Differences in company law systems between countries
While every country has companies with characteristics that allow them to be classified and compared, different jurisdictions draw from different legal traditions.
Broadly speaking, these can be split into common law and civil law traditions (stemming primarily from English and French law respectively), with some systems being influenced by some aspects of the American system not present in the other major frameworks.
Common law systems are usually found in Commonwealth countries (former British colonies), while civil law systems are used in European countries and the countries that formed their former empires.
The core of corporate identity is the company’s separate legal personality and limited liability for shareholders. Similarly, most jurisdictions will have two company types that have different features and administrative requirements:
The private company:
These are companies with small numbers of shareholders (limited to 50 in most cases) and limited share transferability (typically requiring the consent of other shareholders to make a sale). In return for these restrictions, private companies have low capital investment requirements and relatively simple administrative requirements.
What private companies are called in common law jurisdictions:
- They are typically called private limited companies, often abbreviated as Ltd. (UK), Pte. Ltd. (Singapore), or Pvt. Ltd. (India). Australia and South Africa use the terminology of the proprietary limited company, abbreviated as Pty. Ltd.
- The simple “Ltd.” without the “private” designation is preferred in the UK, where the private company is the default. In fact, private limited companies are defined in law there as “a company that is not a public limited company.”
What private companies are called in civil law jurisdictions:
Naming is more varied among these due to the wider range of languages involved. However, they largely translate to “company with limited liability” or “company limited by shares” and the most frequent examples are:
- French-speaking countries: SARL (société à responsabilité limitée) – see France,Luxembourg and Morocco.
- German-speaking countries: GmbH (Gesellschaft mit beschränkter Haftung) in German-speaking jurisdictions such as Germany, Liechtenstein, Austria and most of Switzerland
- Spanish-speaking countries: S.R.L. or S. de R.L., which stands for sociedad de responsabilidad limitada and is used in Mexico, Spain, Argentina and Chile.
- Portuguese-speaking countries: SpQ or Lda, which in Portugal and Angola stands for sociedad por quotas de responsabilidade limitada, and simply sociedad limitada in Brazil.
What private companies are called in the US:
- The US LLC is the US equivalent of the private limited company, and this designation has also been borrowed in several middle-eastern countries including Oman and the UAE.
The public company:
Not just used for listed companies, public limited companies are able to take on unlimited investors, who enjoy greater freedom to transfer their shares. Certain industries are also limited to companies using this structure in some cases. However, these additional powers come with administrative requirements that help to safeguard investors. This will typically include higher capital requirements, more directors and mandatory audits. In civil law jurisdictions, supervisory boards that sit above the main board of directors are often required for public companies.
What public companies are called in common law jurisdictions:
- The English public limited company is simply abbreviated to Plc, while the jurisdictions that call out the company’s private nature as listed above will abbreviate public companies as Ltd.
What public companies are called in civil law jurisdictions:
- Naming for these diverges more from the common law, but the French, Spanish and Portuguese are all very similar to each other:
- French-speaking countries: SA (société anonyme).
- German-speaking countries: AG (Aktiengesellschaft).
- Spanish- and Portuguese-speaking countries: SA (sociedad anónima) or SpA (sociedad por acciones).
What public companies are called in the US:
- The structure is called the corporation, although companies have a choice of abbreviations that they can append to their names to draw attention to this status, including Corp. and Inc.
It would be too complex for this post to delve into the differences in management and administrative requirements found in companies’ foundational documents across jurisdictions. However, these documents take different names that include:
- Memorandum and articles of association (M&AA): These derive from the English system, although the memorandum is increasingly being merged into the articles of association rather being a separate document as countries reform their company law. Ireland is one country to have done this, and Singapore will implement the same change next month.
- Articles of incorporation/organization: A short document similar to the memorandum of association used in the US, setting out the company’s registered address, capital, objects and limitations on liability. The company’s governance requirements are often augmented following incorporation using bylaws.
- Deed of foundation: Used in civil law jurisdictions including Luxembourg. France uses “statuts” (company statutes), and other terms used elsewhere include constitution and charter.
At Healy Consultants Group PLC, our worldwide coverage and expertise means we can guide you through the differences between different company law regimes, wherever you want to establish your business.
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