Trading and manufacturing companies differ not only in their activities, but also in their legal form. Each state defines the legal form of the business by law, where the law specifies what the business must fulfill, what capital it must have, how many people it must be established with, how it is liable, how it can be dissolved, and so on. They vary somewhat from country to country, but not much within Europe. Some companies are required by law to create reserves or other reserves in case of emergency.
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A company is incorporated on the date it is registered in the company register and ceases to exist on the date of dissolution. Dissolution may be effected in two ways: first, with liquidation, and second, without liquidation. In the case of dissolution with liquidation, a liquidator may be appointed by the court.
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There are many legal forms for businesses, and each legal form is suitable for different types of businesses, such as those suitable for transportation, those suitable for trading, and those suitable for manufacturing. It is up to each founder to decide which legal form to choose. The manner in which the company guarantees its obligations depends on the legal form. Each founder may also guarantee the company\’s debts in different ways. Some guarantee the entirety of the assets, while others guarantee only to the extent of their equity interest in the company. This also determines the amount of compensation to be derived from the ownership of the company and its profits.
Trading companies are engaged in the purchase and subsequent sale of goods and services, manufacturing companies are engaged in production, and shipping companies are engaged in transportation.
Each trading company may also establish several branches and subsidiaries. Financial and legal responsibility depends on the type, whether it is only a branch of the company or a subsidiary that is itself financially and legally responsible and accountable to the parent company.