Forms of Business Organizations

All enterprises worldwide carry out their activities in the framework of the chosen legal form. The legal form determines the registration procedure, the size of the authorized capital, the list of constituent documents, the structure of governing bodies, and the rights and responsibilities of business owners.

Business activity can be carried out either with the formation of a legal entity or without such formation. There are three major types of businesses in the world:

• Manufacturing business;
• Merchandizing business;
• Service business

If business activities are carried out with the formation of a legal entity, then organizations can be divided into commercial and non-commercial depending on the objectives of the activity. Commercial (corporate) organizations include:

• Business partnerships;
• Business companies;
• Co-operatives;
• State-owned enterprises (SOE)

Non-profit organizations include:

• Public organizations or associations;
• Religious organizations;
• Non-profit partnerships;
• Private institutions;
• Autonomous non-profit associations;
• Professional guilds;
• Trade unions

An enterprise is an independent economic entity created (established) in accordance with the current legislation for the production of goods, the performance of work, or the provision of services in order to meet social needs and make a profit.

Following the state registration, an enterprise is recognized as a legal entity. In order to participate in business an enterprise should possess the following tangibles and rights:

• an enterprise must have separate property in its ownership, economic management and operational management;
• an enterprise is liable by its property, equipment and assets to its obligations in relations with creditors;
• an enterprise acts on its own behalf and has the right to enter into all types of civil law contracts with legal entities and individuals;
• an enterprise has the right to be a claimant and a respondent in a court of law;
• an enterprise must have independent financial statements and timely and diligently comply with the financial reporting requirements established by the relevant state tax authorities;
• an enterprise must have its own unique name, containing an indication of its organizational and legal form

Enterprises can be classified in the following categories:

• an enterprise producing capital goods;
• an enterprise producing consumer goods;
• a discrete manufacturing enterprise;
• a continuous production enterprise;
• based on the size, enterprises are divided into large, medium and small;
• based on the specialization and scale of production of a single-type product, enterprises are divided into specialized, diversified and mixed entities;
• based on the type of ownership, there are private enterprises, collective, state, municipal and joint ventures (enterprises with foreign investments)

IncFine lawyers are well aware of the organizational and legal structures of business entities throughout the world, since we have been successfully providing legal services to various types of enterprises, from sole traders to large corporations for many years.

IncFine specialists provide a full range of legal services in the field of private international law. We create appropriate conditions for a trustworthy dialogue with our customers, and provide them with comprehensive legal advices and prompt and all-inclusive feedback.

IncFine attorneys carry out legal examination of legal documents and forms and prepare sustainable and competent claims for international arbitration and judicial institutions. The international network of IncFine lawyers also represents the interests of individuals and legal entities in national courts in numerous jurisdictions throughout the world.

The United Kingdom

IncFine solicitors in the United Kingdom will be able to help you to form the company in Britain that fully meets your professional and business goals and long-term perspectives.

The legal forms of legal entities in the UK are quite different from those adopted in continental Europe. If a public limited company is close to a continental open joint-stock company, then for a private limited company there is no precise analogue on the continent; it can be said that it combines various features of a closed joint-stock company and a limited liability company.

Companies Act 2006 leaves unchanged all types of companies that can be currently formed in the UK:

• Private company limited by shares. The authorized capital of the company is divided into shares; shareholders are liable within the unpaid portion of the shares they own; such companies may not offer shares for sale to an unlimited number of persons.
• Private company limited by guarantee. Shareholder liability is limited to the amount they agree to contribute to the company's assets in the event of its liquidation.
• Private unlimited company. The company may or may not have share capital, while the responsibility of shareholders is not limited.
• Public limited company. The authorized capital of the company is divided into shares. These shares can be put up for public sale, and shareholders' liability is limited to the amount not paid on the shares they own (limited by shares) or the amount they agree to contribute to the company's assets in case of its liquidation (limited by guarantee). The fact that a company is public is reflected in its registration certificate - certificate of incorporation.
• Community interest company. This category includes companies limited by shares and not having share capital, as well as companies limited by guarantee, with or without share capital.

In the UK, it is also possible to form various kinds of partnerships, such as:

• General partnership. It is the union of several individual entrepreneurs for business. The main feature of the general partnership is that the responsibility of all partners is not limited by anything (as in the case of individual entrepreneurship). In the event of bankruptcy, the partners are responsible to the creditors with all their personal property. It is to note that such partnerships are rarely used in real life.
• Limited partnership. It is an organizational and legal form of business that combines the properties of a general partnership and a limited liability company. LP must have at least one general partner with unlimited liability. Liability of other partners may be limited by their contribution to capital.
• Limited liability partnership. In such a partnership the liability of all partners is limited to their contribution to capital. It is not required to have a managing partner in the LLP. LLPs can be registered in the UK, Singapore, Belize, and Gibraltar and also in some other jurisdictions. Because of its features, an LLP is of most interest for international tax planning purposes.

