Understanding Limited Liability Companies (SL)
Concept of a Company and Its Elements
Section 116, Commercial Code: A company contract, where two or more persons agree to pool assets, industry, or both for profit, is commercial, regardless of its class, if it’s formed under this Code.
A corporation is a voluntary, durable, and organized association of people creating a joint capital fund to operate a business, aiming for individual profit and sharing the resulting gains.
Elements of a Corporation
- Association: A corporation is distinct from other associations (NGOs, etc.) because its goal is profit.
- Voluntary: It involves a free association of two or more persons (not mandated by law).
- Lasting: Partners intend to operate for a specific duration or indefinitely.
- Organized: Partners coordinate their efforts towards a common goal.
- Persons: Single-person companies are not allowed. Partners can be individuals or legal entities.
- Common Endowment: Members contribute to a capital fund. Contributions can be monetary, property, industry (labor/services), or in kind (real property, rights, etc.). Companies typically require financial assets.
- Operating a Business: Members participate in the company’s operations, which constitute its purpose.
- Individual Profit: Partners aim to generate profit.
- Sharing Gains: Profits are distributed among partners as dividends.
Difference Between Joint and Several Administrators
Companies appoint representatives, who can be a collegial body or individual administrators. Individual administrators can have several powers (one signature binds the company, and the administrator is responsible for the total debt) or joint powers (two or more signatures are required, and liability is shared proportionally).
Types of Administrators
- Several Administrators: Act individually; each can perform administrative acts and represent the company.
- Joint Administrators: Act collectively, requiring mutual consent. At least two must act together, as defined in the statutes, to represent the company.
Name and Title of a Limited Liability Company (SL)
An SL operates under a freely chosen name, but must include “Limited Liability Company” or its abbreviations (SRL or SL).
Limitations on Company Names
- Existing names are not allowed. A certificate from the SPTO is required to confirm name availability.
- Using a person’s name requires their consent, unless they are a partner.
- Names violating moral law or public order are prohibited.
- Official nomenclature (e.g., “Central Bank”) cannot be used.
- Misleading expressions are not allowed.
- References to activities not within the company’s object are prohibited.
Companies evolving from previous partnerships can retain their name but must add “SL” or “SRL”.
Statutory Prohibitions on Credit and Finance in an SL
An SL can grant credit, loans, guarantees, and financial assistance to companies within the same group. However, it cannot perform these actions for its members or administrators without General Board approval.
Corporate groups are defined under Article 42 of the Commercial Code.
Classes of General Meetings in an SL
The General Meeting is the primary decision-making body. All partners are bound by its agreements.
Its jurisdiction covers all agenda items and the Q&A session.
Types of General Meetings
- Ordinary: Mandatory meeting held within the first six months of the fiscal year to approve accounts, management reports, and dividends.
- Extraordinary: Non-mandatory, held as needed. Requires a 15-day notice in the BORME and a major newspaper, specifying date, time, and location (registered office municipality).
- Universal: Requires 100% partner attendance (100% of capital). No formal convening is necessary.
Shareholders with 5% of the capital can request a General Meeting or petition the court.
Ancillary Services
Ancillary services are secondary to the primary goal of profit generation.
Statutes can mandate ancillary services for all or some partners, specifying their content. These can be paid or unpaid.
Compensation for paid services must not exceed their value.
Formation of a Limited Liability Company (SL)
Formation requires a public deed registered with the Commercial Registry within two months and published in the BORME. Limited liability begins upon registration. Private agreements among partners are not binding on the company.
Formation involves simultaneous foundation by all founding members, in person or by proxy, who assume all shares.
Articles of Incorporation
Must include:
- Partner identities
- Designation as a limited liability company
- Contributions and assigned units
- Articles of association
- Initial administration organization
- Initial administrators and representatives
- Other lawful covenants and conditions
Statutes
Must include at least:
- Company name
- Company objects (activities)
- Fiscal year end date
- Registered office
- Social capital, share division, nominal value
- Administration organization mode
Characteristics of Limited Liability Company Law
The law’s characteristics are outlined in its preamble.
Underlying Assumptions
- Hybrid Character: Mixes personal (Collective Partnership) and capitalist (Anonymous Company) elements. It resembles a small Anonymous Company with limited liability.
- Essentially Closed: Share transfers and General Meeting representation are restricted unless otherwise stated in the statutes.
- Flexibility: Allows partners to adapt the law to their needs.
Legal Characteristics
of the Limited Liability Company:
Capital divided into shares.
The partners are not personally liable for debts incurred by society.
Profit, the partners aspire to make a profit from the activity.
- Differences between general partner and limited partner.
Limited partnerships at the confluence of two different types of partners, general partners and limited partners. Each has a number of different rights and obligations.
Thegeneral partners, serve the same functions that would meet in a partnership, therefore, whether or not managers thereof, shall be bound jointly and severally, with all its assets, the result of the transactions are made in the name and account of the company, under the signature of this and through a person authorized to use. In addition, be entitled to examine the state of the administration and accounting, and to make any claims as it deems useful to the common interest.
For its part, the limited partners may not consider the status and social situation of the administration but at the times and under such penalties which are prescribed in the contract of incorporation or additional, or do any act of administration of the interests of The Company, and even acting as agents of the managing partners. In addition, the liability of limited partners for the obligations and losses of the Company shall be limited to what they contributed.