Starting a business is one of the most important decisions a person can make. Ideas flow, plans take shape, and enthusiasm mixes with uncertainty. But before launching your project into the world, there is a key legal aspect that can influence its success from day one: the legal structure of a company.
Choosing it correctly will affect administrative and tax management, and it will also influence legal liability and the insurance your business will need to be protected against potential risks.
Would you like to know all the details to choose the most suitable option and secure the future of your business? At Ambler, we have been working since 1991 to protect your business with tailored solutions, and we understand how essential it is to grasp this topic to make informed decisions. Today, we will explain what the legal structure of a company is, what the main available options are, and how this choice affects the insurance you need to purchase. First, let’s begin with its definition.
What is the legal structure of a company?
In simple terms, it is the set of rules that define its legal identity. It determines the relationship between the entity and its owners, the liability towards third parties, the tax regime, and how to interact with public authorities. In practice, it establishes whether you will be liable with your personal assets or only with the capital contributed, which books you will need to present, and which insurance coverage will be essential.
A proper selection impacts four key areas: economic liability, tax burden, the complexity of procedures, and protection against eventualities. Spanish regulations offer various structures that adapt to the level of risk, the volume of investment, and the growth plan of each activity.
Main legal structures in Spain
Let’s look at each of them in detail:
Sole trader or self-employed
The sole trader (commonly known as a self-employed person) is identified as an individual engaging in an economic activity. There is no distinction between business and personal assets: debts are covered by the entire present and future assets of the owner.
Its simplicity in formation and management flexibility attract those starting small-scale projects. However, unlimited liability and taxation under personal income tax (IRPF) can increase the tax burden as income grows.
To mitigate the impact of an accident or a claim, professional liability insurance (mandatory for professions such as doctors, architects, and lawyers), personal accident coverage, and temporary disability benefit policies are essential to preserve income if the activity stops.
Limited liability company (LLC)
This type has its own legal personality. The minimum share capital is €1, and liability is limited to the contributions of the founding partners. The incorporation process includes name reservation, bylaws, notarial deed, and registration with the Commercial Registry.
This structure is suitable for small and medium-sized enterprises that seek to separate personal and business assets. At the insurance level, multi-risk SME policies cover damage to facilities, equipment, and goods, while liability insurance protects against third-party harm. When multiple administrators are involved, it is advisable to have D\&O insurance to safeguard their assets against potential claims related to management decisions.
Public limited company (PLC)
This legal structure is aimed at larger projects, as it requires a minimum initial capital of €60,000, of which only 25% must be paid up upon incorporation. The capital is divided into shares, and the law imposes stricter transparency and corporate governance requirements than those for an LLC.
The size and visibility of these companies increase their exposure to claims from shareholders and authorities, which is why D\&O insurance is practically essential. In addition, there is a growing trend in the purchase of cyber insurance to minimise the impact of cyberattacks.
Civil partnership and community of property
They are ideal structures for small-scale collaborative activities that do not require significant capital. In most cases, both lack their own legal personality, meaning that the partners or members are personally, unlimitedly, and jointly liable with all their assets for the debts and obligations incurred. This contractual and administrative simplicity facilitates a quick start to the activity, but it involves considerable financial risk for all members.
Given the high level of personal exposure, it is essential for partners or members to take out liability insurance and coverage for damage to the activity. These coverages act as a minimum shield to protect against potential third-party claims or damages arising from the activity, helping to safeguard the personal assets of the members against unforeseen events during the development of their collaborative project.
Why does the legal structure affect the choice of insurance?
Each structure determines the scope of liability, the type of asset exposed, and the legal obligations related to the activity. A sole trader personally assumes the debts, so their policy must cover both the business and personal assets. In contrast, in an LLC or PLC, personal assets are, in principle, separate from the company’s obligations; premiums are calculated based on the company’s risk.
In addition, sector-specific requirements vary. Certain public contracts demand additional guarantees, and specific activities (such as healthcare or technology) may require specific professional liability or cyber protection coverage. Therefore, understanding the legal structure of a company is essential in order to design an insurance programme that combines cost efficiency and comprehensive coverage.
Recommendations
Before registering your legal structure, analyze the projected income, the number of partners, and the level of exposure to third parties. The decision is not irrevocable, but changing it entails costs, timeframes, and a complete review of the policies.
At Ambler, we accompany you through every phase: we assess your risk, propose tailored solutions, and negotiate with top insurers to secure competitive conditions. Our team of brokers will explain in simple terms what each insurance covers and how to integrate it into your business’s financial strategy, with no surprises and quick management.
Frequently asked questions about the legal structure of a company
¿La forma jurídica determina los seguros que necesito?
Yes, because liability, capital, and legal obligations vary with each structure. As mentioned earlier, a sole trader may require personal coverage that a limited liability company does not need, while a PLC must consider D\&O insurance and, often, cyber insurance.
Does a limited liability company need to insure its partners or just its employees?
The LLC does not require protection for the partners as such, but it does require insurance for administrators when they assume management functions. Group accident insurance and D\&O insurance are common to protect both the staff and the governing bodies.
Does a sole trader need the same insurance as an LLC?
No, although there are common policies (such as liability insurance for third-party damages). A sole trader is personally liable with their assets, so they usually add coverage for sick leave and accidents, which are not as priority in companies with internal succession.
Your business, protected from the first step
You now have the necessary knowledge to choose the right protection for your project. Remember that a proper design of coverage reduces unforeseen events and boosts the confidence of clients, suppliers, and investors. At Ambler, we offer tailored solutions that adapt to the legal structure of each company, with a professional and efficient service that protects your assets and business. Contact us With our team, receive advice designed to optimise the management and protection of your business.