Notably, the professional activities of the partnerships are not governed by the Companies Act 2006.

The United States of America

There are several organizational forms of companies in the U.S. in which non-residents of the United States are allowed to act as founders:

• General partnership;
• C-Corporation;
• Limited liability company

Non-residents cannot be founding members of the following types of businesses and companies in the United States:

• Sole proprietorship;
• Limited partnership;
• Limited liability partnership;
• S-Corporation

The simplest and most cost-effective way of creating a company in the United States is to incorporate the Limited Liability Company (LLC). LLCs are widely used for activities such as software development, consulting, and some types of export-import operations. In the future, the company can be easily re-registered as the corporation. Limited Liability Company (LLC) is a fairly flexible legal form of an enterprise that has elements of partnership and corporate structures. This legal form provides limited liability to its owners in the vast majority of U.S. jurisdictions. Limited liability companies do not have to be always established for profit.

A limited liability company (LLC) is a type of unincorporated association and is not a corporation. The main feature that a limited liability company (LLC) has on a par with a corporation is limited liability.

C-Corporation is a business that belongs to the shareholders who bought the shares of the company. From the legal point of view, C-Corporation is considered as a separate legal entity for taxation and other legal purposes. This division protects shareholders and directors from liability in the event of financial or other business problems. All corporations have the status of C-Corporation by default, unless they have specifically applied for S-Corporation status.

C-Corporation status provides a number of advantages. Since such a corporation is a separate legal entity, it can enter into transactions on its own behalf, like any individual, but it is easier for it to get financial support (for example, in the form of a loan) than for other legal types of business organization. Unlike an individual business or partnership, C-Corporation owners have limited financial responsibility towards the company. Most owners cannot lose more than they paid for their shares, as their personal property cannot be claimed in case of any legal action against C-Corporation.

However, C-Corporation has several drawbacks. Dividends are actually subject to income tax twice. The first time a tax is levied on the income of the corporation as a legal entity, which occurs before the distribution of profits to shareholders. The second time dividends are taxed on income, since they are shareholder income. Corporations with less than 100 shareholders can avoid this double taxation by gaining the status of S-Corporation.

Status of C-Corporation is best suited for large businesses. For small and medium businesses, the best alternative is the status of S-Corporation, which gives owners limited liability and some tax benefits.

Knowledgeable lawyers from IncFine with thorough hands-on experience will provide you with full legal support regarding the selection of the company's legal and organizational form and company registration process in the United States, as well as with detailed information regarding the tax regime for your business in the United States.

The European Union: Germany

IncFine attorneys in Germany and other countries of the European Union can easily determine the most optimal legal and organizational form for your company and register a company for you in Germany or anywhere else in the EU.

Germany as a democratic state with transparent legal system offers a high level of legal security when it comes to forming a company there. There are a number of legal and organizational forms in Germany that include the following types of companies:

• Individual enterprise (Das Einzelunternehmen);
• Civil law society (GbR);
• Open trading society (OHG);
• Limited partnership (KG);
• Partnership (Die Partnerschaftsgesellschaft);
• Limited liability company (GmbH);
• Mini-GmbH;
• Joint stock company (AG);
• European joint-stock company (SE)

Non-residents of Germany can establish only three types of company in the form of:

• Limited liability company (GmbH);
• Mini-GmbH;
• Joint stock company (AG)

A limited liability company is the most common legal form in the Federal Republic of Germany. It acts in the economic turnover under its individual name, has its own rights and is liable for its obligations with its property. GmbH can be established by one or several individuals or legal entities. A foreign company may also act as a sole founder.

The maximum number of participants is not specified by law. Members of the company are not liable for its obligations and bear the risk of losses associated with the activities of the company to the extent of the value of their contributions. The law establishes the size of the minimum share capital in the amount of EUR 25,000, half of which must be paid by the participants at the time of submitting the application for registration of the company.

Mini-GmbH or Unternehmergesellschaft (UG) is a smaller version of well-known and traditional GmbH. A significant difference between UG (Mini-GmbH) and GmbH is the size of the share capital. In contrast to the minimum authorized capital requirement for GmbH, the minimum authorized capital for Mini-GmbH is just 1 Euro.

A joint-stock company (AG) is formed by one or several individuals or legal entities, who in exchange for their contributions take possession of the company's shares. Shareholders bear the risk of losses within the limits of the value of their shares. The minimum authorized capital of a joint stock company (AG) must be at least EUR 50,000. The founder of the joint-stock company is obliged to provide security for the unpaid part of the share capital. The authorized capital of a joint-stock company is divided into shares with a nominal value of at least 1 euro each and distributed among the founders-participants of the company. Shares can be issued in non-documentary form.

IncFine employs highly qualified lawyers with profound theoretical knowledge and extensive practical experience in a wide range of legal issues, who understand the international market perfectly well.