Company Classification Criteria and Factors for Choosing a Legal Structure

Summary

This document explains the main ways companies are classified, including by size, economic sector, area of activity, basic function, legal form and capital ownership. It also outlines the criteria to weigh when choosing a legal form for an enterprise: asset risk, financing type, power distribution and fiscal cost.

Key points

Companies are classified by size (small, medium, large, SMEs and multinationals), economic sector, area of activity, basic function, legal form and capital ownership.
Primary sector companies use natural raw materials; secondary sector companies transform raw materials into products; tertiary sector companies provide services.
By area of activity, companies may be local, provincial, regional, national or multinational.
Producers transform raw materials into products, while commercial enterprises promote exchange without transforming goods.
By capital ownership, companies may be private, public (state-owned) or joint ventures combining public and private capital.
Choosing a legal form depends on asset risk, financing type, power distribution among owners and fiscal cost.

Test yourself

Criteria for Company Classification

According to Size

Companies are differentiated into small, medium, and large enterprises, including SMEs (Small and Medium-sized Enterprises), and multinational corporations.

According to the Economic Sector in Which They Operate

Primary Sector Companies: These utilize raw materials found in nature, and their production process involves encouraging the natural development of these elements for market.
Secondary Sector Companies: These carry out technological processes to transform raw materials into products.
Tertiary Sector Companies: These are entities whose basic function is the provision of services.

According to Areas of Activity

Companies are distinguished by their operational scope: local, provincial, regional, national, and multinational.

According to Their Basic Function

They can be producers, whose production function involves the transformation of raw materials into products. Commercial enterprises, on the other hand, have the primary task of promoting exchange relations without engaging in transformation.

According to Legal Form

A company can be an individual entrepreneur or a society (company).

According to Capital Ownership

Companies can be:

Private enterprises, whose capital is owned by individuals.
Public companies, whose capital is owned by the state.
Joint ventures, where some capital belongs to public entities and some belongs to individuals.

Choosing the Legal Form of an Enterprise

The criteria to consider when making this decision are:

Asset Risk: This refers to the degree of responsibility property owners are willing to assume.
Financing Type: If the developer wishes to incorporate new partners to provide resources, the company will have to adopt a specific social form.
Power Distribution: This would be a function of the degree of involvement in the management and administration of the company desired by each of the owners, if there are several.
Fiscal Cost: Different legal forms may represent different tax burdens depending on the company's size or if they adopt protected forms of social economy.

FAQ

What are the main criteria for classifying a company?

Companies are classified by size, economic sector, area of activity, basic function, legal form and capital ownership. Each criterion highlights a different characteristic of the business.

What is the difference between a producer and a commercial enterprise?

A producer transforms raw materials into products. A commercial enterprise mainly promotes exchange relations and does not engage in transforming goods.

What factors should be considered when choosing a company's legal form?

The main factors are asset risk, financing type, power distribution among owners and fiscal cost. Each affects liability, the ability to attract partners, control and tax burden.