Individual Entrepreneur vs. Limited Company: Key Differences
Individual Entrepreneur vs. Limited Company
Individual Entrepreneur: An individual entrepreneur can be of legal age or an emancipated minor, or a disabled minor represented by their legal representatives. The individual entrepreneur’s liability is unlimited. If only one person exercises the activity, the following considerations must be taken into account:
- Real estate owned by the employer and spouse.
- Assets acquired during the business activity.
- Separate property of the spouse is only affected with express consent by public deed and registration in the Mercantile Registry.
- Assets remain subject to marital consent, even without the other person’s consent.
Companies
Companies are associations of people who create a common fund for mutual benefit. The company contract must be formalized in a public deed and registered in the Mercantile Registry.
Companies are classified as:
- Personal Companies: Where the personal circumstances or knowledge of the individuals forming the company are valued more than capital.
- Capital Companies: Where the capital contribution is essential. The main types are:
Sociedad Anónima (SA)
In an SA, the company’s capital is divided into shares, which can be freely transferred, and the partner’s liability is limited to their contribution. The company can be formed by one or more natural or legal persons. Shareholders are not personally responsible for the company’s debts. The minimum capital required is €60,101, of which 25% must be paid up at the time of incorporation. Shares represent a fraction of the social capital and can be freely transferred, incorporating the following rights:
- Right to attend the Annual General Meeting.
- Right to dividends.
- Pre-emptive right.
- Right to share in the liquidation.
- Right to information.
Company Organs
General Board of Shareholders: The shareholders’ meeting deliberates on matters and makes decisions for the company. There are different types of General Meetings: Ordinary, Extraordinary, and Universal.
Administrators: Persons who perform the functions of management and representation of the company. This can take various forms: Sole Administrator, two or more Administrators, or a Board of Directors.
Causes for Dissolution and Liquidation
- Agreement of the General Meeting.
- Compliance with the term established in the statutes.
- Conclusion of the company’s purpose or manifest impossibility of achieving it.
- Reduction of the company’s assets to less than half of the social capital.
- Merger or division.
- Reduction of capital below the legal minimum.
- Any other cause established in the statutes.
Sociedad de Responsabilidad Limitada (SL or SRL)
The SL (or SRL) is commonly used by small and medium-sized businesses because it is flexible and adapts well to their needs. It can be used to limit the responsibilities of individual businesses. The company name cannot be the same as any other and must be followed by SL or SRL. There is no minimum number of members required; it can be a single-person SRL (Sociedad de Responsabilidad Limitada Unipersonal) or two or more in another case. There is a limited social capital, and it cannot be less than €3,000, which must be fully subscribed and paid up at the time of incorporation. To incorporate the company, a public deed is required, along with registration within two months. The participations represent a fraction of the social capital, and each partner has the same rights as shares in an SA. Titles that facilitate their transmission, as occurs with shares, are not allowed.
Company Organs
- General Meeting: The supreme organ of the company.
- Administrator(s): Responsible for the management of the company and accountable to the General Meeting.