Everyone who wants to start their own business faces this question. The choice of the form of business often depends on the industry or the idea for the business. The most common solutions include sole proprietorship and limited liability company. Each of these legal forms of conducting business is characterized by different elements, if only at the stage of establishment or structure. It is worth getting acquainted with their characteristics, because the formal and legal aspects will have consequences for the entire later activity. Read the article till the end and find out whether it is better for you to establish a company or a business activity.
Should I set up a company or a business? – Registration procedures
To set up a sole proprietorship you do not need to leave your home. You can register your company online by filling in the CEIDG-1 application (of course, you can submit a paper application in the appropriate city office). Setting up a limited liability company is a bit more complicated. The articles of association must be drawn up in the form of a notarial deed. The tax on civil law transactions, the court fee and the fee for publishing the articles of association in Monitor Sądowy i Gospodarczy must be taken into consideration.
Taxation
A sole proprietor is also a tax payer. For that reason he is obliged to pay monthly contributions for income tax. During the registration of the company the entrepreneur makes a choice of the form of taxation. It can be based on general rules (tax scale of 18% and 32% after exceeding the tax threshold) or on flat tax of 19%. In special cases it is possible to choose the lump sum tax on registered income or tax card. In case of a limited liability company, which is another legal entity, it is subject to corporate income tax (CIT) at 19% on the gross profit amount. Small taxpayers and those starting a business are entitled to benefit from a reduced rate of 9%.
Should I set up a company or a sole proprietorship? – Bookkeeping
Sole traders whose annual income does not exceed EUR 2 million are obliged to keep simplified accounting books in the form of a revenue and expense ledger. They are not obliged to employ an accountant. Bookkeeping can be done independently or with the help of computer programs. In case of a limited liability company, full accounting in the form of a ledger is required. Additionally companies are obliged to keep financial reports. All this makes it necessary to hire an accountant, which generates additional costs of running a business.
Should I set up a company or a business? – Responsibility
An entrepreneur running a sole proprietorship has unlimited liability. This means that he is liable for all the obligations of the company with all his personal assets. In case of a limited liability company, the liability of shareholders is limited to the amount of their contribution. Therefore, creditors can demand repayment of liabilities only from the company’s assets. Based on the Commercial Companies Code, management board members may also be liable for company obligations if they fail to take appropriate action in a timely manner, i.e. if they fail to file a bankruptcy petition in a timely manner.
