- 31 May 2022
- Posted by: Przemysław Bukowski
- Category: Articles
Before starting a business, every entrepreneur is faced with the question of what business format to choose. In Poland, two are most often preferred – it is the registration of an individual entrepreneur or the creation of a limited liability company. Below, we will present a summary that will help you make the right choice for yourself, taking into account the type of activity, number of employees and capital, because further actions will depend on this decision, from the registration procedure to the payment of taxes and other organizational and legal issues.
The main differences in organizational and legal forms, as well as the advantages and disadvantages of sole proprietorship and limited liability companies are presented in the table:
Sole proprietorship (JDG)
Spółka z ograniczoną odpowiedzialnością (Sp. z o.o. – LLC)
|Incorporation||Easy registration (not much documents).||Complicated registration (the package of documents is much larger).|
|Starting capital||Not neccessary||Minimum 5000 PLN|
|Address||Registration takes place at the place of residence of a natural person.||Mandatory (rented or own premises).|
|Number of owners||The sole owner (natural person), leaving the company, it is necessary to close the JDG.||The founder may be one or more. Withdrawal from Sp. z o.o. does not end the company’s operations.|
|Property liability||The owner is responsible for the obligations with all his personal property (even after the closing of the JDG). The only exception may be property that cannot be recovered under the law.||Responsible for liabilities only within the organisation’s assets. However, founders, participants and managers may be indirectly liable.|
|Withdrawal of money from business||Any income that the business brings is the personal property of the person registered as an entrepreneur, who is free to use the money they receive (subject to the timely payment of taxes and contributions).||The income earned by the organization is its asset. Founders can only receive a fraction of the profits and only if the dividend payment plus remuneration conditions are met.|
|Accounting, Taxes and Payments||1. Accounting in the activities of individual entrepreneurs is simpler than accounting of the organization. With the revenues for the previous year not exceeding EUR 2 million, it is possible to maintain simplified accounting.
2. Tax on general principles – tax from 17% to PLN 120,000, above this amount, personal income tax is 32%.
Flat tax – income is taxed at a flat rate of 19%.
|Accounting and tax accounting are required.
There is no need to pay anything as long as the activity is not being carried out, there are no employees and there is no property on the balance sheet. In other cases, the amount of taxes and payments depends on the tax system chosen and the number of employees.
|Types of services||JDG in Poland is not registered for all types of activities.||There are no restrictions on the types of activities.|
|Emplyees||The entrepreneur can work independently or hire employees. In order to work independently, he does not need to draw up any documents.||Registration as an employer takes place automatically, immediately after the company is formed.
You cannot work in a company without employees. Even if there is only one owner in the company and he is also a director, he will also be an employee. He has to pay himself the minimum wage, transfer contributions to funds, apply for tax.
|Attracting investments||It is impossible to attract pure investment. You have to take out a loan or lease.||LLC great for investments, i.e. equity without direct operational management.|
|Liability and fines||The amount of administrative penalties is much lower (sometimes several dozen times) than in the case of organizations. Less interest of control and supervisory bodies, more conciliatory attitude of courts.||There are many more types of liability than for individual entrepreneurs, and fines for legal entities can reach large amounts. In addition to the organization itself, its leader is also punished. Greater risk of tax inspections than for individual entrepreneurs, greater interest of other inspectors.|
|Sale of business||It cannot be sold or re-registered to another person. When a business needs to be sold, everything is sold in parts (real estate, goods, equipment, etc.). All permits will have to be reissued to the new owner.||The business or interest in it may be sold, donated, or inherited. If your card allows it, you can cancel your membership and receive a cash compensation.|
|Closing and liquidation||Closing a JDG is much easier, cheaper and faster than closing a company.||Closing LLC ie. the termination of its activity is a complex and lengthy process. It is necessary to notify the creditors in advance of the closure of the enterprise, in addition, it must be repaid with the state. If the company’s assets are insufficient to pay taxes, the owners must pay off the debt at their own expense.|
|Prestige and reputation||In most cases, they cooperate with individual entrepreneurs in the same way as with legal persons.||In the business world, the status of a company is higher than that of an individual entrepreneur. Some tenders with commercial structures allow only organizations to bid.|
In summary, none of these legal forms of doing business can be considered unequivocally good or bad. The advantages and disadvantages of each form depend on the conditions and business preferences. What can we advise? Here are some tips on this.
When opening a JDG may be profitable:
– JDG is perfect as a small company and when you need to get started quickly
– If you do not have time for complicated accounting and formalities, do not hire an accountant
– If the activity does not require a license
– No hiring plans
– There are doubts that the business may not achieve the expected success, in which case it can be closed quickly.
When is it worth opening a limited liability company:
– Doing business with partners if you want to share profits and risk
– When it is planned to engage in licensed activities
– If you want to attract investments, sell a stake in a company or the entire company
– If you want to hire a president
Whatever you decide, you can always start a sole proprietorship and later, by finding partners or investments, turn it into a company.