Most assume that they should do so via a company of some kind. They are not always right.
Even assuming they should use a company, where should it be located? What type of company should they choose? How much will it cost to set up and run?
This guide tries to answer some of those questions.
What is a company?
A company is a voluntary association or collection of individuals. Company members share a common purpose and unite in order to focus their various talents and organise their collectively available skills or resources to achieve specific, declared goals.
The individuals can be natural persons (real live people), legal persons (“bodies corporate” – groups which have a legal identity distinct from that of its members), or a mixture of the two.
A company can be created as a mere group of individuals or as a “legal person”.
A company that is a mere group of people (in most countries) does not have the power to enter contracts or take on legal obligations in the name of the company. Instead, its rights and responsibilities are those of the individuals who make up the group as a whole.
A company that is set up in such a way as to be a legal person – “to have legal personality” can have rights and responsibilities in its own name. For example, it can enter contracts. In this case the company will be responsible for performing its obligations under the contracts but the individual members of the company will generally have no personal responsibility to do so. Similarly, the company can perform wrongful acts – civil and criminal – and be responsible for them.
Some companies have “limited liability”. They are responsible for their own obligations but (unless they have behaved improperly) the individual members of the company have no or very limited personal liability for any default. Others do not have limited liability, in which case the members of the company are liable for any debts or obligations of the company.
Do you need to use a company?
If you are doing business there are usually various ways of doing so without using a company. For example, you could operate as a “sole trader” – i.e. just working on your own behalf.
For example, John Smith, plumber will probably not be operating as a company.
John Smith & Company, plumbers, will probably be a company but not a company with the benefit of limited liability – because companies that have this are generally required to include a word such as “limited” in their name.
Each country has its own rules but this will give you a general idea.
What types of companies are available?
Most countries permit different types of companies. Their names will change from country to country – and the details of what they can and cannot do will also vary – but they tend to include:
- Sole Traders: A business that is not a company. The person operating it does so with full personal liability
- Partnerships: A group of individuals operating together as a business – therefore a type of company but one with unusual characteristics. In many countries partnerships can trade in the name of the partnership and enter contracts in that name. They may also be treated as a separate legal entity for some tax and other purposes but the partners will have full personal liability for the debts and obligations of the partnership.
- Limited liability Partnership (LLP/LLC): A partnership set up in such a way as to offer the partners the benefit of limited liability
- Private Limited Company: This is by far the most common type of limited company. It is the least complicated type of limited company. It is the cheapest to set up and burdened with less regulation than its bigger brother, the Public Limited company. Its owners tend to be fairly small groups of individuals. Its shares/stock cannot be traded publicly on the stock market
- Public Limited Company: A company whose shares can be traded on a stock exchange
All these definitions are vastly over simplified – they all have exceptions – but should help give a basic idea of the available possibilities.
For a list of the types of companies available in each country, see this list of international company types.
See our company guides for each of the countries we cover for the detailed options and rules related to that country.
How do you set up a company in a foreign country?
There are two main ways. Some countries adopt the first, others the second.
Direct registration with a Companies or Mercantile Registry
Countries that take this option allow individuals to register a new company with the official registry of companies in the country concerned.
Generally, the process involves preliminary checking that the proposed name is permissible and available. Often, some names – e.g. University or College or Hospital – are restricted to organisations that qualify.
Assuming the name is clear; various details about the proposed company, its owners and directors are supplied to the companies Registry. A fee is paid and an official certificate of registration is issued.
This process can be quite quick and cheap. For example, in the UK you can complete the whole process in three hours at a cost of about £20.
Formation via a Notary
In these countries the same preliminary enquiries are made but the official paperwork setting up the company is prepared by a local Notary (usually a highly qualified lawyer, not the sort of notary found in the US and elsewhere who merely certifies the signature of documents).
The constitution of the company is then signed by its members/shareholders.
The notary then registers the company he has created.
This tends to take longer (up to two weeks) and cost more than the direct method.
In both cases
In both cases there will often be other formalities required; for example, registering the company and its directors for tax and social security.
See our company set up guides for each of the countries we cover for the detailed options and rules related to that country.
How long does it take and how much does it cost?
The World Bank produces a great list that gives a rough overview of the costs and times involved in setting up a business: The World Bank List