Business Entity Types and Legal Structures Explained

Understanding Business Entities and Legal Structures

Core Business Classifications

Businesses can be broadly categorized based on their primary activities:

• Industrial Companies: These entities produce consumer goods or capital goods by transforming raw materials into finished products.
• Commercial Businesses: Primarily involved in the buying and selling of goods.
• Service Providers: Companies that offer expertise, such as consultants, insurers, banks, and other professional services.

Company Registration and Legal Formalities

After registration with the Board of Trade, the social contract of a company must be referred to the Federal Revenue Service (for CNPJ registration), the State Secretariat of Finance (for state registration), and the Municipal Government (for licensure).

Corporations (S.A.): These entities follow a similar registration process, but they register their bylaws (statutes) instead of a social contract. The securities market is regulated, monitored, and promoted by a federal agency (e.g., CVM in Brazil).

Defining a Trading Company

A trading company is a legal entity established under a contract or statute, intended to engage in trade. For this purpose, individuals or shareholders contribute cash, economic goods, or services to the company's assets.

Legal Personhood in Civil Law

In civil law, the term "person" has two primary meanings:

• Natural Person: An individual capable of assuming rights and obligations within society.
• Legal Entity (Legal Person): An association of two or more individuals, formed under a legal contract, possessing a separate legal existence and assets distinct from the individuals who compose it.

Types of Commercial Firms

The term "commercial firm" often represents the business name of an establishment. Its structure varies based on ownership:

• Individual Firm (Sole Proprietorship): Refers to an establishment owned by a single person. The business name is typically the owner's name (full or abbreviated).
• Corporate Firm (Social Firm): Applies when the business is owned by a commercial company, and the firm name is the company's registered name.

Specific Business Structures and Liabilities

General Partnership (Collective Company)

In a General Partnership (or Collective Company), partners are responsible without limit for the company's obligations.

Limited Partnership

A Limited Partnership distinguishes between two types of partners:

• General Partners: These partners actively work in the company and have unlimited liability.
• Limited Partners: These are shareholders who invest in the company, and their liability is limited to the amount of their investment.

Corporation (Sociedad Anónima)

A Corporation (Sociedad Anónima) is a company where the capital is divided into shares, and the liability of its members is limited to the value of the shares subscribed or acquired. The company's constitution, whether by private subscription of capital or by deed, considers all founding subscribers. The company's bylaws (status) define the capital value, which is denominated in the national currency.

Limited Liability Company (LTDA)

For a Limited Liability Company (LTDA), it is crucial that the expression "Limited" (or "Ltda.") follows the company name. The social contract must clearly state that the liability of shareholders is limited to the total amount of the capital. If the word "Limited" is omitted, all managers will be considered jointly and severally liable without limit.

Professional Service Company (S/C)

An S/C (Sociedade Simples or Simple Company) is typically a company or society made up of professionals such as engineers, doctors, lawyers, and other service providers.

Public Company (State-Owned)

A Public Company (also known as a state-owned company) is created by a specific law, often by the federal government, for the operation of economic activities that the government undertakes due to contingency or administrative convenience.