Module 4 - The legal stuff...
3. Registering your business & choosing a business structure
To carry out your business you must register it with the relevant authorities. Before doing this, you need to choose what type of company structure you want to use. Choosing the right business structure is an important decision as it has implications on your personal liability, funding options, taxation, reporting requirements and several other considerations. An summary of company types can be found in this overview of Points of Single Contact for each European Country.
Many founders choose a limited liability structure for their company as it creates a separate legal entity and protects their personal assets. If you think this is not right for you, speak with an advisor to determine which structure is most appropriate.
Below are examples of business structures found across Europe:
- Sole trader: this is a simple structure if you are conducting business by yourself. You will often be personally liable for the company’s debts.
- Limited liability private company: the most popular structure for startups. These companies are separate legal entities and directors/investors are only liable for what they have invested in the company. This means that if the business goes under and owes money, the liability sits purely with the business, not with you personally. In other words, no one can come after your personal finances.
- Partnership: these are legal entities where the partners share the profits and risks of the partnership. Traditionally, partners are personally liable for debts though this is not always the case.
- Cooperative: there are many types of cooperatives, these are characterised as member owned organisations, so the profits are distributed with members.
- Not for profit: these are legal entities that must reinvest all operating surplus back into the organisation to meet their stated aims.
- Social Enterprise: what this looks like depends on local legislation. In many countries, a legal social enterprise structure doesn’t exist. Where it does, it can be beneficial in helping attract certain types of grant funding or startup loans. The definition of a social enterprise is disputed though it generally points to a business that has environmental and/or social ambitions (not just financial ones).