Is it better to start a business as a company or as an individual?

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If you are an entrepreneur, you may ask yourself if it’s best to start your business as a company or as an individual, and many other questions.

Below, we will list some practical questions, from a commercial point of view, which every entrepreneur should ask themselves when starting their business.

Are you torn between wanting to start the business as a natural person or a company?

It is true that setting up a limited liability company (SL) or a public limited company (SA) involves a number of expenses, such as notary fees, registry fees, admin fees, the requirement of presenting the annual accounts, etc. However, we shouldn’t forget that working through one of these companies has the advantage that if the business goes wrong, the employer will only be liable for the company’s share capital.

On the other hand, starting a new business venture as an individual, while saving costs such as those mentioned above, also means that the employer will be held responsible for the business performance and the debts incurred in the development of the company, with all its present and future assets.

The advantage of operating as a company should not be confused with the liability regime, which the administrators are subject to under the corporate legislation. Thus, as we mentioned before, although the partner will only be held responsible for third parties of the company with the contribution of the share capital if said partner is also the administrator, they will be responsible for the following: “The company, the partners and the company’s creditors, for the damage caused by acts or omissions contrary to the law or the bylaws, or for those carried out in breach of the duties inherent to the business, throughout the period in charge, provided that fraud or fault was involves” (article 236.1 of the current Spanish Corporations Law).

If you have an existing company but want to diversify with a new business activity, would it be better to start the business under the same company or a different one?

It goes without saying that every case is different and, to determine which path is the best one for your new business, it is also important to consider factors such as taxes, labour, and possible public assistance. All this will finally have a big influence on your choice of legal and fiscal status.

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