LESSON 2 IBL: INTERNATIONAL DIMENSION OF COMPANY LAW: THE EUROPEAN UNION LEGAL FRAMEWORK

1. Companies and other legal forms of business organisation in International Business Law.

Companies and other organisations are central actors in international business law. Alongside natural persons, they serve as instruments that give legal form to business activity.

In particular, companies (also called corporations) and other business entities provide the legal framework for collective business ventures—those in which ownership and control are exercised by groups of individuals who must be organised according to law. These forms differ from individual business activity, where the legal holder is a single trader or entrepreneur.

Such organisations are recognised in law as legal persons. Unlike natural persons, they do not exist by nature but as intellectual constructs, or legal fictions created to allow groups of individuals to cooperate.

• The notion of legal personality has deep historical roots: already in medieval law and in early mercantile practice, jurists developed the idea of the universitas or collegium to explain how associations, guilds, and cities could act as a single entity in law.
• Through the fiction of  legal personality, the law grants organisations a distinct legal «existence», enabling them to own property, to enter into contracts, to appear in litigation, and to exercise governance functions regardless of the individuals who compose them.
• A fully incorporated company or organisation maintains its legal identity independently of the specific individuals who make up its membership or management. In other words, it continues to exist and operate according to the law regardless of changes in shareholders, directors, or other members. This principle is essential in business law, as it ensures that the company can enter into contracts, hold property, and be subject to legal obligations and rights stably and predictably, separate from the personal circumstances of its participants.

 

 Different types of legal persons that are important in IBL

Building on the general concept of legal personality, international business law recognises a variety of organisational forms. Each of these entities embodies the legal fiction of personhood in its own way, shaped by its purpose, governance structure, and capital arrangements.

• Partnerships, or sociedades de personas (sociedades colectivas), are usually classified as personalist entities. Their legal personality is closely tied to the identity of their members, who often assume unlimited liability and participate directly in management. This makes them suitable for professions or activities where personal trust among partners is decisive.
• Corporations represent the opposite model: they are capitalist entities, in which the legal personality is detached from the individuals who provide the capital. Shareholders contribute funds but are not personally liable beyond their investment. This separation between ownership and management, reinforced by limited liability, makes corporations the predominant form for large-scale business.
• Cooperatives occupy an intermediate ground. Their legal personality is designed to serve the collective interests of members, often balancing economic participation with social or community goals.
• Foundations are distinct because they are not based on members but on a dedicated pool of assets organised for a specific purpose. In civil law systems, they enjoy legal personality as autonomous entities and (in the Spanish legal system) they must serve a general interest.
• An institution that is related to Foundations  in common law is the trust, which, though not a legal person in the strict sense, performs similar functions by separating legal ownership (trustee) from the beneficial interest (beneficiaries).
• Associations represent voluntary groupings of individuals that acquire legal personality when recognised by law (ie, when they are registered in a public registry for associations). Unlike partnerships, their aim is often non-profit, but in some jurisdictions, such as in Spain, associations may also engage in economic activity.

Another important distinction is between incorporated and non-incorporated entities and companies.

• Incorporated entities, such as corporations (Public Limited Companies – in Spain, Sociedad Anónima-, limited liability companies -in Spain, Sociedad Limitada- and Foundations acquire legal personality through a formal act of incorporation and registration. They are registered in a public registry, enjoy separate patrimony, and can act as autonomous subjects of rights and obligations. Their existence does not depend on the continuity of their members, since the legal person persists even if ownership or management changes.
• Non-incorporated entities, on the contrary, lack full legal personality or enjoy only a limited degree of recognition. IE: Sociedades de personas (sociedades colectivas) and unregistered associations fall within this category. They may act collectively to some extent, but their legal standing is often derived from the direct responsibility of their members. In many systems (such as in Spain), the partners are personally liable for the obligations of the entity, and the organisation may dissolve when a member withdraws.

The divide between incorporated and non-incorporated forms is fundamental in international business law. It reflects the balance between flexibility and formality, between personal responsibility and autonomous legal existence, and it explains why incorporated structures dominate in large-scale, capital-intensive activities, while non-incorporated ones remain common in small or trust-based ventures.

Let’s look at these figures one by one:

Foundations (incorporated entity)

• They have no members.
• They have no shareholding.
• They do not have issued capital, although they do have assets.
• Foundations are legal persons, composed of assets whose objectives are determined by their founder.
• Article 34.1 of the Spanish Constitution states: «The right of Foundation is recognized for purposes of general interest, in accordance with the law.» Therefore, in Spain, foundations are created to serve the general interest and not solely the interest of the founder or their family. Some countries, however, recognize private-purpose foundations.

Trusts (English law trusts) (non-incorporated)

• They are not legal persons in the strict sense, although they perform similar functions.
• They separate legal ownership of assets (held by the trustee) from the rights of the beneficiaries.
• Trusts allow the organisation of assets for specific purposes, protecting property and controlling its use according to the settlor’s instructions.
• They are widely used in estate planning, investment management, and asset protection.
• Even without their own legal personality, trusts can sue and be sued through the trustee, and their existence is recognised by English law and other common law systems.

