Understanding Legal Forms for Businesses

Posted on Nov 29, 2024 in Law & Jurisprudence

Legal Forms

Introduction

From a legal standpoint, there are two main types of firms:

  • Sole Trader: A person who bears all the risks and rewards of a business on their own.
  • Societies: Several individuals who decide to pool their efforts and resources.

Individual Entrepreneur (Empresa Individual)

This is the simplest and most common legal structure. To be an individual entrepreneur, one must be 18 years old or an emancipated minor with free disposal of assets. There is no legal distinction between the assets of the entrepreneur and the business. Therefore, the entrepreneur assumes unlimited financial liability.

Features of Individual Entrepreneur:

  • Liability: Unlimited
  • Minimum Start-up Capital: None
  • Tax: Personal Income Tax (PIT)
  • Social Security: Autonomous System
  • Naming: Freely chosen by the entrepreneur

Societies (Sociedades)

Commercial Companies (Sociedades Mercantiles)

These are voluntary associations that seek profits for themselves from the benefits they provide to society.

General Partnership (Sociedad Colectiva)

Owned by individual partners who pool working capital, or both. Profits are distributed according to the contributions made.

  • General Partners (Socios Colectivos): Provide capital and generally contribute to management. Their liability is subsidiary, joint, and unlimited. They fall under the autonomous system if they work in the business.
  • Industry Partners (Socios Industriales): Provide only work, not management. They are not liable for debts and fall under the autonomous system.

Taxes must be paid through a specific tax regime.

Limited Partnership (Sociedad Comanditaria)

There are two types:

  • Simple Limited Partnership (Sociedad Comanditaria Simple): At least two partners contributing labor and, if necessary, money.
  • Limited Partnership by Shares (Sociedad Comanditaria por Acciones): More than three partners, of which at least one must be a general partner, and limited partners contribute through shares.
  • General Partners: Manage the business. Their liability is subsidiary, unlimited, and joint. They fall under the Régimen Autónomo.
  • Limited Partners: Do not manage the business. Their liability is limited to their contributions. They generally fall under the general social security scheme.
Sociedad Anónima (SA)

This is a capitalistic and commercial company where social capital, consisting of members’ contributions, is divided into shares. Shareholders are not personally liable for the company’s debts.

Features of SA:

  • Liability: Limited to each partner’s investment
  • Minimum Partners: 1
  • Minimum Capital: €60,101.21 divided into shares
  • Tax: Corporation Tax
  • Social Security: General rules if partners are employees
  • Naming: Any name followed by the initials “SA”
Governing Bodies of SA:
  • General Meeting (Junta General): Formed by all partners. It is the highest governing body.
  • Board of Directors (Consejo de Administración): Appointed by the board to represent and manage the company.
Limited Liability Company (Sociedad Limitada or SL)

The capital contributed by each partner limits their liability. The risk is limited to the contribution made, without affecting their personal assets. The free transfer of shares between partners is allowed for ascendants or descendants. Transfers to third parties are subject to limitations set by the company.

Features of SL:

  • Liability: Limited to each partner’s contribution
  • Minimum Partners: 1
  • Minimum Capital: €3,005.06 divided into equity
  • Tax: Corporation Tax
  • Social Security: General rules
  • Naming: Any name followed by “SL” or “SRL”
Governing Bodies of SL:
  • General Meeting: If there are more than 15 partners, it is formed by all partners and meets at least once a year.
  • Administrator: Manages and represents the company.

Society Business (Sociedad Laboral)

Most of the company must belong to personnel working indefinitely and full-time. They can be of two types: SAL (shares) and SLL (limited liability).

The operation is governed by the same laws affecting SLs or limited partnerships. No single partner can hold more than one-third of the total shares.

Types of Partners in Sociedad Laboral:

  • Worker Members (Socios Trabajadores): Work in the company and own 51%.
  • Non-Working Members (Socios No Trabajadores): Own shares but do not work in the company.
  • Employees: Work in the company but do not own shares. Their working hours cannot exceed 15% of those performed by worker-members annually.

Features of Sociedad Laboral:

  • Liability: Limited to the contribution
  • Minimum Partners: 3, with at least 2 being worker-members
  • Minimum Capital: SAL: €60,101.21, SLL: €3,005.06
  • Taxation: Corporation Tax
  • Social Security: General rules
  • Name: Any name with “SLL” or “SAL”

Cooperative Societies (Sociedades Cooperativas)

Groups of natural or legal persons with common interests or needs. They adhere to principles of independence from political entities, equality among partners, surplus distribution proportional to each partner’s contribution, and exclusive membership for employees with free and voluntary incorporation.

Types of Members in Cooperatives:

  • Cooperative Members (Socios Cooperativistas): Minimum 3 members, over 16 years old, providing the minimum amount specified in the statutes. They fall under the general social security scheme or the autonomous system.
  • Employee Members (Socios Trabajadores): Hired by the cooperative. Less than 10% of the total partners and not exceeding 50 people.
  • Adhering Members (Socios Adherentes): Provide capital not exceeding 33% of the total, as approved by the statutes.

Rights of Cooperative Members:

  • Participate in activities
  • Be eligible for corporate body positions
  • Submit proposals and vote
  • Stay informed
  • Receive refunds of contributions upon leaving

Duties of Cooperative Members:

  • Participate in training and meetings
  • Accept elected positions
  • Comply with agreements
  • Maintain confidentiality

Social Bodies of the Cooperative:

  • General Assembly: Composed of all partners
  • Advisory Board (Consejo Rector): Manages the cooperative, with at least 3 members
  • Intervenors (Interventores): Audit the accounts, with at least 3 members
  • Resource Committee (Comité de Recursos): Resolves member claims, with at least 3 members

Features of Cooperatives:

  • Liability: Limited
  • Minimum Capital: None
  • Minimum Partners: 3
  • Taxation: Income Tax
  • Social Security: General rules or autonomous system
  • Name: Any name followed by “S. Coop.” or similar designation

Non-Mercantile Companies

Community Property (Comunidad de Bienes)

Based on a contract where undivided property belongs to several persons (commoners).

Features of Comunidad de Bienes:

  • Liability: Unlimited
  • Minimum Partners: None
  • Minimum Capital: None
  • Taxation: Personal Income Tax
  • Social Security: General system or autonomous
  • Name: Commoner’s name followed by “C.B.”

Civil Society (Sociedad Civil)

A partnership agreement where two or more persons pool money, goods, or industry to share profits.

Features of Sociedad Civil:

  • Liability: Unlimited
  • Minimum Capital: None
  • Minimum Partners: 2
  • Taxation: Personal Income Tax
  • Social Security: Self-employed
  • Name: Any name followed by “S.C.”

Sole Proprietor (Empresario Individual)

Advantages:

  • Simple setup procedures
  • No minimum capital
  • Taxed according to personal income tax
  • Full control of the company
  • Public aid availability

Disadvantages:

  • Unlimited liability
  • Constitution and operation by a single person
  • Liability extends to the spouse’s assets if married