Main legal forms of a company

There are several legal forms of setting up a company. Each of them has particularities that make it better suited to a certain type of business project. The Ministry of Industry, Trade and Tourism recognises about twenty legal forms of companies; we are going to describe the main ones.

The number of partners involved in the project, the type of liability they wish to assume and the share capital they must provide for the constitution of the company are the three essential characteristics that will make us choose one legal form or another.

Individual entrepreneur

Also called self-employed, this is the case in which a natural person habitually carries out personally, directly and on his/her own account, an economic or professional activity for profit, with or without dependent workers. It's the formula of choice for anyone who wants to develop a business on an individual basis and to manage it directly. There is no minimum capital required to start the activity. In this case, the liability regarding the company's performance is unlimited since there is no differentiation between the company's assets and their personal assets. Therefore, if the business goes badly, the individual entrepreneur will be responsible for the debts with their own assets. This is the legal form that involves the least amount of paperwork for its constitution and is recommended for small businesses.

General Partnership (Sociedad Civil - SC)

It is that which is established between two or more persons who pool a capital with the aim of distributing among themselves the profits obtained. General partnerships shall have legal personality when their agreements are public: The Tax Office understands this to be the case when its promoters apply for a Tax Identification Number (NIF). No minimum capital is required to constitute a general partnership, and capital can be contributed in cash, goods, work, services or general activity. The liability of the partners is unlimited, i.e. they respond with their personal assets to the obligations of the company.

Limited Company (Sociedad Limitada - SL) or Limited Liability Company (Sociedad de Responsabilidad Limitada - SRL)

This is one of the most common legal forms of company. An SL is a capital company with a commercial nature and its own legal personality, which may have one or more partners. Its share capital (a minimum of 3,000 euros) is made up of the contributions of all the partners and is divided into indivisible and accumulative shares. In the Limited Liability Company the partners are not personally liable for the debts of the company, but only up to the capital contributed, hence its name. It is a type of company recommended for small and medium enterprises in which the partners are involved in the business project with a view to remaining in the company over time.

Public Limited Company (Sociedad Anónima - SA)

It is a commercial company in which the share capital, which is divided into shares, is made up of the contributions of its partners. An S.A. may be formed by one or more partners, who may be either natural or legal persons. In any case, the liability of the partners or shareholders is limited to the capital contributed. The share capital to form an SA must amount to a minimum of 60,000 euros, of which at least 25% must be subscribed and paid at the time of constituting the company. A significant feature of SA companies is that shares can be freely transferred. SA companies have two types of corporate bodies: on the one hand, the general shareholders' meeting, which expresses in its resolutions the will of the shareholders, and on the other hand, the directors, who are responsible for the permanent management of the company. The Public Limited Company is an appropriate legal form for large companies, which need to mobilise significant amounts of capital to develop their projects and in which it does not matter so much who the shareholders are.

Cooperative Society (Sociedad Cooperativa - S. Coop.)

It is another legal form of company creation in which the company is formed by several people who associate freely and voluntarily to carry out business activities, aimed at satisfying their economic and social needs and aspirations, with a democratic structure and functioning. The minimum number of members to constitute a Cooperative Society is three, and the minimum share capital will be that defined by the members in the articles of association. This must be paid in full at the time of the constitution of the cooperative. The members' liability is limited to the capital they have contributed to the company. There is a varied typology of cooperative societies, first and second degree (the latter being those formed by other cooperatives).

If you are going to start the process of setting up a company, it is advisable that you know the main legal forms, their characteristics and requirements.