Exercises: Types of business and legal structures

By size, businesses are broadly classified into micro-enterprises (fewer than $10$ workers), small businesses ($10$ to $49$), medium-sized businesses ($50$ to $249$), and large enterprises ($250$ or more). Classify: (a) the local greengrocer's, with $2$ employees; (b) the furniture factory in the industrial estate, with $120$; (c) a consultancy firm with $35$; (d) a supermarket chain with thousands of employees. Explain why size matters (grants, paperwork, bargaining power with banks).

Ana is a self-employed plumber (sole trader) and her business owes $\$400\,000$ to a supplier. If she cannot pay, she is liable with everything she owns, including her savings and, in the worst case, her home: that is unlimited liability. If the business were a private limited company, she would only lose the money invested in the company. Explain the difference between limited and unlimited liability and why a private limited company is said to "protect" personal assets.

The figure summarizes the four most common legal structures when setting up a business and their main characteristics. Below is a card with an unsolved practical case.

1. a) Choose the legal structure that fits Marta and explain why (she works alone, takes on low risk, and needs neither partners nor capital).
2. b) Now choose for three friends launching an app, contributing $\$6,000$ between the three of them, who want to risk only that money, not their savings or homes.

Choose the most appropriate legal form for each case and justify it: (a) Lucía, a graphic designer working alone for several clients; (b) three friends with an app who want to risk only the $\$120\,000$ they contribute; (c) five workers at a closing workshop who want to buy it together and make decisions in an assembly; (d) a bicycle factory seeking investors who will contribute $\$4\,000\,000$ and can sell their shares whenever they want.

To form a private limited company (SL), the law now requires a minimum share capital of just $\$1$, but until it reaches $\$3,000$ it imposes restrictions (for example, setting aside part of the profits as reserves); for a public limited company (SA), it requires $\$60,000$.

1. a) Explain what this initial capital is and who the law protects by requiring it (think about suppliers selling on credit to the business).
2. b) Sara and Leo each contribute $\$2,000$ for their video game studio: can they set up the private limited company (SL)? Do they have too much or not enough to reach the $\$3,000$ without restrictions?
3. c) Years later, they want to go public (float on the stock market) to raise large-scale financing: which legal form will they need, and why?

Classify these organisations according to their ownership — private, public, or social (cooperatives and social economy) — and explain what changes in each case (who owns it and for what purpose it operates): (a) the public television channel; (b) the corner supermarket, owned by a family; (c) a farmers' cooperative selling its members' oil; (d) the city hospital; (e) a bicycle factory with $200$ shareholders.

Marcos works as a self-employed plumber. He is offered a comprehensive renovation project budgeted at $\$45,000$. To take it on, he needs to take out a bank loan of $\$30,000$ to acquire machinery and a van, as well as hire two labourers. His personal assets include a primary residence valued at $\$140,000$ and $\$12,000$ in savings.

1. a) Design an asset-risk comparison evaluating what would happen if the client goes bankrupt and leaves the project unpaid: contrast the outcome if Marcos remains an individual sole proprietor (autónomo) versus if he previously incorporates a Limited Liability Company (SL).
2. b) Advise Marcos with a reasoned recommendation: weigh the protection of his home against the greater management obligations, incorporation costs, and accounting formalities of an SL for this specific case.

The eight female workers of a bankrupt printing shop want to rescue the business by contributing their severance packages. Four of them can contribute $\$15,000$ each (due to having greater seniority), while the other four only have $\$3,000$ each. They are hesitating between establishing a Worker-Owned Cooperative (Sociedad Cooperativa de Trabajo Asociado) or a Limited Liability Company (SL).

1. a) Evaluate the distribution of voting power and surplus in both corporate models based on the disparity in contributed capital. Predict what internal tensions may arise in the assembly or general meeting depending on the formula chosen.
2. b) If the printing shop urgently needs external bank financing to renew its machinery, anticipate and justify what specific obstacles or strengths the project will face depending on the legal form adopted.

In a forum on business start-ups, you read the following statement: 'Incorporating a Limited Liability Company is always the best option for any business, as it guarantees that you will never be liable with your personal assets and provides more prestige.'

1. a) Critically refute this statement: outline two real-world situations where the supposed asset protection of an SL proves ineffective (for example, regarding personal bank guarantees or debts with Social Security and the Tax Agency).
2. b) Design two entrepreneurship cases with opposing characteristics (taking into account initial investment, risk, and partners) and justify why for one it is more efficient to start activities as an individual sole proprietor (autónomo) and for the other it is essential to resort to a commercial company.