Skip To The Main Content


Call today at (787) 525-4111


All the help you need to open or grow your business in one place

Legal Structure


Basic Business Entities

One of the first decisions, in addition to being one of the most important, that you will make when you are starting your business is to choose a legal structure. The most common are sole proprietorship, partnership, corporation and limited liability company. The structure you will choose will depend on several factors, including how business taxes will be collected, records maintenance needs and the level of responsibility (how much risk are you willing to take personally). You should pay a visit to your accountant or lawyer to advise you on what is the most appropriate structure for your business. Here we include a brief introduction to the types of entities that exist:

Single owner

Business that is owned by a single person, which is responsible for the day-to-day activities that run during the operation of the business. Sole proprietors own all business assets and the profits generated from them. However, the owner also assumes full responsibility for any damage or debt. Basically, you and the company are equivalent to one; What happens to the business happens to you directly. The sole proprietor is also known as "Doing Business As", which is commonly known as DBA.

Advantage

● The easiest and most economical structure to start and dissolve.

● Business income and expenses are included in your personal return.

● You have control over the business operation.

Disadvantages

● Being the owner, you are personally and legally responsible for all debts and damages. Therefore, your business and personal assets are at risk.

● Your income may not be deducted from your taxes because, being the owner, you are not considered an employee.

● The business may have a limited life, as it may cease to exist with the death of the owner.

If you want to know more about this legal structure, we share two videos in which the Lcdo. Alexiomar D. Rodríguez-López of Seed Law, LLC., Explains what a DBA is in Puerto Rico: INTRODUCTION TO DBA: What is a DBA in Puerto Rico? and how to register the Commercial Name: How to register a Commercial Name or DBA in Puerto Rico (Tutorial)? - Right for Entrepreneurs

Societies

In societies, two or more people share the domain of a business. Societies can be easily created, but it is important that a legal agreement be made to clearly establish how decisions will be made, how ownership percentages will be determined, how disputes will be resolved, etc. There are two types of societies:

General Society

In the general partnership, all partners are responsible for the management and responsibilities / risks of the company, as well as for profits and losses, as determined by the agreement they have established. To register as a general partner you must visit the link of the
State Department of the Government of Puerto Rico.

Limited Partnership & Limited Liability Partnership

In a limited company you will have general partners and limited partners. They are commonly known as "Limited Company" (LC). Typically, a limited partner is an investor in the business with a limited or non-existent direct role in the management of the business. Your responsibility / obligation is limited to the amount of investment you have in the business. To register your business as a limited company you must visit the link of the State Department of the Government of Puerto Rico.

A company can also be structured as a limited liability parnership where the partners are not responsible for the negligence of the other partners, but they are responsible for their own actions. This type of society is more complex than a general society. To register your business as a limited liability partnership visit the link of the State Department of the Government of Puerto Rico.

Advantage

● Societies are relatively easy to establish.

● By having several partners, it may be easier to obtain capital or raise funds.

● There are many tax advantages, since profits and losses flow directly through the personal payroll of the partners.

Disadvantages

● The general partners are responsible, both collectively and individually, for the actions of the other partners.

● Earnings must be shared with the other partners.

● When decisions are made, there may be disagreements.

● The company may have a limited life, as it may culminate in the departure or death of a partner.

Corporations

S Corporations

C corporations are completely independent legal entities, separate from their owners. The owners of the company are shareholders and are not responsible for the debts or obligations of the corporation, except for what is directly related to their actions.

S Corporations

An S Corporation is basically the same as Corporation C, with the exception that its structure has certain requirements that allow it to have the limitations of liability of a C corporation, but they charge taxes as if it were a company. This allows any gain or loss to be passed on to the shareholders and that they report it on their personal spreadsheets.

To register your business as a corporation, visit the link of the State Department of the Government of Puerto Rico.

Advantages:

● Shareholders have limited liability for debts or negligence that affect the corporation.

● In general, shareholders can only be inspected for their investments in the company's shares. (However, it is important to know that executives can be held personally responsible for their actions, including withholding or obviating the payment of tax collection)

● Corporations can raise additional funds through the sale of shares.

● They can choose S corporation status if certain requirements are met. This selection allows the company to charge taxes as a company.

● The corporation has a life of its own and does not dissolve when there is a change of ownership.

Disadvantages

● The incorporation process requires more time and money than other forms of organization (other legal structures).

● Corporations are monitored by federal, state and some local agencies. Therefore, it is very likely that you will have to incur more paperwork to comply with the regulations.

● Incorporation may result in higher taxes. Dividends paid to shareholders are not deductible from business income; therefore, income taxes may be charged twice.

Limited Liability Company

A limited liability company is a new form of business structure that provides some benefits of being a corporation, in combination with the tax benefits of being a company. They are also known as the "Limited Liability Company" (LLC). Basically, they can offer owners less risk with respect to their liability, without having to pay double the taxes. Limited liability companies are registered through the State Department of the Government of Puerto Rico. If you want to know more about how to register an LLC step by step in Puerto Rico, we share a video of the Lcdo. Alexiomar D. Rodríguez-López from Seed Law, LLC, who explains the process: How to register an LLC in Puerto Rico? - Right for Entrepreneurs 

Advantage

● Owners can maintain most control of the business with limited liability for debts and other obligations.

● Owners can choose whether the limited liability corporation will be charged taxes as a corporation or as a company.

Disadvantages

● There are still some jurisdictions where limited liability companies are not recognized as an acceptable business structure.

Expand Your Business To Puerto Rico

Are you considering expanding your market reach? Welcome to Puerto Rico, an excellent place to do business.

If you are looking for information regarding compliance with regulations for doing business in Puerto Rico, we invite you to connect with some of the organizations in our network for specific topics such as:
Codes

Environmental Compliance

Insurance Requirements

Compliance with International Regulations

Patent Information

Registration, Licenses and Permits

Copyright and Trademark Information

Information on Copyright, Patents and Copyright

Will you have employees? You can also connect to a resource in our network that helps you with:

Policies for Employee Development and Hiring

Employee Retention

Workforce incentives

Do you need help finding a space and / or equipment for your business? Count on our resources to achieve it:

Commercial Kitchen Facilities

Space for Conferences / Meetings and Events

Lease Review

Space to Manufacture ‘Maker Space’

Office Equipment and Furniture

Office space

Commercial Space

Site Location

Incubator ‘Wet Lab’

Puerto Rico has acceleratorsincubators and shared work spaces or ‘coworking that can be exactly what you need to start your business.

Doing Business with the Government

Federal and state government agencies are important clients, since they regularly buy a bit of everything from a stapler to complex equipment. Now, the big companies are not the only ones that get the contracts. Federal and state agencies have goals so they reserve a portion of all annual contracts for small businesses.

Doing business with the government is different from working with / selling to other companies. There is a lot of paperwork involved, as well as many steps that must be taken before submitting a proposal. Fortunately, there are resources available that will help you be closer to one of the biggest potential customers your business could have! On the website of the Office of the Comptroller you can find information that includes the Consultation of the Contract Registry.

The Federal Government is also an option to consider when it comes to business. The Puerto Rico Federal Contracting Center (FeCC) is a division of the DDEC focused on helping local businesses sell their products and services to the federal government, especially those instrumentalities attached to the US Department of Defense.

We recommend you access the FeCC for more information. There you will discover the great amount of opportunities that your company could have when working with the federal government.