Limited Companies vs Cooperatives: Structure and Shares
Limited Companies (SA/SL)
Limited Companies are subject to corporate income tax.
Formation and Constitutional Requirements
The formation of a Public Limited Company requires a public deed (Articles of Incorporation). This foundational document must specify, among other things, the following essential elements:
- Company Name: The official legal designation.
- Social Object: The specific business activities the company will undertake.
- Social Capital: How the capital is divided into shares, including the number of shares, their nominal value, and the type or series of shares.
Corporate Governance
Limited Companies typically operate through two main corporate bodies:
- The General Assembly of Shareholders: This is the supreme decision-making body, responsible for resolving important issues concerning the company.
- The Board of Directors or Administrators: Responsible for management. They must present the annual accounts (including the balance sheet, profit and loss account, and management report) for approval by the General Assembly.
Shareholders and Rights
Shareholders are the owners of one or more shares, representing their stake in the company. Shareholders possess several fundamental rights:
- Right to Dividends: The right to receive social benefits resulting from the distribution of profits. Decisions regarding the distribution of dividends (profits not stored in reserves, which are often reinvested) are made by the General Assembly.
- Preemptive Rights: Shareholders have priority when purchasing new shares during a capital increase.
Shares are a critical component of Limited Companies and require special attention.
Understanding Share Valuation
The capital of a Limited Company is divided into equal parts, each known as a share (or action). Key concepts related to share valuation include:
- Nominal Value (Par Value): This is the fixed value assigned to each share title, determined when the social capital is initially distributed into equal parts.
- Effective Value (Market Value): This is the price at which the stock is currently trading on the stock market. It depends entirely on supply and demand and usually does not match the nominal value.
- Income and Profitability: This refers to the financial return offered by the shares over a specific period. To determine the Net Income (the actual monetary amount received), all necessary discounts and deductions must be removed from the Gross Income.
Cooperative Societies
Definition and General Characteristics
A Cooperative Society is an economic community attributed to physical and legal persons who develop a particular business activity to meet common interests and needs. General features include:
- Voluntary Membership: Members have voluntary and free access to the society.
- Capital Requirements: A minimum capital must be registered upon the company’s constitution, and at least 25% of the total must be paid up.
- Naming Convention: The company name must include the phrase “Cooperative Society” or the abbreviation “S. Coop.”
Governance and Constitution
The cooperative body typically involves several social organs. The supreme management body is the General Assembly of Partners/Members. Its objectives include:
- Analyzing and approving the annual accounts.
- Accepting the allocation of surpluses (profits).
- Establishing the cooperative’s global policies.
Partner Rights and Duties
Partners in a Cooperative Society possess specific rights and duties:
- Rights: Co-participation in activities and the right to a cooperative return (distribution of surpluses).
- Duties: Compliance with all possible resolutions adopted by the social bodies.
Types of Cooperatives
Cooperatives are categorized based on their primary activity, such as:
- Housing Cooperatives
- Agricultural Cooperatives (e.g., those specializing in specific regional products like Cava or local produce)
- Educational Cooperatives