can only be funded through contributions from their owners and bank loans. They do not have the funding of the stock market (the Bolsa).
Their small size makes it impossible to take advantage of economies of scale typical of large companies.
They have little bargaining power with customers and vendors and almost always simply accept the decisions on prices and terms that are made for them.
The skill level and expertise of their workers and managers are generally lower than in large companies, as the most qualified people prefer working for large companies for a greater chance of promotion.
Given their limited resources, they cannot use the media.

Development Strategy of Multinational Companies (MNCs)

The development of MNCs is a gradual process in which there are three phases:

1. Export Strategy

No company suddenly sets up a factory abroad. At first, they find an outlet for their products through export companies in the recipient country or through direct sales.

2. Systems Association

Production or sales in another country occur through cooperation agreements with local companies, through licensing of patents, authorized dealers, franchising, subcontracting, etc.

3. Direct Investment

Once the market is known and success is achieved, it’s time to settle abroad, mainly through two ways:

Establishment of wholly-owned subsidiaries of the MNC, which involves creating or acquiring companies in the foreign country to meet local markets from the inside.
Creating joint ventures: This is a partnership of two or more companies that provide capital to form a new joint venture, which aims to operate in a new market.