When creating your business in Chile you should evaluate what kind of company is the most appropriate form to give legal personality to your business. One of the main goals for initiating an incorporation process, it is to separate the personal assets from the assets of the company, in order not to compromise the property of the partners in the business own risk.
For this reason the possibility of limiting the liability of the partners in the company acquires a gravitating importance when deciding what kind of company to form.
There are 4 types of partnerships commonly used at the time of incorporating and all of them share the feature to limit the liability of it members up to the amount of their contributions. It is worth mentioning that there are some cases where this rule does not apply to Individual Companies of Limited Liability.
The most common options when starting a business:
Limited Liability Company (Sociedad de Responsabilidad Limitada): it shares all the features, from administration as a partnership to the formalities of incorporation, with the Business Partnership (Sociedad Colectiva Comercial), with exception of the aptitude of limiting the liability of the partner up to the amount of their contribution. The name of the company must refer to the type of business or to the names of the partners and always must be accompany by the word “Limitada” or the abbreviation Ltda.
Individual Limited Liability Company (Empresa Individual de Responsabilidad Limitada): as the name implies is a kind of one-man “partnership” which does not allow the incorporation of new partners. Its regulation is quite clear and precise and seeks to provide a tool to formalize entrepreneurs who have usually worked alone. The name necessarily requires a reference to the business activity and the full name of the entrepreneur words “Empresa Individual de Responsabilidad Limitada” or the letters E.I.R.L.
Corporation (Sociedad Anónima): a kind of company, where the partners or shareholders participate through the purchase of shares, and the capital is the most relevant aspect. A Board of Directors elected by the shareholders must necessarily administer it. In turn, the board shall appoint a General Manager. For the name the only requisite is the mention of being a “Sociedad Anónima” or the letters S.A.
Simplified Corporation (Sociedad por Acciones): it is also a capital partnership similar to the corporation (in fact it rulers will apply in subsidy), but much more flexible when it comes to designate the way of administration and other clauses of the partnership. A single shareholder can create it and the name must contain the acronym SpA.
It is always advisable to consult a lawyer before initiating the process of incorporation.
Santiago Henriquez C. Lawyer
Picture: Aaron Burden (CC0)