Limited companies are the most common corporate form worldwide. They provide limited liability—shareholders are only liable for the amount they have invested. The entity is treated as a separate legal person: it can own assets, incur debt, sue and be sued, and it files its own tax returns. Naming conventions vary by jurisdiction:
- Spain and most Latin American countries: Sociedad Anónima (SA)
- Germany: Gesellschaft mit beschränkter Haftung (GmbH)
- Netherlands: Besloten Vennootschap (BV)
- United Kingdom, Hong Kong, Canada: Ltd, Inc., Corp., or simply “Limited”
All of these structures function similarly, differing mainly in local terminology.
Sole proprietorship (sole trader)
A sole trader operates without a distinct legal entity. Business income is treated as personal income, and the owner bears unlimited liability—any debts or legal claims fall directly on the individual’s assets and credit. Because liability is not limited, many entrepreneurs transition to a limited company once the business grows beyond a modest scale.
Partnerships
Partnerships involve two or more members who share profits and losses. Taxation is generally flow‑through, meaning each partner reports their share of income on personal tax returns. Liability varies by partnership type:
| Type | Liability | Typical Use |
|---|---|---|
| General partnership | Unlimited for all partners | Small professional firms |
| Limited partnership (LP) | One or more general partners with unlimited liability; limited partners liable only up to their capital contribution | Real‑estate projects, investment funds |
| Limited liability partnership (LLP) | All partners enjoy limited liability | Law and accounting firms |
In many jurisdictions the partnership itself is not taxed as a separate entity; the tax burden passes to the partners.
Joint ventures and joint‑stock companies (JSC)
A joint venture is a contractual arrangement similar to a partnership, often used for a single project. A joint‑stock company (JSC) is a larger corporation whose shares may be publicly traded. In some countries—e.g., Georgia and Bulgaria—a JSC can conceal shareholder identities, showing only directors in public registries. This structure typically requires multiple directors, higher paid‑up capital, and more complex formation procedures.
United States‑specific entities
The U.S. legal system includes several forms not commonly found elsewhere:
- S corporation (S corp): Treated tax‑wise like a sole trader (flow‑through) but provides limited liability. It is a “disregarded entity” for tax purposes, meaning the IRS treats the income as belonging to the owner.
- C corporation (C corp): The standard corporate form; taxed separately from shareholders, with dividends subject to double taxation.
- B corporation (B corp): A not‑for‑profit corporation; may lack charitable status and can still be subject to tax.
- Limited Liability Company (LLC): Highly flexible; owners are called members and hold membership interests rather than shares. An LLC’s default tax classification depends on the number of members:
- Single‑member LLC → taxed as an S corp (flow‑through)
- Two‑member LLC → taxed as a partnership (flow‑through)
- More than two members → taxed as a corporation (C corp) unless an election is made
- Any LLC can elect a different tax treatment via the “check‑the‑box” rules.
Series LLC and protected‑cell entities
A Series LLC (available in some U.S. states) allows one legal entity to contain multiple “series,” each with separate assets and liabilities. This is useful for holding multiple real‑estate properties: each property resides in its own series, insulating it from claims against other series.
Common‑law jurisdictions such as the UK have a comparable structure called a protected cell company (or protected cell entity). The concept is identical—one umbrella company with distinct cells that limit liability to the assets of each cell. Adoption can be limited by banks’ unfamiliarity with the structure.
Special Purpose Vehicles (SPV)
An SPV (or SPE) is a separate legal entity created to isolate financial risk. It typically has no beneficial owners disclosed publicly. SPVs are used to:
- Pool resources for a specific project while keeping liabilities off the parent’s balance sheet (e.g., Enron’s infamous use)
- Facilitate government or central‑bank interventions, such as the Federal Reserve’s recent purchases of corporate bonds via an SPV created by the Treasury
Because SPVs conceal ownership, they can be scrutinized by regulators and banks, and they are generally employed only in sophisticated financing arrangements.
Cross‑border tax considerations
When an entity exists in one jurisdiction but is owned by persons in another, tax treatment can diverge:
- An Australian tax authority may treat a U.S. LLC as a partnership (flow‑through), while Canada may treat the same entity as a corporation.
- Misaligned classifications can affect deductible expenses, timing of tax liabilities, and eligibility for tax credits.
Businesses operating internationally should therefore assess:
- Liability protection needed for owners and investors.
- Tax flow‑through vs. separate corporate taxation based on expected profit distribution and the owners’ tax residency.
- Number of members/shareholders—large numbers may trigger public‑company requirements (e.g., >500 shareholders in the U.S.).
- Administrative complexity and cost—structures like JSCs, series LLCs, or protected cell companies involve higher formation fees and ongoing compliance.
Choosing the appropriate entity hinges on balancing these factors against the specific legal and tax environment of each jurisdiction.
