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All about the legal form of companies

Want to create your own business? Get to know the different legal forms of companies to know which one to choose.

A legal form of companies should preferably be chosen with the support of an expert in the field. But, if you are considering creating your own business and want to start studying the particularities of each type of company right away, here are some tips.

Choose the legal form of the company

When the time has come to set up a company, you have to choose its legal form. This will depend on the number of entrepreneurs, invested capital and debt liability.

The legal form of the company also determines the name of the firm, ie its commercial designation, and will have an impact on the administrative costs that the entrepreneur will incur in managing his company.

Companies may take the following legal forms:

  • Sole Trader;
  • Individual Limited Liability Establishment;
  • Sole Proprietorship by Quotas;
  • Society in Collective Name;
  • Anonymous society;
  • Private Equity Company;
  • Limited Company.

Type of company: singular or collective?

The first step, with a view to choosing the legal form of companies, is to decide whether the company is formed by a single person or a group.

Legal forms of sole proprietorships

If you want to set up a company on your own, you will have to choose one of the following legal forms:

  • Sole proprietorship (ENI): the company is made up of an individual or a natural person, with no distinction being made between their personal assets and the assets that are allocated to the activity. That is, it allows you to allocate your own assets to the operation of your business. As for the IRS, the income of an individual entrepreneur is taxed in category B (business and professional income). There is no need for a minimum capital to start a sole proprietorship. The commercial name must contain the full or abbreviated name of the entrepreneur, and it is also possible to choose to add some expression related to the type of activity.
  • Individual Limited Liability Establishment (EIRL): in this case, there is a clear separation between the entrepreneur’s assets and those related to the company’s economic activity. Therefore, in the face of debts, only the assets of the business are liable. A minimum of €5000 of share capital is required. The commercial name must include, in addition to the full or abbreviated civil name of the entrepreneur, a reference to the branch of activity and the initials EIRL.
  • Single-member private limited company: in this situation, only one shareholder, who may be a natural or legal person, holds all of the share capital. This is freely defined in the contract, but it can never be less than 1 euro. The name of the company must include the expression “Sociedade Unipessoal” or the word “Unipessoal” before the word “Limitada” or the abbreviation “Lda”.

Types of collective companies

If you want to open a company with other partners, you must choose one of the following legal forms:

  • Private Equity Company: it cannot have less than two partners and the share capital, which is freely fixed, corresponds to the sum of its shares. The liability of the partners is limited to the share capital and only the company’s assets are liable to the creditors of the debts contracted by the company. The company name must be followed by “Limitada” or “Lda”.
  • Company in collective name: with a minimum number of two, the partners are liable in an unlimited and subsidiary manner before the company and are jointly and severally with the creditors. It does not require a mandatory minimum share capital. As for the designation, it must have the name of one or more partners, with the expression “e Companhia”, “Cia” or any other that indicates the existence of more partners, such as “e Irmãos”.
  • Anonymous society: the minimum number is 5 members. However, it can be formed by a single partner, as long as it is a partnership. The minimum share capital is €50,000 divided by shares. The liability of the partners is limited to the value of their shares in the company. The name of the company must be followed by the expression “Sociedade Anónima” in full or abbreviated “SA”.
  • Limited Company: may have two types of partners, limited partners and limited partners. The former have limited liability, that is, they are only liable for their capital contribution. The latter have unlimited liability and are jointly and severally liable for the company’s debts. In front of the name of the company, which is formed by the name of at least one of the partners, it is mandatory to contain the expression “Em Comandita” or “Comandita por Ações”.

When making a decision about the legal form that best suits your company, we recommend that you consult a professional, for example, at one of the Company On Time.

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