Understanding Business Structures and Legal Considerations

Posted on May 4, 2024 in Economy

Unit 1: Introduction to Entrepreneurship

1) Obligations of an Entrepreneur

  • Accounting
  • Inscription in the Mercantile Registry (not always)
  • Specific regulations

2) Requirements to Be an Entrepreneur

  • Legal Capacity
  • Effective and regular practice of business
  • Act on his own behalf

3) Types of Liability

  • Financial Liability: Debts owed to others.
  • Unlimited Liability: Responsible for all business debts, even with personal assets.
  • Limited Liability: Responsible for debts up to the invested amount.
  • Civil Liability: Responsible for certain accidents and damages.

4) The Regime of Ownership and Business Registry

The Business Registry is an official list of businesses operating in a certain area. Any legal act affecting the company, such as creation, address change, board members, or annual accounts, must be recorded.

Unit 2.1: Classifications of Companies

1) Classifications

  • Public vs. Private
  • Domestic vs. Foreign
  • Profit vs. Nonprofit

2) Publicly vs. Closely Held

  • Publicly Held: Shares traded on a stock exchange.
  • Closely Held: Few shareholders, like family-owned companies.

3) Non-Limited vs. Limited Liability

  • Non-Limited: Owner’s liability extends to personal assets.
  • Limited: Liability limited to the invested amount.

4) Formality of Incorporation

Official steps to establish a company:

  1. Select a name
  2. Select incorporators
  3. Obtain company’s birth certificate
  4. Hold organizational meeting
  5. Establish bylaws

6) Piercing the Corporate Veil

A legal rule that separates shareholders from the corporation. This can happen due to:

  • Inadequate financial basis for the business
  • Fraudulent use of the company
  • Irregular business conduct

7) Types of Companies

  • New business concern
  • Labour company
  • Cooperative companies
  • Sport joint stock companies
  • Professional companies
  • Economic interest groups

8) Multinational Companies

Businesses operating across national borders.

9) Branch vs. Subsidiary

  • Branch: Extension of a company, following main company rules.
  • Subsidiary: Secondary company with its own decision-making.

10) Types of Risk

  1. Geographic: Risks associated with location.
  2. Internal: Problems originating within the company.
  3. External: Dangers from outside the business, like economic changes or competition.

Additional Risk Types:

  1. Autonomous Risk: Risks related to automated systems.
  2. Competitor Actions: Strategies and moves by competitors.
  3. Change Tastes: Shifts in consumer preferences.
  4. Disruptive Change: Significant shifts in markets or technologies.

Unit 2.2: Types of Commercial Companies

1) Types of Companies

  • General Partnership: Two or more individuals manage and operate a business with shared liability.
  • Limited Liability Partnership (LLP): Partners have limited liability.
  • Public Limited/Joint-stock Company: Shares traded on a stock exchange, with limited liability for shareholders.
  • Limited Liability Company (LLC): Limited liability protection with pass-through taxation.

2) Steps to Create a Company

  • Identify name
  • Identify shareholders/stakeholders
  • Establish limited legal liability
  • Create company bylaws

3) Capital Companies and Deed of Incorporation

Requirements for a deed of incorporation:

  • Identify partners/shareholders
  • Form of enterprise
  • Capital contribution by each partner/shareholder
  • Company bylaws
  • Company representatives
  • Operational start-up date

4) Company Bylaws

Rules guiding company operations. Requirements:

  • Unique name
  • Business purpose
  • Registered office
  • Capital and shareholder structure
  • Governance rules
  • Agreements and decision-making rules

5) Registration in Mercantile Registry

Process of registering company documents and information.

6) Financial Structure of Companies

  • Debt Securities: Borrowing money with an obligation to repay.
  • Unsecured Bonds: Debt without collateral.
  • Secured Bonds: Debt with collateral.
  • Income Bonds: Repayment contingent on company profits.
  • Equity: Ownership in a company, typically through stocks.

7) Issuance of Shares

Process of issuing shares to raise capital.

8) Types of Stock

  • Common Stock: Ownership with voting rights and potential dividends.
  • Preferred Stock: Ownership with priority in dividends and asset distribution.

9) Types of Dividends

  • Property Dividends: Dividends paid in assets other than cash.
  • Liquidating Dividends: Distributions during company liquidation.
  • Redemption Shares: Shares repurchased by the company.
  • Acquisition of Shares: Purchasing shares to gain ownership or control.