A limited liability company (LLC) or a limited liability partnership (LLP) is a commercial company with the status of a legal entity, the capital of which is divided into equal, cumulative and undivided shares. Its partners are not personally liable for the company's debts, but only for the amount of the capital contribution. It is widely used by small self-employed entrepreneurs who thus limit their liability to the capital contributed, avoiding being liable for the debts of their business with their personal assets. According to information provided by Santander Bank.
Characteristics of the limited partnership
The rules of limited liability companies determine their characteristics, the most relevant of which are as follows :
- The minimum number of members is one, with no maximum. If there is only one partner, a sole proprietorship is established. They can be natural persons or legal entities.
- The liability of the partners is several and is limited to the investment of the capital contributed to the company.
- The company name shall consist of the company name followed by the initials L.P. or L.L.C, as the case may be; it must be registered in the Mercantile Register and its name must not coincide with any other name already registered with another company.
- The minimum share capital is EUR 3,000/PLN 5,000, which can be paid in cash or in kind.
- The social capital can be divided into shares and transferred preferentially between partners.
- The legal domicile must be in the relevant territory; if the limited liability company changes its domicile in this city, it must be coordinated with the company's administrator; if it is changed outside this city, it must be approved at a general meeting.
- L.P. the articles of association must indicate the object of the company, i.e. what the company's main activity will be.
- A management body must be defined and enshrined in the statutes. In addition, they have a supreme body, the general meeting of members, from which decisions affecting any aspect of the L.P. are taken.
- Limited liability companies must file quarterly and annual VAT returns and pay corporate income tax.
Advantages of the limited partnership
The advantages of this type of company are as follows :
- Incorporation is simpler and cheaper than in a public limited company.
- Its partners' liability is limited to the capital investment, so there are no personal assets involved. Funds will be protected unless the bank requests a personal guarantee or if there is malicious or criminal activity.
- The costs of incorporation are affordable, as well as easier access to bank credit because banks are better informed about how they work.
- 100% of the initial capital must be paid up, as opposed to the 25% that must be paid up in public limited companies.
- It gives a more professional image than the sole proprietor because, if the company becomes larger, corporate taxation can be better than income taxation and access to grants and subsidies.
- Tax advantages can be realised since, in these corporations, the self-employed can build up their own salary, and reduce it as an expense.
Disadvantages of the limited partnership
The disadvantages of limited companies are the following :
- The minimum capital figure, EUR 3,000/PLN 5,000, can be considered small and insufficient to carry out the activity and does not give the bank the solidity to finance.
- The identity of the partners is fixed and there is no freedom to transfer shares. Companies cannot be listed on the stock exchange and, as there is no regulated market, the selling price is determined by the shareholders.
- Setting up a limited liability company can take a long time. On average, it usually takes about 40 days.
- The bank will be responsible for requesting a personal guarantee if necessary to obtain the necessary financial resources. Limited liability may therefore be affected.
The main constituent bodies of limited liability companies are  :
Firstly the meeting of partners , an organisation where the members of a corporation meet to make decisions that bind the corporation to certain activities. The general meeting is not a spontaneous meeting, but a meeting duly convened by the management on its own initiative or at the request of shareholders representing at least 5% of the share capital. It must be called at least one month in advance.
There are two types of general shareholders' meetings, ordinary and extraordinary. The ordinary meeting is held when stipulated in the articles of association, always within the first six months of the financial year, in order to review the management of the company and approve, where appropriate, the annual accounts for the previous year and the proposed distribution of profits. As for the extraordinary meeting, it may be called by the directors when an urgent matter needs to be dealt with, the courts of justice or the company's directors if requested by the shareholders.
Secondly, the administrative bodies. It is a person or group of people, the shareholders' meeting and the administrators (whether or not constituted as a Board of Directors), who are committed to manage it and concentrate their efforts to make it profitable, grow and fulfil the purpose for which it was created.
- Mancuso, A. (2022). Your Limited Liability Company: An Operating Manual. Nolo.
- Mancuso, A. (2021). Nolo's Quick LLC: All You Need to Know About Limited Liability Companies. Nolo.
- Sánchez, M. (2019). Sociedad de Responsabilidad Limitada. Universidad de Murcia.
- Stooker, R. (2010). Master Limited Partnerships. Gold Egg Investing, LLC.
Author: Mónica Guijarro,Gabriela Valera,Zaira Bancells