Deciding on a form of business is a key step for any entrepreneur. In Poland, the most popular forms are sole tradera (JDG) and limited liability company (Ltd.). Each has its advantages and disadvantages, and the choice depends on the specifics of the company, the level of risk, the type of business and the individual needs of the entrepreneur. So when is it worth considering setting up a company instead of a sole proprietorship? Accounting Office AMG explains!
Higher business risk
One of the main reasons for choosing a company over a JDG is the desire to limit personal liability for the company's obligations. In a sole proprietorship, the entrepreneur is liable with all his personal assets. If the company runs into debts, these can encumber both the company and the owner's private funds.
In a limited liability company, liability is limited to the amount of contributed capital - usually a minimum of PLN 5,000. This reduces the financial risk for the owner. This can be particularly important for high-risk activities, such as those in the construction, IT or investment industries.
Willingness to attract investors or partners
A company is a more attractive form for investors and business partners. The opportunity to purchase shares in a company gives potential investors confidence in the formalities and transparency of the company structure. A limited liability company makes it easier to attract external capital and allows flexible management of the shares. This facilitates cooperation with partners and the future development of the company.
For JDGs, attracting an investor can be more difficult as it requires business transformation or the signing of complex contracts.
Expected rapid growth and expansion
If a company is planning rapid growth, the introduction of new products or services, and expansion into other markets, a company can be a more flexible form. A limited company allows for easy capital increases, the issuing of new shares and better planning of long-term business activities. In addition, the formal nature of a company can inspire greater confidence in large counterparties and financial institutions, such as banks or investment funds.
Tax optimisation and a good accountancy firm
The limited liability company allows entrepreneurs to benefit from various forms of tax optimisation. A JDG is taxed according to the general rules, a flat rate or a flat tax. A limited liability company, on the other hand, pays corporate income tax (CIT), and shareholders can pay themselves profits in the form of dividends. This makes it possible to use different tax strategies, such as paying part of the remuneration in the form of civil law contracts. This reduces the effective tax burden.
However, it should be borne in mind that double taxation (CIT and dividend tax) can sometimes be a disadvantage for limited liability companies. It is therefore advisable to consult a professional before making a decision accounting office.
In our accounting office in Warsaw we offer clients tax consultancy included in the price of the service.
Succession planning
If a business owner is thinking of transferring the business to family members or others, a company may be a clearer and more orderly form of succession. In the case of a JDG, the transfer of ownership of the business can sometimes be complicated. While shares in a limited liability company can be transferred or sold, which makes succession management easier. The company form also gives greater control over the smoothness of the handover process, minimising business interruptions.
Improving image and credibility
In many cases, a limited company is seen as a more professional form of business. This can improve the image of the company in the eyes of customers, clients and partners. Companies operating as a limited company often inspire more trust, especially with larger transactions and contracts. This is particularly important in industries where formality and transparency are important, such as consulting, financial, investment or construction services.
Easier hiring of managers
A limited company gives you more flexibility in terms of management. Which can be important if you plan to employ qualified managers or specialists to manage the business. In a company, you can appoint a board of directors who will be responsible for the most important aspects of running the business.
This is not so easy to implement in the case of JDGs. This structure also makes it easier to delegate tasks and develop the management team, which supports the stable growth of the company.
What to choose?
The choice of business form depends on a number of factors, such as the level of risk, anticipated growth, the need for tax optimisation, the ability to attract investors and succession planning. The JDG is suitable for start-ups who want to minimise costs and paperwork.
However, if the business is risky, is growing rapidly, is planning to expand or needs to secure personal assets, a limited company may be a better choice. Every entrepreneur should carefully consider his or her objectives, needs and consult a professional adviser.
Accounting office for sole proprietorships and companies
Whatever form of business you choose - Amg Accounting Office this accounting office serving companiesas well as sole proprietorships. We can help you with the intricacies of the world of tax and accounting. Feel free to contact us!
