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There are many different legal forms of business throughout Europe. Still, in this article, we concentrate on the legal form of company that should match the requirements for a regular business, which is a company with limited liability.
The other form of business, like partnerships, sole traders, foundations, trusts etc., lack the one specific feature that any business owner should seek, which is a separation of his or her own assets from the assets and, more importantly, the liabilities of the business. Without this, a failure of the business could result in claims from creditors, bankers, tax authorities, and others for outstanding amounts owed by the business and renders the owners liable for any legal claims for damages. So, the natural choice, and by far the most popular one, is to set up a company with a legal entity whose owners have no personal liability.
Individual countries inside the European Union all currently have their own laws regarding the permitted legal forms of business entities inside their own jurisdictions.
In 2008, the EU Commission proposed the Small Business Act to establish a common EU-wide applicable private limited legal form, called the European Private Company (aka Societas Privata Europaea). It is intended for small and medium-sized enterprises (SMEs), but not large multinational corporations. The proposal has not been accepted yet by all members. This means the legal form of business in each country remains relevant. Still, within a few years, there is a strong likelihood that all EU member states will have agreed to and adopted this regulation. Any plans you make for establishing a new business enterprise inside Europe should take this into account.
In the meantime, we describe here the more common legal forms of limited liability business organizations in the major European countries.
Even before Brexit, the United Kingdom had what was probably the most straightforward and adaptable structure for SME business. That’s why so many new fintech, high-tech and other growth sectors set up their operations in England. The overwhelming majority of new SMEs register as Private Limited Companies – designated as Ltd or Limited. Ownership of the company is by shares, and shareholder liability for company debt is limited. In other words, they are not personally liable for the company’s debts in the case of bankruptcy. Its shares cannot be traded publicly.
A less popular form is Private Company Limited by Guarantee. The liability is limited to the amount the members undertook to pay in the event of its being wound up.
There is also the possibility of an Unlimited Company where there is no limit on the liability of its members. It is similar in terms of liability to a partnership but allows for the transfer of ownership. These companies are exempt from public disclosure of their records.
Public companies with shares traded on the market are designated plc.
LTDs make up the overwhelming majority of companies in the UK and account for two-thirds of the jobs and nearly 60% of the gross domestic product in the country.
In Switzerland and Germany, business entities go under the general title of Gesellschaft. Companies which are the equivalent of the UK’s LTD company are designated as ‘Gesellschaft mit beschränkter Haftung’ (GmbH). Public traded companies are designated Aktiengesellschaft (AG ).
France has a more complex legal form of business. Still, most common for SMEs is the Société à responsabilité limitée , designated as SARL or SàRL, the equivalent of UK’s limited company Ltd. Large corporations are called Société anonyme – designated SA, the equivalent to UK’s plc.
The Scandinavian countries all have similar forms of business organization. Private companies are equivalent to UK’s Ltd. Public companies are equivalent to UK’s LTD.
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