Understanding Business Legal Structures and Liability

Legal Forms of Business

When a group of people decides to start a business, they must decide which legal form is most convenient. This decision derives important issues such as the minimum number of partners, liability, and capital requirements.

Framework Considerations

• Relationship Framework: This determines hierarchies, salary structures, and duties.
• Benefit Distribution: Based on established relationships among participants.

From a legal point of view, there are two main types of entities:

• Sole Proprietorship ("person at your own risk")
• Company (involving several people)

Important Considerations for Partnerships

When creating a partnership, carefully consider:

• Relationships between partners.
• Benefit sharing agreements.
• Clarity regarding charges and statutes.

Legal Personality vs. Individual Status

Legal Person

Once a business entity is registered in the Commercial Register, it gains legal personality, acquiring a series of rights and obligations provided by law.

Individual Status

An individual's legal existence begins when their birth is registered at the registry office, granting them a set of rights and obligations provided by law.

Individual Employer (Sole Proprietorship)

This is the simplest and most numerous form, common in agriculture and retail.

Under Spanish law, this can be any person over 18 years old, emancipated minors regarding their property, or disabled persons acting through their legal representatives.

Key Features of Individual Employer Status

• There is no distinction between the assets of the business and the employer's personal assets.
• Assumes unlimited financial liability.
• If debt exceeds equity, the owner responds with their personal property.
• Liability: Personal assets are at risk.
• Social Security: Must register as self-employed.
• Income Tax: Subject to Personal Income Tax (IRPF).

Steps to Establish

Register in economic activities and register as an independent professional.

Business Operation: Abstract Thought

Effective business operation requires:

• Synthesis capacity.
• Ability to draw conclusions.
• Setting different parameters.
• Causation of phenomena.

Concealment of Assets: When an employer removes money from the business funds intended to pay business bills or debts, it constitutes a crime.

Beware!! Always be mindful of your responsibilities and obligations.

Companies (Partnerships/Corporations)

A company is formed by a social contract where several people pool capital or labor, or both, to engage in economic activity for profit.

In other words: When several people decide to pool their labor or capital to start a business project.

Depending on their activity, there are three main types:

1. Trading Companies

Voluntary associations of individuals or legal entities seeking to obtain benefits through profits generated by the society.

1.1. General Partnership

• Involves several members pooling their labor, capital, or both.
• Benefits are distributed according to each partner's contribution.
• The personality of each key partner is significant; decisions often require mutual agreement.

There are two types of partners:

• General Partners
• Industry Partners

Features of General Partnership:

• Liability: Unlimited for general partners.
• Minimum Members: 2.
• Minimum Capital: None required.
• Taxation: Income tax applies.
• Social Security: Partners register as self-employed.
• Name: Must include the name and surname of at least one partner.