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The Private limited company, also known as LTD, is a type of Mercantile Society that is regulated in the Capital Companies Law and that is mainly characterized by limiting the liability of its partners to the capital contributed.
In this way, the Limited Company constitutes an excellent way to protect the personal assets of its partners, that do not respond with your personal assets of the debts that the company could acquire.
The Limited Partnership constitutes one of the most widespread corporate types throughout the world, being especially used by entrepreneurs.
Characteristics of Limited Companies
Abbreviation and denomination
All limited companies include in their business name, which is the denomination with which they are registered in the Mercantile Registry, the abbreviation “LTD”.
Number of partners
Unlike other types of companies, such as Corporations, only one person is sufficient for the constitution of Private limited company, which can be both Physical people how legal. In the case of Limited Partnerships with a single partner, they will adopt the denomination of Private limited company unipersonal.
Minimum share capital
It is made up of the money contributed by the partners to the company. In Limited Companies, this amount it must always be more than 3,000 euros, indispensable requirement to establish the company.
Contributions of the partners
Generally, they are given in the form of money (money). However, you are they can consist of anything else economically valuable, such as property or machinery.
The contributions of the partners are expressed in the form of social participation, so that the greater the number of shares by a partner, the greater their control over the company.
The registered office or domicile of the company will be the place where the company is located.
The corporate purpose is the activity or activities to which the company will be dedicated. For example, a restaurant established as a Limited Company would have the business purpose of selling and preparing food products.
Advantages of Limited Companies
- The legal regime is quite flexible, which allows quick responses to adverse changes without having to carry out complex procedures.
- Fast constitution: As we will see later, the Limited Company can be constituted in a few days, which allows handling the various bureaucratic procedures with an apparent simplicity.
- It does not require relying on third parties for its creation, being a single person sufficient number for its implementation and creation.
- Protection of personal assets: how we exposed you at the beginning, the responsibility of the partners reaches up to the amount contributed to society, leaving their individual assets protected.
- Private limited company offer a better financial and professional figure than a freelancer. This benefits the partners in their search for investors, as well as in some cases when accessing bank credit.
- Lower tax payment: Limited companies are taxed by the Corporation Tax, applying a fixed rate of 25%. This figure offers a great advantage, especially if we compare it with that of the self-employed, whose income segment can greatly exceed that percentage.
Disadvantages of Limited Companies
- The fiscal and accounting of an Private limited company is more complex than that of a self-employed worker.
- Transmitting social participation is not easy. It requires a complex procedure and these should always be transmitted by public deed.
- The limited liability in many cases is not such. This is because the creditors, such as a bank, before lending their money they can ask for a personal guarantee, which puts the assets of the members at risk in the event of debts.
- Another drawback is the need to raise 3,000 euros for the share capital, which is an entry barrier for some entrepreneurs.
What tax obligations and advantages does a Limited Company have?
Without a doubt, one of the biggest headaches that a Limited Liability Company usually has is the tax payment, being quite complex.
The tax obligations of the Private limited company can be summarized in four main taxes:
- Corporation tax (IS): It is a tribute to which all companies that have their domicile in Spain have to face. It is characterized by record the net profit obtained throughout the year, which is the main result of subtracting expenses from the gross benefits obtained. As we have already stated, it is 25%, which can be an important tax advantage if high invoices are given.
- Income Tax for Individuals (Personal Income Tax): Limited Companies with workers hired or subcontracting tasks to self-employed workers have the obligation to apply the withholdings on them as income tax.
- Value Added Tax (VAT): in Spain the benefits and deliveries of products, as well as services, are taxed by VAT, whose liquidation the Limited Company has to take over.
- Tax on Economic Activities (IAE): Like the personal income tax, it does not apply to all companies, since only those that invoice 1 million or more euros must face it.
- Other taxes: in addition to the above, it is worth noting that in some cases you have to pay others such as, for example, the IBI or garbage tax.
How is a Limited Company created?
The process of creating an Private limited company requires a series of steps and procedures that can be done in a few days.
Fundamentally there are two steps to its constitution:
- The Public deed, which to be signed by a notary.
- The Registration in the Commercial Registry, which is the place where all commercial companies are registered.
Organs of the limited company
The Limited Partnerships, once created, have to establish a way to make their main decisions, as well as a government to propel their future project forward.
That is why the law establishes as imperatives the existence of two organs: General Meeting and the Administration organ.
Is he body where all partners are present, being the living voice of these. In this way, it will be in charge of reaching the main decisions on the direction to be taken and followed by the limited company, some of which are:
- Approval of the Annual Accounts.
- Appointment as well as removal of administrators.
- Modification of the bylaws.
- The operations of increase or reduction of the share capital.
- The dissolution and transformation of society.
It constitutes the governing body of the Company, responsible for making day-to-day decisions, as well as to represent and force this against third parties.
Its function, without a doubt, is transcendental, depending on the future of many companies on how well or badly this organ does.
Likewise, remember, the administrators are appointed by the General Meeting, depending on the confidence of the partners to continue in command.