Choosing Business Legal Forms: Benefits and Drawbacks

Understanding Business Legal Forms: Pros and Cons

Characteristics of a Civil Company

• Unlimited liability
• Minimum 2 partners
• No minimum capital requirement
• Taxation: Personal income tax
• Social security: Freelance contributions
• Name: Free choice with the addition of "SC" (Sociedad Civil)

Advantages and Disadvantages of Choosing a Legal Form

Sole Trader

Advantages:

• Simpler constitution procedures compared to other legal forms.
• No minimum capital requirement for establishment.
• Taxed under personal income tax, with potential tax benefits for lower income brackets (up to 35%).
• The employer retains total control over the company.
• Public assistance may be available for establishment.

Disadvantages:

• Employer's liability is unlimited, risking personal capital.
• Establishment and management rest solely with one person.
• If married, liability may extend to the spouse's assets.

Limited Company (SL)

Advantages:

• Members' liability is limited; personal assets are not engaged in business activity.
• Shares are registered, allowing identification of holders.
• Simpler governance compared to corporations.
• No requirement for public disclosure of changes (e.g., address or name) as in Corporations (SA).

Disadvantages:

• Shares may have restrictions on transfer to external parties.
• Cannot be publicly traded.
• Mandatory audit of accounts in cases provided by law.
• Limited liability may be circumvented by personal guarantees, effectively leading to unlimited liability in certain situations.

Corporation (SA)

Advantages:

• Facilitates capital formation and accumulation through share issuance and transfer.
• Easy transfer of shares.
• Limited liability for shareholders.

Disadvantages:

• Requires higher minimum capital than other company types.
• High establishment costs.
• Potential for diluted control of capital.
• Greater complexity in governance and management.
• Mandatory audit of accounts in certain cases.

Cooperative

Advantages:

• Highly participatory and democratic structure.
• Access to various forms of aid and subsidies.
• Eligibility for protected fiscal status as a cooperative.
• Option to limit or not limit liability.
• No minimum capital requirements for establishment.

Disadvantages:

• Requires high consensus among members for decision-making.
• Variable remuneration for worker-members.
• More complex setup procedures.
• Annual obligation to allocate funds (e.g., 30% to reserve fund, 10% to education and promotion).