Company Incorporation and Legal Aspects of Business
Key Concepts in Company Structure and Operations
Shareholders, Shareholder Meetings, and Management Body
A) Shareholders: Shareholders can be individuals, groups of people, or other companies that own one or more shares of a company. They are involved in the decision-making process, particularly in electing the board of directors. Shareholders convene for a meeting at least once a year to discuss the company’s status.
B) Shareholder Meetings: These are gatherings where all shareholders come together to elect the company’s directors. As shareholders own a portion of the company, they have a say in who leads it. They also discuss the company’s current state, including its financial position, upcoming projects, and potential need for more shareholders.
C) Management Body: The management body is crucial to a company, comprising executive functions like managers and supervisors. They make significant decisions, such as setting strategies, leading employees, considering mergers, and seeking investors. They also represent the company and ensure its good standing.
Steps to Incorporate a Company
- Registering the Company Name: The first step is to register the company’s name, ensuring its uniqueness. This is done through the Mercantile Register, where specific documentation is required.
- Opening a Bank Account: Once the name is registered, it’s used to open a bank account. For an LLC, a minimum deposit of 3,000€ is required to start the company. The choice of bank is at the discretion of the company founders.
- Creating Bylaws: Bylaws are the fundamental rules governing directors and shareholders. They outline executive responsibilities, the selection process for top management, and operational procedures. Agreement among all corporate members is necessary to officialize the bylaws, except in single-member LLCs.
- Public Deed of Incorporation: This includes the bylaws, details of the company owners (ID, address, name), selection of the main director, and bank certification confirming the 3,000€ deposit, bank account, and shareholder details. A notary must validate this document.
- Declaring Foreign Investments: If there are investors from outside the country (in this context, Spain), their investments must be declared.
- Registering with the Spanish Tax Agency: Register with the Agencia Tributaria, ensuring all documentation is correct to avoid future legal issues. This includes registering with the IAE and obtaining a NIF.
- Census Declaration: Finally, complete the census declaration to finalize registration with the tax agency.
Company Stakeholders
Stakeholders are individuals or entities that influence or are influenced by the company’s operations. There are two types:
- Internal Stakeholders: Employees, executives, and others within the company.
- External Stakeholders: Suppliers, customers, and shareholders outside the company.
These stakeholders contribute to the company’s functioning. For example, employees work on projects that generate revenue, while shareholders invest, hoping for future profits. In essence, stakeholders are those involved in or interested in the company’s growth and success.
Legal Terms: Definitions and Examples
A) Bilateral Contract: An agreement where two or more parties agree to an exchange and promise to fulfill the agreement. If one party defaults, the other can take legal action.
B) Deed: A legal document representing a completed agreement. It can be used as leverage if one party fails to comply.
C) Unilateral Contract: One party offers a price (money or another resource) for a specific action to be performed, without expecting anything in return. The accepting party only needs to complete the task.
Joint vs. Joint and Several Liability
Joint Liability: If one participant cannot pay their share, the others are fully responsible for the entire amount. All parties are liable for the full payment, regardless of individual contributions.
Joint and Several Liability: If one participant cannot pay, the others can choose to cover their share or let them face the consequences independently.
Example: Two companies enter a joint liability agreement, and two others enter a joint and several liability agreement. In the first case, if one company cannot pay, the creditor can sue both for the full amount. In the second case, if one company defaults, the other can choose not to pay their share, leaving the defaulting party solely responsible.
Lifecycle of a Tech Company and Legal Aspects
A tech company often starts as a startup, seeking investors by presenting a product idea. This stage involves external funding. Key legal steps include:
- Formalizing a founders’ agreement through a notary.
- Stating the company’s location.
- Discussing Employee Stock Ownership Plans (ESOPs).
- Protecting assets like the company name with trademarks and copyrights.
- Establishing a financial model, choosing between debt and equity financing.
Protecting assets through trademarks, copyright law, and contracts like Non-Disclosure Agreements (NDAs) is crucial. Corporate reorganization defines the hierarchy and may lead to acquisitions for expansion. The lifecycle ends with winding up, where the company is dissolved, debts are settled, and, if publicly traded, stocks are sold.
Business Models and Legal Implications
A business model defines how a company generates revenue, such as being a wholesaler or selling online. Legal implications include:
- Officially declaring the company chairman or directors through a notary.
- Determining the tax payment method, which varies based on location and company type.
Hiring Employees vs. Self-Employed Entrepreneurs
Companies choose between employees and freelancers based on their needs:
- Freelancers (Self-Employed): Ideal for short-term tasks. They are paid per task without a monthly wage, making them cost-effective for infrequent needs.
- Employees: Better for long-term or daily tasks. They receive a fixed wage, which is more economical than paying per task for regular work.
Hiring an employee requires a contract specifying the wage, work insurance, social security, and employment duration, involving a legal agent. Freelancer contracts are limited to specific activities, with a set compensation and no backing out once accepted.