LEGAL PERSONALITY

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Attribution by the legal system of rights and obligations to persons, entities or organisations for the purpose of to carry on business activities with full legal validity vis-à-vis third parties. The fact that a person or entity has a recognised legal personality implies that the law protects and safeguards you. Thus enabling it to exercise its full legal capacity.

A legal person comes into being according to a legal act or act of incorporation, i.e. a legal founding event that is recognised by administrative bodies and authorities, which may require it to be entered in public registers or to fulfil certain legal conditions.

Differences

Legal persons and natural persons are different on many levels, even though they are both legal entities that imply the fulfilment of certain duties and the enjoyment of certain rights.
In fact, legal persons can be composed of natural persons or of other legal persons, whereas a natural person necessarily corresponds to an individual.

Types of legal persons

1. Legal persons under public law. Those that represent state entities and look after their interests.
2. Legal persons under private law. Those representing particular interests, regulated by specific trade codes.

TYPES OF ORGANISATIONS POSSESSING LEGAL PERSONALITY:

1. The corporations of public interest.
2. The partnerships both in the public interest and in the private interest (if the law has granted them their own personality).
3. The foundations of public interest, consisting of assets that are earmarked for a (usually altruistic) purpose.

In order to choose the most appropriate legal form, the analysis by the entrepreneurs should mainly take into account:

• Number of partners. 
• Turnover, expenditure and profit outlook.
• Responsibility that one is willing to take on.
• Financial needs of the project.

ADMINISTRATIVE FORMALITIES

Some procedures are absolutely essential, such as registering as self-employed, in order to access subsidies, grants or acceleration programmes such as the EOI.

The easiest thing to do is to start out as a freelancer, and when you see that your volume of annual turnover is going to 40,000 or more, to become a S.L. Unipersonal. If there are already several founding partners from the beginning, it is preferable to create an S.L. taking advantage of the fact that they can now be set up in a few days and with only one euro of share capital.

In order to start up the business, it is necessary to identify the main procedures and requirements - mandatory or simply advisable - which should be reflected in the implementation timetable.

LEGAL FORMS

The legal form of your company is its legal name, and depending on the form you choose, you will assume different responsibilities under the law. This basically means that the legal form is the modality by which a company chooses to carry out a business or professional activity. This form will determine, in turn, both the company's tax obligations and its liabilities to third parties and even its internal operating regime.

Put as simply as possible, the legal form is the legal identity of our company. And it is important to choose well because it will help us when it comes to managing our finances.

Types of companies according to their legal form

What legal forms are there? There are basically three types:

1. Individuals. In this case, the owner of the company is a single person who has unlimited liability to third parties (meaning that he/she will be liable for the company with all his/her personal assets).
2. Corporate. In this form, the company takes the form of a commercial company in any of its variants (public limited company, limited liability company, partnership or limited partnership).
3. Cooperatives. In this form, the partners are liable for the company with the capital contribution they have made. It is usually governed by articles of association that govern the management of the company.

The most common legal forms among companies

Are there some legal forms that are more common than others when setting up a new company? Yes, there are, and here are some of them:

• INDIVIDUAL ENTREPRENEUR OR SELF-EMPLOYED

The individual entrepreneur or self-employed is a natural person who carries out an economic or professional activity for profit in a habitual, personal, direct and self-employed manner. He/she may or may not have employees, which means that it is not necessary for him/her to have them in order to carry out his/her business activity.

In this case, there is no minimum share capital to start the activity. The only compulsory outlay will be the funds to be invested when paying the relevant self-employment fee.

As already mentioned above, the individual entrepreneur has unlimited liability for the company, which means that there is no distinction between personal assets and business assets. And that, sadly, the entrepreneur will be liable with his own assets in the event that business debts arise.

Which legal form should I choose for my company?

At this point, you already know the main legal forms you can choose when setting up your new company. But you probably still have some doubts: you know the possibilities, but which one suits your new business best? Let's tackle the big question.

What factors should be taken into account when setting up a company?

In one way or another, you will have already intuited that there is a whole set of factors that are constantly recurring when it comes to typifying the different legal forms we have been talking about. So, if you are setting up a company, you need to ask yourself about your needs in respect of five specific factors...

• Number of partners: Will the company be formed by a single entrepreneur or by different partners?

  • A single partner can register as a self-employed person or create a sole proprietorship.
  • Several partners who wish to share the profits according to their contribution can choose SL or SA (in this case capital over 60,000 and more institutional governance) or cooperative if they wish to incorporate new employees into the capital.

• Professional activity: What is your company going to do? After all, there are legal forms that are more or less ideal for certain activities. And, likewise, some activities are more economically risky than others.
• Taxes. For incomes of less than 40,000 euros per year it is more interesting to be self-employed.
• Responsibility. Will the partners have limited or unlimited liability? This point has a lot to do with the financial health of the company, and needs to be clearly defined from the outset.

Choosing the right legal form for your new company is an important step in the process of setting up a company.

The choice of legal form will depend on a number of factors, such as the nature of your business, the number of partners, the liability you wish to take on, the tax burden you are willing to pay and your financing needs.

Here are some tips for choosing the legal form of your new company:

• Define the nature of your business: What is the corporate purpose of your business, are you going to offer a product or a service, do you have a scalable business model or a small, local business? The choice of legal form will largely depend on the nature of your business.
• Establish the responsibility you want to take on: Do you want to assume personal liability for the debts and obligations of the company, or do you prefer to limit your liability to the initial investment you have made? If you are looking to limit your liability, you may want to consider legal forms such as the Limited Company (SL).
• Consider the number of partners: If you plan to set up a sole proprietorship, you may want to consider a legal form such as the Autónomo or the Empresa Individual de Responsabilidad Limitada (EIRL). If you have several partners, then you may want to opt for a Sociedad Limitada (SL).
• Assess the tax burden: Each legal form has a different tax burden. When choosing the legal form of your company, you should consider the tax burden you are willing to pay and how it will affect your profits and losses.
• Think about funding needs: If you are seeking finance for your business, you may wish to opt for a legal form such as a Sociedad Anónima (SL), which allows the entry of external investors, or an SA if you are going to issue shares on the stock exchange.

SOME FINAL TIPS...

Once you have defined all these factors, however, it is understandable that you may still have some doubts.

To help you sort them out, here is a good set of final tips that can help you define the legal form of your new company:

• Go for the option that is the simplest and best suited to your possibilities as a new entrepreneur. If you have a business situation that supports a large legal form, go for it. If not, don't go for it.
• Common sense dictates that partnerships are the ideal legal form when there is more than one partner and that becoming self-employed is best for sole proprietors. But there are times when the context justifies bypassing common sense.
• Analyse in depth the needs (legal, technical and economic) of your business to find out what suits you best.
• Don't be discouraged if a legal form involves high taxation. You can always investigate options such as tax credits, deductions or state aid to make the numbers add up.
• Do not take the first step without having carried out an in-depth analysis of the administrative functioning of the legal form you have chosen.

This legal firm simulator (ver+) can help you a lot.