Legal forms of a company: Find out about its characteristics

Dare to fulfill your business dream! Of course, first, find out about all the legal options.

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Are you dreaming of starting your own company? Perhaps this is one of the most exciting life projects that exist in your professional career, and the last step to climb to a position as a leader in your sector, but, beyond the vast knowledge that you have about this area, it is important to master other administrative and legal concepts before starting a business, such as, for example, the legal form of the company that best suits you.

In this post we will talk about the different legal bases on which a business can be supported, so keep reading if you want to know all the options.

What is the legal form of a company?

The legal form of a company refers to the legal and organizational structure under which it operates. It is a crucial decision that entrepreneurs must make when establishing a new business, as it affects various aspects, such as legal liability, taxation, and management structure.

Choosing the correct legal form is vitally important, as it directly impacts the viability and long-term success of the company. For example, the choice between being a public limited company, a limited company or a sole proprietorship will determine the financial responsibility of the owners, the tax burden that the company must bear and the flexibility in decision-making. The appropriate selection of the legal form contributes to the protection of the interests of the owners, optimizes the operational structure and facilitates compliance with legal and tax obligations. Thus, understanding the implications of each legal form and choosing the most appropriate one for the specific circumstances and goals of the business is essential to establishing a solid and sustainable foundation in the business world.

Main legal forms of a company: Which one would you choose according to its characteristics?

Self-Employed – Also known as self-employed or self-employed, it is a simple form of organization in which one person is responsible for all decisions and assumes full legal and financial responsibility for the business. This type of structure is suitable for small businesses with a single owner.

Limited Partnership: Similar to a limited partnership, the LLC combines the flexibility of a small business with the protection of limited liability. The partners are responsible in proportion to their shares, and management can be carried out by the partners themselves or by designated administrators.

Public limited company: in a public limited company, the capital is divided into shares and the liability of the shareholders is limited to the amount of their investments. It is usually an option for larger companies, with a more complex ownership structure. It requires the constitution of a general assembly and the election of a board of directors.

Cooperative: In a cooperative, members collaborate to achieve common economic and social objectives. Each partner has a say in the decisions, regardless of their financial participation. Cooperatives can take various legal forms depending on the country and specific legislation.

Civil society: this type of society is usually made up of professionals (such as doctors, lawyers, etc.) who associate to provide common services. The liability of the partners may be unlimited or limited, depending on the specific configuration.

Community of property: is a form of association between people who come together to jointly own and manage certain property or assets, without forming a separate legal entity, such as a company. In a community of property, participants share ownership and often management of those assets, but do not create a formal legal structure for the association.

What criteria should you follow to choose the best legal form for your business project?

Choosing the appropriate legal form is a strategic decision that must be based on a careful analysis of the following criteria:

Legal and financial responsibility: Evaluate the level of responsibility you are willing to assume. Legal forms such as the limited or joint stock company offer limited liability, protecting the personal assets of the owners, while others, such as the sole proprietorship, imply unlimited liability.

Size and nature of business: Consider the size and nature of your business. Larger companies can benefit from more complex structures, such as public limited companies, while small businesses can opt for simpler forms, such as sole traders or limited companies.

Number of partners or owners: the number of people involved in the business can influence the choice of legal form. Limited and joint stock companies allow the participation of multiple partners, while the sole proprietorship is an option for businesses with a single owner.

Tax burden: analyzes the tax implications of each legal form. Some offer tax advantages, while others may have higher tax rates. Consult a tax advisor to understand how each form will affect your business taxes.

Flexibility and formalities: consider the level of flexibility and legal formalities required by each legal form. Some, such as the sole proprietorship, are more flexible but may involve less legal protection, while others, such as public limited companies, may have more formal requirements.

Ease of management: evaluates the complexity of the company’s management. Some legal forms, such as sole proprietorship, are simpler to administer, while others, such as public limited companies, may require more elaborate management structures.

Capital Requirements: Determines the capital requirements to establish and operate the company under each legal form. Some may require minimal capital, while others may be more flexible in this regard.

Growth expectations: Consider your company’s growth expectations. Some legal forms are more suitable for growing companies that plan to seek investments or go public.

Nature of the activity: some business activities may have specific regulations that affect the choice of legal form. Make sure you understand how applicable laws and regulations may affect your business.

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