Choosing the Right Legal Form for Your Business: A Comprehensive Guide
The Legal Form
Legal Identification
A legal ID is required with the management company, customers, and suppliers.
Heritage
Heritage refers to the combinations of assets, rights, and obligations of the company.
Partnerships and Companies
- Limited Liability Partnership: Requires at least one partner.
- Limited Liability Company (New Business): Requires a minimum of 1 and a maximum of 5 members.
- Public Limited Company: Requires 1 partner.
- Labor Society: Requires 3 partners.
- Community Property (Worker Cooperative): Requires 3 members.
Criteria for Choosing a Legal Form
Consider these factors when choosing your legal form:
- Management
- Speed and simplicity of procedures
- Number of partners
- Project economic requirements
- Liability of the promoters
- Tax aspects
Partners and Social Capital
Partners
Partners are individuals who join to start a business. Each partner makes a contribution as agreed upon between them.
Social Capital
Social Capital represents the contribution of money, goods, or work provided by partners. It supports the establishment and operation of the business and becomes part of the company’s assets.
Social Capital Requirements
- Sole Trader: No legal minimum.
- Limited Liability Partnership: €3,005.06
- Limited Liability Company (New Business): Minimum €3,012 and maximum €120,202
- Corporations: 60,101.21
- Labor Society: 3,005.06
- Community Property: No legal minimum.
- Cooperative Work Associated: No statutory minimum.
Responsibility and Liability
Responsibility
Responsibility refers to the obligation to cover debts incurred by the business.
Limited Liability
Liability is limited to the capital, property, and rights held in the name of the company. Personal assets are protected. (Anonymous)
Unlimited Liability
Responsibility extends beyond the company’s assets and includes the personal assets of the members if the company cannot cover its debts.
Tax Issues
Tax Issues arise when different legal forms are subject to different tax regimes. This should be considered when choosing a legal form.
Types of Businesses and Tax Implications
- Sole Trader: An individual operating a trade, business, or profession on their behalf.
- Limited Partnership: A mercantile company with capital divided into equal, cumulative, and indivisible shares. Liability is limited to the contributed capital.
- Limited Liability Company (New Business): A simplified form of limited partnership with faster incorporation.
- Corporation: A company with capital divided into shares that can be freely transferred. Operates under the principle of limited liability.
- Labor Society: A type of SA or SL where the majority of capital is owned by workers who provide services and manage staff.
- Worker Cooperative: Provides jobs to its members.
Understanding Different Legal Forms
Sole Trader
Defined as a natural person with legal capacity to engage in commerce regularly.
Emancipation
Allows individuals over 16 and under 18 years of age to manage their person and property as if they were of legal age.
Self-Employed
Individuals who carry out economic activity for profit without being subject to an employment contract.
Who Can Be Self-Employed?
- Individuals of legal age with free disposal of their property.
- Emancipated minors.
- Minors and disabled persons, through their legal representatives.
Corporation
A company formed by one or more partners with a minimum capital of 60,101.21, divided into transferable shares.
Industrial Societies
Corporations where the majority of capital belongs to the workers who provide services.
Cooperative Society
A group of individuals or legal entities with variable capital, operating under a democratic management structure.
Franchising
Franchise
A contract where a party (franchisor) grants another party (franchisee) the license to use a trademark and business methods.
Know-How
The methods and techniques for managing and operating a business.
Franchise FAQs
- Is the franchisee’s company related to the franchisor? No, both companies are independent.
- Does the franchisee pay for the franchise right? Yes, and they may have territorial exclusivity.
- How long does a franchise last? Determined by the contract, typically long enough for the franchisee to recoup their investment.
- Is the franchisee free to run their business? No, they must adhere to the franchisor’s know-how.
- Can the franchisee create a similar business after the agreement ends? Typically restricted for a certain period as per the agreement.