Legal Persons & Entities: Associations, Foundations, and Companies
1. Legal Persons
1.1 Introduction
A legal person is a key protagonist in law, subject to the rules governing social life. The term “person” designates two distinct realities: the human being and entities or organizations granted legal personality. These entities are recognized as potential subjects of rights and obligations, much like human beings themselves. We distinguish between natural persons (human beings) and legal persons (entities).
1.2 Concepts of Legal Persons
Legal persons are entities or organizations recognized by law as having legal personality, enabling them to achieve supraindividual purposes unattainable by individuals acting alone. This recognition grants them the ability to hold rights, duties, and participate in legal relations. These entities operate in commerce and other aspects of social life through their representatives and possess an individuality distinct from their members.
1.3 General Regulation
Articles 35 to 39 of the Civil Code provide general statutes for legal persons. This general regulation, stemming from the recognition of legal personality, is supplemented by specific rules governing different types of legal persons within our system. Article 35 recognizes three basic types: corporations, associations, and foundations.
Associations and foundations differ significantly. An association is a group of people united for a common purpose. A foundation is a collection of assets dedicated to a specific purpose. The foundation emphasizes the patrimonial component, while the association prioritizes the personal element.
Three ways exist for recognizing legal persons:
- Automatic recognition upon foundation (e.g., public interest associations and foundations).
- Automatic recognition upon fulfilling certain requirements (e.g., commercial associations registered in the commercial register).
- Specific recognition by public authorities (e.g., corporations).
1.4 Capacity of Legal Persons
Legal personality grants an organization the capacity to hold rights and obligations. Article 37 of the Civil Code states that the civil capacity of corporations is governed by their establishing laws, while associations and foundations are governed by their statutes and institutional rules.
1.5 Address and Nationality
Article 41 of the Civil Code stipulates that the address of a legal person should be determined upon its formation. If not specified, the address is where legal representation is established or where its main functions are carried out. Article 28 grants Spanish nationality to associations formed under Spanish law and domiciled in Spain.
1.6 Organs
Legal persons operate through organs composed of individuals to achieve their purposes.
1.7 Termination
Article 39 of the Civil Code lists potential causes for the extinction of legal persons:
- Expiration of the legal operating period.
- Fulfillment of the purpose or failure to achieve it with available means.
This list is supplemented by specific rules for different types of organizations.
2. Associations and Foundations
2.1 Associations
Associations are organizations formed by individuals to achieve a common, non-profit purpose. Their legal status is determined by Article 22 of the Constitution (right of association) and the Act of March 22, 2002 (regulating the right of association). This Act governs non-profit associations not covered by specific legislation (e.g., political parties, religious communities).
2.1.1 Constitution
Associations are formed by the agreement of three or more natural or legal persons. This agreement is formalized in a founding charter, a document signed by founding members, and includes the adoption of statutes outlining the association’s internal rules, purpose, address, member rights, etc. The association’s aims must be lawful and determined, as stated in Article 22 of the Constitution and the 2002 Act.
2.1.2 Organization
Associations operate through:
- General Assembly: The highest governing body, convened at least annually.
- Board of Directors: Responsible for management and representation.
- President: Represents the association externally and chairs the board and general assembly.
2.1.3 Suspension and Dissolution
Suspension is the temporary cessation of activities, while dissolution is the permanent termination of the legal person. Article 22.4 of the Constitution states that associations can only be dissolved or suspended by reasoned court order.
2.2 Foundations
A foundation is a legal entity characterized by its assets, dedicated to fulfilling a purpose of general interest established by its founder(s). It lacks a personal substrate, focusing on the allocation of assets.
2.2.1 Legal Status
The legal status of foundations is enshrined in Article 34 of the Constitution and further regulated by the Civil Code (Articles 35-39) and the Act of September 26, 2002. Autonomous communities may also have specific legislation.
2.2.2 Constitution
Foundations can be created by individuals or legal entities, either during life or mortis causa. Creation during life requires a written document, while mortis causa creation is done through a will. Legal personality is acquired upon registration of the deed of incorporation.
2.2.3 Heritage
Foundations require an endowment of assets dedicated to achieving their purpose. Both the Constitution and the 2002 Act mandate that the foundation’s objective be of general interest, benefiting indeterminate recipients, not just the founder’s family.
2.2.4 Purpose
The foundation’s purpose must be altruistic and of general interest, benefiting indeterminate recipients.
2.2.5 Organization
Foundations are governed by a Board of Trustees, responsible for fulfilling the foundation’s purpose, representation, and asset management. The board comprises at least three members (trustees). Government bodies exercise oversight (protectorate).
2.2.6 Extinction
Foundations can be extinguished due to expiration of their term, fulfillment of their purpose, impossibility of fulfilling the purpose, merger with other foundations, or other reasons stipulated in their constituent documents or by law.
3. Civil and Commercial Companies
3.1 Civil Companies
Civil companies are characterized by:
- Personal Nature: Contracts are personae, considering the qualities of the partners.
- Non-profit: The primary purpose is not profit-making.
Civil companies can be formed informally unless they involve real property, requiring a public deed. They can be universal (all assets and profits shared) or particular (specific assets, use, or fruits). Partners contribute industry (labor, knowledge, skills). Profits and losses are shared as agreed or proportionally to contributions. Management can be entrusted to one or more partners or shared by all. Extinction occurs due to expiration of term, fulfillment of purpose, resignation of a partner, insolvency of a partner, or death of a partner.
3.1 Commercial Companies
Commercial companies are those that:
- Adopt a form provided by the Commercial Code or special laws and register in the Commercial Register.
- Engage in trade without registration.
3.1.1 Partnerships vs. Capital Companies
Commercial companies are categorized as partnerships or capital companies, though the distinction is relative. In partnerships, the partners’ personal involvement is key, while capital companies prioritize the capital contributed.
3.1.2 Types of Companies
The Commercial Code recognizes several company types:
- General Partnership: Partners are directly involved in management and have unlimited joint and several liability.
- Limited Partnership: Includes both general partners (unlimited liability) and limited partners (limited liability).
- Limited Liability Company (SA): Minimum capital of €60,101 divided into shares. Shareholders have limited liability.
- Limited Liability Company (SL): Similar to SA but with greater flexibility and a lower minimum capital (€3,012). Share transfer is restricted.
- Joint-Stock Company (Sociedad Comanditaria por Acciones): Similar to SA, but with one or more partners having unlimited liability as general partners.
Partnerships (general and limited) use partner names in their trade names, while capital companies (SL, SA, joint-stock) emphasize the capital contributed.