Exercises: The entrepreneur: profiles and legal framework

Explain in your own words what traits an entrepreneurial person usually has (initiative, risk tolerance, ability to organise and to learn from mistakes) and give a specific example of each trait applied to someone opening a local coffee shop.

Order these legal structures from lowest to highest minimum required share capital for their incorporation: public limited company, sole trader, and private limited company. Furthermore, indicate in which of them the owner is personally liable for the business debts with their personal assets.

The diagram summarises three very common legal structures in Spain and the minimum capital required for each. State which legal structure corresponds to the box marked with "?" and explain two differences between it and a private limited company.

The entrepreneur organises the resources, makes the decisions and assumes the risk of the business. Identify these three functions in the case of Omar, who leaves his job, invests his savings in opening a bakery workshop and decides which products to sell, at what price and whom to hire.

Explain what a company's share capital is and who contributes it. Two partners found a private limited company contributing $2.000\ \text{€}$ each: state what the initial share capital is and reason whether it meets the legal minimum required for this type of company.

Explain what a worker cooperative is and how it differs from a private limited company in the way important decisions are made (the "one person, one vote" principle). Give an example of a business that could be organised as a cooperative.

Four employees of a bicycle workshop that is about to close decide to buy the business together and keep working in it. Explain what an employee-owned company (sociedad laboral) is and why it can be a good fit in this case, stating in whose hands the majority of the capital remains.

Match each description with the legal structure that fits it best (sole trader, private limited company or public limited company) and justify your choice: a hairdresser who works alone on a self-employed basis; three friends who set up a comic book shop contributing $6.000\ \text{€}$ between them; an electricity company with thousands of shareholders and shares listed on the stock exchange.

Two friends want to open an online handmade cosmetics shop. They have hardly any savings, but they are worried about having to be personally liable with their personal assets if the business accumulates debts. Which legal structure would you recommend to them? Justify your answer considering the liability they would assume and the capital required.

Explain two differences between paying tax as a sole trader (under Income Tax / IRPF) and doing so as a private limited company (under Corporation Tax), and explain why an independent professional with modest earnings might be interested in starting as a sole trader.

Mei wants to register as a self-employed sole trader to sell her illustrations online. List and briefly explain three procedures or obligations she will assume from a legal perspective (tax registration with the tax authority, Social Security registration, tax and invoicing obligations).

Three partners found a private limited company for event organisation contributing $3.000\ \text{€}$, $3.000\ \text{€}$ and $6.000\ \text{€}$ respectively. a) Calculate what percentage of the shares corresponds to each of them. b) After a year, one of them wants to sell their part to someone outside the company: explain what limitations there are on the transfer of shares in a private limited company and why they exist.

An IT consultant works alone as a sole trader and invoices $45.000\ \text{€}$ a year. A large company offers him an important contract, but prefers to contract with companies. Analyse the advantages and disadvantages of setting up a single-member private limited company instead of remaining a sole trader (liability, image, taxation, paperwork).

The fifteen workers of a ceramics factory that is closing down want to buy it and run it together. Compare the worker cooperative and the private limited company for this case (who makes the decisions, who contributes the capital, where the profits go) and reason which one is a better fit.

Order and explain the legal steps to incorporate a private limited company in Spain: register the company with the Companies Register (Registro Mercantil), choose the name and obtain the company name certificate, draw up the articles of association, sign the public deed before a notary, contribute the share capital and obtain the company's tax identification number (NIF).

A private limited company makes a profit of $40.000\ \text{€}$ and pays Corporation Tax at the general rate of $25\ \%$. a) Calculate the tax it will pay. b) Explain one difference between this tax and the Income Tax (IRPF) a sole trader would pay on their earnings, and reason why Income Tax is said to be a progressive tax.

Marta invoices €60 000 annually as a sole trader doing web design (with net earnings of €38 000). To expand, she needs to hire two developers. An investor offers her €20 000 in exchange for 40% of the equity, but demands to be able to freely sell their stake to a competitor if they do not receive dividends within two years. In addition, Marta has just purchased a home of her own that she fears losing if the project fails.

1. a) Evaluate the legal viability of maintaining the legal form of sole proprietorship versus incorporating an SL (limited liability company) to satisfy Marta's objectives and the investor's demands.
2. b) Analyze the corporate governance conflict that would arise from the investor's intention to freely sell their stake in an SL, and propose a statutory clause or shareholder agreement that protects Marta's control without losing the investment.
3. c) Compare the impact of both legal forms on the capacity for self-financing if Marta plans to reinvest most of the profits into the business.

A technology-based startup plans to raise funds in three phases: an initial phase of €10 000 contributed by two founders, a second round of €150 000 with private investors («business angels»), and a third phase with hundreds of small investors through a crowdfunding platform who will demand to trade and sell their shares agilely without entry restrictions.

1. a) Justify why the Sociedad Limitada (SL) is ideal for the first two phases but dysfunctional for the third, contrasting the regime for transferring ownership shares (participaciones) versus shares of stock (acciones) in an SA.
2. b) An advisor suggests directly incorporating a Sociedad Anónima (SA) with €60 000 from day one, paying up only the legal minimum required. Explain how this initial paid-up capital and uncalled capital (dividendos pasivos) would work, evaluating whether it is worthwhile for the founders compared to starting as an SL and transforming later.
3. c) Evaluate the legality and advisability of including a statutory clause in an SL that declares «the transfer of shares to any third party completely free and without preemptive acquisition rights».

Lucas runs a restaurant as a sole trader, having invested €15 000 of his savings. After accumulating operating debts of €90 000 (with suppliers and financial institutions), the business ceases its activity. The liquidation value of the premises' assets is only €20 000. Lucas personally owns a primary residence valued at €130 000 and has €10 000 in his checking account.

