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Types of Legal Entities



Different types of legal business entities are defined in the legal systems of various countries. In Gibraltar, these range from Sole Traders and Partnerships to Limited Companies and Trusts, as well as various other specialised types of structures. A quick description of each follows.

Sole Traders

Sole traders undoubtedly have an entrepreneurial spirit. They are able to manage their business affairs on their own, either under their own name or under a business or trading title. The advantages of being a sole trader include that they are essentially their own bosses and, moreover, they and they alone stand to gain from their business’s profits.
Sole traders have total control over their business and its assets. Generally, monies can be moved between business and personal accounts almost without restrictions, though accounts and records must be declared and kept for taxation purposes.
Sole traders also have unlimited liability and are consequently personally responsible for any losses the business may incur, thus their possessions and assets (including property and personal belongings) could be at risk if the debts incurred by the business are not paid.
It is also worth noting that it may be harder to secure finance if registered as a sole trader. Nonetheless, there are a number of funding sources available, ranging from personal savings to EU Funding, which can assist with the costs that usually burdens most start-ups.


Partnerships are essentially agreements between two or more people who are setting up in business together and jointly contribute finance, time and skills to the venture. Partnerships may trade under the names of the partners or under a business name.

The rights and obligations of the partners are set out in a specifically prepared Deed of Partnership or, in the absence of such documents, under the Partnership Principal Act 1895.

A partnership is effectively an amalgamation of sole traders and the same advantages and disadvantages broadly apply as to a sole trader. It must be noted that claims against one partner can result in a claim against the other(s).
Conversely, a Limited Liability Partnership (LLP) shares many of the features of a normal partnership, save that it also offers reduced personal responsibility for business debts. In other words, unlike members of ordinary partnerships, the LLP itself is responsible for any debts that it incurs, not the individual partners.

Limited Liability Partnership

An LLP has elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence. This is an important difference from that of a typical partnership.

In an LLP, all partners have a form of limited liability for each individual’s protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly, whereas corporate shareholders have to elect a board of directors under the laws of various state charters.

The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have, as corporate individuals, the legal responsibility to manage the corporation in its best interests. An LLP also contains a different level of tax liability than a corporation.

Limited Companies

In accordance with the Companies Act 1930, companies are required to be incorporated in Gibraltar as:

• A company limited by shares

• A company limited by guarantee with or without a share capital

• An unlimited company with or without share capital

The services of a professional (lawyer, accountant or company manager) should be sought when incorporating a limited company, although this is not a strict requirement.
A limited company may own assets, enter into contracts, borrow and lend money, and sue and be sued in its own name. The legal personality of the limited company is separated from its individual shareholders (owners), but please note that it is sometimes common practice for banks and landlords to seek personal guarantees from the directors, making them personally liable for obligations should the business fail.
The liabilities of a company are distinct from those of its shareholders. The company is liable for its debts to the full extent of its assets, but this liability does not extend to the personal assets of its shareholders. A company also has perpetual existence, so the ownership can pass at any time through the transfer of the shares, this being an ideal vehicle for expansion.
There are some points that need to be noted on the subject of company incorporation: all companies must comply with the provisions of the Companies Act; normally there are fees for the management of a company; company details, even if limited by shares, can be disclosed, including memorandum and articles of association. Accounts and other returns are necessary and are normally an annual requirement. There are numerous regulations governing the administration of a company, with the duties, responsibilities and liabilities of directors being set out in the Companies Act 1930.

The first step when forming a Gibraltar Company is to ensure that the proposed name is acceptable to the Company Registrar. Once the name is approved, the following documents require to be submitted in accordance with the provisions of the Companies Act:

• Memorandum of Association

• Articles of Association

• Declaration of Compliance

• Notice of Situation of Registered Office

• Statement of Nominal Share Capital

A registration fee is payable at the time of presentation of the documents. The Memorandum and Articles of Association must be embossed with the appropriate Stamp Duty.
The time taken to incorporate a Company is normally between one and two days. A Certificate of Incorporation is issued. Under Gibraltar legislation only barristers or acting solicitors of the Supreme Court may incorporate Companies for gain.
Protected Cell Companies (PCC)

The Protected Cell Companies Act provides for a PCC to create one or more cells for the purpose of segregating and protecting cellular assets. As a result, the rights of creditors would be limited to the assets of the cell of which they are creditors.
The PCC may, in respect of any of its cells, create and issue shares (the cell shares) the proceeds of which (the cell share capital) are comprised of the cellular assets attributable to the cell in respect of which the cell shares were issued. A PCC may also pay a dividend on individual cells (a cellular dividend), subject to available profits, and by reference to the assets and liabilities of the cell.

A company may be incorporated as a PCC or converted, if permitted by its Articles, into a PCC. The name of the company would include reference to its PCC status and each cell must have its own distinct name or designation.

Insurance companies and collective investment schemes require the consent and approval of the Financial Services Commission before operating as a PCC. An annual licence fee of £3,000, plus £1,000 per cell, is currently payable to the Financial Services Commission.


In common law legal systems, a trust is a relationship in which a person or entity (the trustee) holds legal title to certain property (the trust property or trust corpus), but is bound by a fiduciary duty to exercise that legal control for the benefit of one or more individuals or organisations (the beneficiary), who hold beneficial or equitable title. The trust is governed by the terms of the (usually) written trust agreement and local law. The entity (one or more individuals, a partnership, or a corporation) that creates the trust is called the settlor (in other jurisdictions: the trustor, grantor, donor or creator). The common benefits that trust arrangements offer include providing personal and financial safeguards for family and other beneficiaries, postponing or avoiding unnecessary taxes, and establishing a means of controlling or administering property as well as meeting other social or commercial goals.
In certain circumstances, the income received by a trust or beneficiary under a trust may be exempted from paying income tax in Gibraltar. The Trustee Act is the main legislation governing trusts in Gibraltar. Such trusts are particularly attractive to a non-resident in Gibraltar because there is no estate duty, inheritance tax, capital gains tax, wealth tax or gift tax applicable in Gibraltar. No stamp duty is payable on the transfer of any assets (other than on real estate situated in Gibraltar) held by such a trust.
The trust commonly known as the Asset Protection Trust seeks to protect the assets of a settlor from such situations as political strife, forced repatriation, confiscatory taxes, exchange controls and, most recently, risks associated with litigation arising out of malpractice or negligence suits. However, such trusts may be invaded by a creditor of the settlor should it be revealed that transfers into the trust lacked legal propriety.

Non-profit Making Organizations

Non-profit making organizations are also known as ‘not for profit’ organizations. It is the name given to a legal entity that does not accrue money for profit or personal gain.

Examples of such organizations include:

• Associations

• Clubs

• Societies

• Charities

A non-profit making organizations can be setup as a trust, company or in even an incorporated association, as is the case with a registered charity. In Gibraltar, a charity is registered with the Charity Commissioner at the Supreme Court. One of the advantages of registering as a charitable organization includes that you are exempt from paying certain taxes once certified. It is likewise possible to set up a charity to not only create awareness for your causes but also as a way to fund your operations. Trusts and bodies partly established for charitable purposes are sometimes likewise considered as, or treated as, charities.

For more informations contact Ascheri & Partners Ltd