A sole proprietorship or a limited liability company - what is more profitable?

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Before starting a business, the question may arise - what is more profitable: a sole proprietorship or a limited liability company? There is no clear answer to this question, because what is more beneficial is determined by many factors and it depends on the profile and planned business model. Sometimes a sole proprietorship will be more beneficial, sometimes a company.

What's better - a sole proprietorship or a company?

If the criterion of what is better: a sole proprietorship or partnership, is to constitute, for example, an asset when establishing a business, then a sole proprietorship seems to be better, because with this form of business activity you do not have to contribute share capital. In the case of a company - the contribution of the share capital is obligatory when setting up the company. However, when choosing a form of business, there are more factors to consider than just property matters. Below we present the differences between a sole proprietorship and a company based on basic criteria.

Company registration

Self-employment:
business registration is free, and the entry is made in CEIDG. The application can be submitted online or by traditional means at the commune office.

Spółka z o.o .: for registration of a company in the National Court Register, the following fee must be paid: PLN 250 - in the case of online registration (the so-called S-24 mode); PLN 500 - in the case of traditional registration of the company.

company name

Self-employment:
the name and surname of the entrepreneur must always appear in the name of the company.

Private Limited company.:
the company name does not have to contain the entrepreneur's personal data, but the legal form must always be specified at the end of the name (S.A., Sp.z o.o.).

Company management

Self-employment:
this form is a plus for people who like to "manage their own way" - all decisions are made individually, by the owner of the company.

Private Limited company.:
decisions are made collectively and responsibility is usually shared among several people. However, each change of the decision requires appropriate documentation (in the form of a resolution or report, order).

Property liability

Self-employment:
here the owner of the company is responsible with all his property (including private property) for financial obligations and debts.

Private Limited company.:
financial liability is spread over partners up to the amount of share capital, although there are situations in which partners of companies are also liable with their own property. In the case of some companies, in order not to be liable for debts with their own assets, it is enough to file for bankruptcy.

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Running costs and accounting

Self-employment:
in the case of sole proprietorship, it is possible to keep simplified accounting in the form of a revenue and expense ledger (KPiR) or a register of revenues - a flat rate.

Private Limited company.:
operating in the form of a company requires keeping full accounting in the form of commercial books - which is often associated with more expensive accounting services, but on the other hand with more transparent financial results.

Social Security contributions

Self-employment:
with this form of activity, you can use the so-called small ZUS to start, i.e. reduced contributions - for new entrepreneurs for the first 24 months. After the end of the preferential period, the entrepreneur has to pay the premiums in full.

Private Limited company.:
the company does not pay ZUS for itself (the exception is a one-person limited liability company, because in this case the owner of the company is obliged to pay contributions), but pays it for its employees. On the other hand, the shareholder of the company is not obliged to pay ZUS, which, however, is not subject to insurance.

Forms of taxation

Self-employment:
with this form of activity, the entrepreneur can choose the method of taxation (tax scale, flat rate, lump sum or tax card). This choice is valid for the entrepreneur throughout the year.

Private Limited company.:
the company cannot choose the type of taxation - it must always pay CIT, i.e. corporate income tax. Each of the partners must still pay the PIT income tax on profits, if they have been paid a dividend.

Reporting obligations

Self-employment:
this form is only associated with the submission of an annual PIT tax return to the tax office.

Limited liability company:
this form involves the submission of financial statements (balance sheet and profit and loss account) to the National Court Register, for which PLN 40 must be paid. An additional PLN 100 is charged for publishing the report in Monitor Sądowy i Gospodarczy.

Salary costs

Self-employment:
the taxpayer's own work is not tax-deductible.

Private Limited company.:
As a rule, the work of a partner employed under a contract is tax-deductible.

The company's profit

Self-employment:
the income earned is the entrepreneur's profit, which he can transfer in full to his account (after paying taxes).

Private Limited company.:
the profit generated is the profit of the company, not the entrepreneur. The income can be transferred to your account, but this must be done through contracts or dividends.

Company inheritance

Self-employment:
in the event of the death of the entrepreneur, his property (including the corporate one) is transferred to the heirs and the company ceases to exist. The heirs may choose to continue the business - but it is their voluntary choice or the execution of the deceased's will. In addition to the property, heirs - if they do not reject the inheritance - also inherit debts incurred during the company's operation and resulting from the death of its owner.

Private Limited company.:
in the event of the death of the person running the company, the shares of the deceased person are taken over by the heirs and the company continues to exist. Responsibility for the company's obligations passes to the heirs.

As we can see on the basis of the above distinction, it is impossible to say unequivocally which is more profitable: sole proprietorship or partnership. According to some criteria, a sole proprietorship is more profitable, according to others - a company. And what is better is determined by the entrepreneur's idea for business.