1. a) Determine which assets creditors can claim if Lucas operated as a standard sole trader versus if he had previously registered as a Limited Liability Entrepreneur (ERL), specifying the requirements this status demands to protect the primary residence.
2. b) His brother-in-law argues: «If you had created an SL contributing €3,000, you would never risk your personal assets, no matter what happened with the debts». Technically refute this statement by analyzing two cases in which the courts or the law require the administrator or shareholder of an SL to respond with their personal assets (liability for corporate debts and piercing the corporate veil).

Four partners establish "EcoRutas SL" with a share capital of 30.000 €: Ana subscribes 40 % (12.000 €), Bruno 20 % (6.000 €), Carla 20 % (6.000 €), and David 20 % (6.000 €). David will take on the management and all operational work full-time, while the others will be exclusively capitalist partners. At the end of the financial year, after obtaining a net accounting profit of 24.000 €, Ana, Bruno, and Carla combine 80 % of the capital and approve in the general meeting to distribute 100 % of the profit as dividends, denying David a prior salary by arguing that he already collects his 20 % dividend.

1. a) Interpret the economic asymmetry suffered by David compared to the other partners and analyze the governance conflict generated between capital and labor in this general meeting.
2. b) Design a comprehensive corporate solution to shield David's situation: define how his work and his compensation should be channeled (deductible expense versus dividend), and propose what voting majorities or ancillary obligations (prestaciones accesorias) should have been established in the bylaws or shareholders' agreements to prevent the abuse of the capitalist majority.

Elena has been running a software development studio as a sole trader (autónoma) for four years. Last year she invoiced 190.000 € with deductible expenses of 45.000 €, has six employees on payroll, and plans to apply for an 80.000 € bank loan to purchase servers and licenses. Her business advisor warns her that maintaining ownership as a sole trader is a serious strategic and patrimonial mistake.

1. a) Justify why the growth of the workforce and taking on the bank loan make it inadvisable to maintain the sole proprietorship status, relating it to the liability regime and the creditworthiness assessment performed by the bank.
2. b) Compare Elena's tax bill if she remains a sole trader (taxed under personal income tax, IRPF, at marginal rates of up to 45 %) versus if she operates as a single-member limited liability company, SLU (Corporate Income Tax at 25 %), assuming Elena decides that 50.000 € of the annual net profit remains in the company to amortize the loan.
3. c) Explain what operational implications and transition costs are involved in contributing her ongoing business to a new SL (transfer of employment contracts, tax treatment of the transfer, and notarial formalization).

Faced with the imminent closure due to bankruptcy proceedings of a machining plant, 20 workers decide to resume the activity. Of these, 14 can contribute 6.000 € each by capitalizing their unemployment benefit in a lump sum, but the other 6 only have 1.500 € each. In addition, a former corporate client offers to contribute 40.000 € to finance initial inventory, but demands formal ownership participation and profitability in the new company.

1. a) Analyze whether the characteristics of this group and the entry of the investor are a better fit for a Worker Cooperative (Cooperativa de Trabajo Asociado) or an Employee-Owned Limited Company (Sociedad Laboral, SLL), contrasting the rules on minimum contributions, capital limits per partner, and voting rights for each form.
2. b) Deliver a reasoned opinion on which legal form they should adopt and determine what status the external investor would have in the chosen option to comply with Spanish corporate and labor legislation.
3. c) Design a financial policy for the company's bylaws that avoids decapitalization when the most senior partners decide to retire and withdraw their capital contributions.

Two siblings inherit in equal parts (50 % each) the shares of an SL engaged in logistics distribution, whose annual net profit is around 90.000 €. One of them acts as the sole director and wants to retain 100 % of the profits as reserves to modernize the vehicle fleet. The other sibling, who is not involved in management, demands to receive her share of profits as dividends to meet family needs. The general meeting is in a state of systematic deadlock, as each votes 50 % in opposite directions.

1. a) Predict the legal consequences for the company's viability if the deadlock in the general meeting continues over time, taking into account the grounds for dissolution set out in the Spanish Corporate Enterprises Act (Ley de Sociedades de Capital).
2. b) Analyze whether the sibling not involved in management can exercise the right of withdrawal due to lack of dividend distribution (Article 348 bis of the LSC) and what financial impact the liquidation of her share would have on the company.
3. c) Design two tie-breaking mechanisms or clauses (such as binding mediation, joint directors with a technical casting vote, or shotgun buy-sell clauses) that should be included in a family business protocol to resolve succession deadlocks.

Marcos invoices 75.000 € per year as a self-employed plumber doing renovation work and has 15.000 € in deductible expenses. He is considering setting up a single-member limited liability company (SLU) to pay 25 % in Corporate Income Tax instead of his progressive rate in personal income tax (IRPF). He needs 30.000 € net annually for his family expenses and plans to reinvest the remainder in acquiring commercial premises and a van for the business.

1. a) Interpret the real tax effect of both alternatives: analyze why the 25 % corporate tax rate cannot be directly compared to the IRPF tax brackets when the partner withdraws funds for personal consumption (double taxation via dividends or partner salary).
2. b) Justify the precautions established by the Tax Agency regarding the creation of single-member companies by individual professionals (related-party transaction criteria at market value and sham companies lacking their own material or human resources).
3. c) Provide a reasoned ruling on whether you advise Marcos to set up the SLU, weighing the potential tax savings, the protection of his personal assets, and the additional fixed costs (commercial accounting, filing accounts with the Commercial Registry, and corporate management).