Companies
Two engineers who start a business without incorporating it are personally liable, with their own assets, for the debts of the business. Choosing the type of company is choosing how much to put at risk.
01What a company is
Under Article 1 of the Ley General de Sociedades (General Companies Law, Law 19,550), a company exists when one or more persons, organized according to one of the types the law provides for, undertake to make contributions in order to produce or exchange goods or services, sharing in the profits and bearing the losses. The company is a legal entity distinct from its partners, with assets of its own: it contracts, invoices, incurs debts and answers for them with its own property.
What changes from one type to another is, above all, how much the partners are liable for with their personal assets when the company cannot pay. For two engineers setting up a development company, that is the most important decision in the articles of association.
02The types of company
| Type | Capital is divided into | Liability of the partners | Typical use |
|---|---|---|---|
| General partnership (sociedad colectiva) | Partnership interests | Unlimited and joint and several, secondary to the company | Almost obsolete |
| Simple limited partnership (en comandita simple) | Partnership interests | Unlimited for the general partners; limited to their contribution for the limited partners | Almost obsolete |
| Capital and industry partnership (de capital e industria) | Partnership interests | Unlimited for the capital partners; the industry partner answers up to the profits not yet received | Almost obsolete |
| Limited liability company (SRL) | Quotas | Limited to the paid-in value of the quotas; all partners guarantee that the capital is paid in | SMEs, up to 50 partners |
| Corporation (sociedad anónima, SA) | Shares | Limited to the paid-in value of the subscribed shares | Medium-sized and large companies; can have a single shareholder (SAU) |
| Limited partnership with shares (en comandita por acciones) | Shares and interests | Mixed | Rarely used |
| Simplified stock company (sociedad por acciones simplificada, SAS) | Shares | Limited to the paid-in value of the shares | Start-ups, even with a single person (Law 27,349) |
The SRL and the SA account for almost all real business activity. The SAS, created in 2017 by the Law on Support for Entrepreneurial Capital, simplified incorporation —it can be done by digital means— and has a low minimum capital, equivalent to two minimum living and adjustable wages (salario mínimo, vital y móvil).
03How it works inside
| Function | In the SRL | In the SA |
|---|---|---|
| Governance: the fundamental decisions | Partners’ meeting | Shareholders’ meeting |
| Management and representation | Managing partners (gerencia) | Board of directors and its chair |
| Oversight | Optional, depending on capital | Statutory auditor (sindicatura) or supervisory board, mandatory in certain cases |
Whoever manages must act with the loyalty and diligence of a prudent businessperson (buen hombre de negocios; Article 59). If they fail in these duties they are unlimitedly and jointly and severally liable for the damages. Limited liability protects the partner, not the manager who acts badly: an engineer who is the managing partner of their own SRL can end up answering with their personal property.
04The company that was never incorporated
Two partners who start working together without registering anything already form a company, just one that fits no type: these are the companies under Section IV of the law (Articles 21 to 26). They operate, can contract and the company exists as a legal entity, but the partners are liable to third parties with their personal assets, in principle in equal shares, unless something else has been agreed.
The change from the regime before 2015, which made everyone liable for the whole amount, softened the risk but did not eliminate it: the saving from not incorporating the company is paid for by exposing each partner’s house and car.
05Other ways to organize
- Natural person: an engineer who invoices in their own name, as a simplified-regime taxpayer (monotributista) or as a VAT-registered taxpayer (responsable inscripto). It is the simplest option and the person answers with all their assets.
- Cooperative (Law 20,337): an association of people with a common purpose, with one vote per member regardless of capital. There are worker cooperatives providing technical services and telecommunications.
- Temporary joint venture (unión transitoria; Article 1463 of the Civil and Commercial Code): two or more companies join together for a specific project or service without forming a new company. It is the usual way to bid together on a large tender.
06Where it shows up in electronics
| Situation | The form that is usually advisable |
|---|---|
| An engineer who provides services alone | Natural person, or a single-member SAS if the risk of the work is high |
| Three partners setting up an automation company | SRL or SAS |
| A company looking for investors in order to grow | SA or SAS, because shares are easily transferred |
| Two companies bidding together on a telecommunications tender | Temporary joint venture |
07Activities
Look up in Law 19,550 and Law 27,349 the incorporation requirements for an SRL and an SAS and build a table with minimum capital, number of partners, governing bodies and formalities.
Obtain a model SAS articles of association from the public registry of your jurisdiction and identify the corporate purpose, the capital, the management and the way decisions are made.
Two partners repair equipment without incorporating a company and a customer sues them for damages. Explain whose assets each one answers with and what would have changed with an SRL.
08Common mistakes
- Starting to operate without incorporating the company. The partners are exposed with their personal assets.
- Believing that limited liability protects a manager who acts badly. A negligent manager answers with their own property.
- Mixing the company’s accounts with personal ones. It weakens the separation of assets and can lead to extending liability to the partners.
- Choosing the type without thinking about growth. Changing from one form to another later costs time and money.
09Self-assessment
How far is a partner in an SRL liable?
Up to the paid-in value of their quotas, and together with the other partners they guarantee that the capital is paid in.
Which types allow a single member?
The single-shareholder corporation (SAU) and the simplified stock company (SAS).
What duty does the person who manages a company have?
To act with loyalty and with the diligence of a prudent businessperson (Article 59).
What form do two companies use to bid together on a tender without creating a new company?
The temporary joint venture (unión transitoria).
10Further reading
- Ricardo A. Nissen. Curso de derecho societario. Hammurabi (in Spanish). The reference textbook on Law 19,550, updated with the reforms of the 2015 Code.
- Ley General de Sociedades (General Companies Law, Law 19,550) and Law 27,349 on support for entrepreneurial capital. Updated texts. InfoLEG (in Spanish). The types, the governing bodies and the SAS regime, in their current version.
- Efraín Hugo Richard and Orlando Manuel Muiño. Derecho societario. Astrea (in Spanish). A systematic treatment, with attention to the liability of partners and managers.