Associations (incorporated or non-incorporated)

• They voluntarily group individuals for collective purposes, usually non-profit.
• They acquire legal personality when formally recognised by law or registered in an official registry (this latter case implies that the Association is incorporated).
• The members of the association  participate in management according to the statutes and internal rules of the association.
• In some jurisdictions, associations may carry out economic activities, although their main purpose is usually social, cultural, or community-oriented.
• The association’s legal liability varies from country to country and from one tyme of association to other. Often, members are subsidiarily liable for the obligations of the association if it is not incorporated.

Companies 

• Companies are legal persons created to organise collective business activity.
• Commercial Companies are usually classified into main types: personalist entities and capitalist entities, mutual organisations (such as cooperatives).
• Companies operate under specific legal frameworks that define their rights, obligations, and governance structures.
• They can own property, enter into contracts, borrow funds, and engage in litigation independently of their members.
• Governance is often structured through boards of directors or managers, separating decision-making from ownership in capitalist entities.
• Personalist entities, by contrast, usually involve direct participation of members in management and decision-making.
• The flexibility of company forms allows adaptation to different economic activities, from small partnerships to multinational corporations.
• In cross-border business, understanding the type of company is essential because liability, capital requirements, and recognition of legal personality vary between jurisdictions.

Personalist companies (partnerships / sociedades de personas / sociedades colectivas)

• Members often assume unlimited liability and participate directly in management.
• They are suitable for businesses where personal trust and professional reputation are central.
• In many jurisdictions, these entities can be non-incorporated, meaning they lack full legal personality and that partners are directly responsible for the obligations of the entity.

Capitalist companies (corporations / sociedades capitalistas)

• Corporations are usually incorporated, registered in public registries, and enjoy perpetual existence regardless of changes in ownership.
• These companies acquire full legal personality through incorporation (a formal agreement or constitution filed in a public registry)
• Their legal personality is independent from their shareholders.
• Shareholders contribute capital but are not personally liable beyond their investment.
• Management and ownership are separate, allowing companies to scale and attract investors.
• They are created by founding members who contribute money or assets to form the company’s capital.
• Examples: Sociedad Anónima (S.A.), Sociedad Limitada (S.L.), and Sociedad Anónima Europea (SAE).

Minimum Capital Requirements in capital companies in Spain:

• Sociedad Anónima (S.A.): Requires a minimum capital of €60,000, with at least 25% paid up at the time of incorporation.
• Sociedad Limitada (S.L.): The minimum capital is, since 2022, of €1. (Until the capital reaches €3,000, the company must allocate 20% of its annual profits to a legal reserve until the total capital and reserve amount to €3,000).

• Registration: Registration in the Companies House (Registro Mercantil) is a requisite for these entities to acquire full legal personality.

Incorporated vs. Non-incorporated entities

• Incorporated entities, such as corporations, limited liability companies, and foundations, acquire legal personality through the formal process of incorporation. They can enter into contracts, own property, sue and be sued.
• Non-incorporated entities, such as unregistered partnerships and associations, have limited legal recognition. Their capacity to act collectively often depends on the direct responsibility of their members, and the entity may dissolve if a member leaves.

This classification helps understand why incorporated capitalist entities dominate large-scale and capital-intensive businesses, while personalist and non-incorporated forms remain common in smaller, trust-based, or professional ventures.

 

More (about  incorporated «capital» companies)

• Nationality and Domicile of Companies. Companies have a nationality and a domicile, defined differently across legal systems:
  • Real Seat Theory: Nationality is linked to where the company is managed (e.g., Germany).
  • Incorporation Theory: Nationality is determined by the place of incorporation (e.g., UK).
  • Spanish System: A hybrid. According to Arts. 8–10 LSC, a Spanish company, has its registered office in Spain and must indicate its administrative or main operational centre. Third parties may consider either domicile. Nationality and domicile determine the applicable legal system, legal capacity, and jurisdiction.

Foreign companies’ legal capacity to act and trade in Spain (capacidad de obrar). Foreign companies (and individuals) can trade in Spain.

• Art. 15 Código de Comercio establishes that foreign entities follow their own nationality laws for legal capacity but must comply with Spanish law regarding establishments and operations within Spain, subject to Spanish courts.
• Exceptions arise in international business contexts.

Groups. A group of companies arises when several legally independent entities are brought together under the economic control and strategic direction of a single parent company . Despite maintaining their separate legal personalities, these companies operate as an integrated whole, coordinated to pursue shared business objectives. The defining characteristics of a corporate group include:

• Dependence relationships: Subsidiaries rely on the parent company for strategic decisions, financing, or operational direction, even though they retain legal independence.

• Centralised economic governance: Key policies, resource allocation, and overall business strategy are determined at the group level, ensuring coherence and coordinated action across all entities.

Art. 42 of Spanish Commercial Code defines a group via majority voting rights or control over boards. Vertical groups must file consolidated accounts, non-vertical groups do not.

Comparative Company (and Securities Law) in relation with capital «formation». USA vs. EU

• USA: Popular capitalism, state-regulated company law, federal securities law (SEC), soft law governance.

• EU: Bank-centred funding, blockholders, variable board structures (single vs. dual), corporate governance influenced by soft law (Cadbury Code, Código Unificado de Buen Gobierno), harmonisation via MIFID2, MIFIR, and supervision by ESMA, EBA, EIOPA.