Advantages of the limited liability company

Having a business, whether self-employed or owning a company, is the ambition and challenge of many. Not all of us will find the courage to start a business. Lack of courage or lack of money may not be the main obstacle. It does not, however, decide the issue of resources, but the will to begin and the ability not only to see the goal but also to achieve it.

Everyone who ventures into business is exposed to the risk of any business failure and related consequences. In addition to the right choice of business, an important issue for entrepreneurs, especially from the beginning, is the question of choosing the right form of business. What form is a more accessible and optimal way for a start-up entrepreneur to start a simple business start-up? Is it advisable to start business as a natural person or as a legal person?

Many entrepreneurs do business in the form of a self-employed person - a natural person of the entrepreneur. From the form of a legal entity, beginning entrepreneurs have unnecessary fear, although on a weight scale a trade company has more advantages than disadvantages to doing business in the form of a trade. This advantage is evident when comparing a business and a limited liability company.

Many small businesses and small entrepreneurs with nails do not want to cross the business to the s.r.o., but often they ask themselves what is better for them and whether it is worthwhile if they transform business from a physical person into a legal person.

Main arguments in choosing a business entity:

  • the minimum costs associated with administration in obtaining a business license compared to commercial companies, it is possible to start a business even after obtaining one trade license, which is charged only with the administrative fee of 3, - EUR,
  • simple bookkeeping predominantly used for self-employed persons is easier than duplicate, and often the record is also conducted by the entrepreneur himself or his family relative,
  • small business people often have the idea that they can better escape the optician's tax administrator,
  • in the beginning of the business, it is more advantageous to be an inconspicuous physical person than a legal,
  • trade is characterized by a simple administration and the establishment of a trade does not require such expertise as when establishing a limited liability company,
  • currently a limited liability company is subject to a minimum tax liability - a tax license, where the individual does not have a specified minimum tax.

Legal form Ltd was due to the needs of business practice. When they formed the legal theorists, they reflected on the shortcomings of other legal forms, whether the complex structure of the joint stock company or the unlimited liability of the private companies. History and development have thus confirmed the following benefits of limited liability company against trade:

  • the limited liability of the company's members, which is also evident by the name: limited liability company. The Limited Liability Company as such itself is responsible for the creditors for all their liabilities. However, the founders - the founders guarantee the creditors for the liabilities of the company only up to the amount of the unpaid part of their deposits entered in the business register. In the event of a full repayment of the deposits, the companies do not at all disclose the obligations of the company. And this is the greatest advantage over a natural person to an entrepreneur, where the tradesman is responsible for all his / her available assets (personal and unmarried co-ownership of spouses and not necessarily included in business),
  • a legal person is a more trustworthy business partner for contracts as well as a bank as a tradesman, because he is understood to be more capital-intensive and better-trained as a natural person,
  • Ltd. (as well as another type of business) does not have to be based on green mead, but it can be done much easier - either by buying a ready-made limited company or by using a specialized firm that can create a new company precisely according to the requirements of the turn-key delivery,
  • optimizing the tax and levy burden on a natural person as a partner or manager in a limited liability company, whereas in the case of a natural person the minimum tax and levy burden is the law and even in the worse financial situation it is not possible to influence the minimum of the levy. On the other hand, shareholders and directors, if they are not remunerated for their work for the company, are not liable to pay contributions,
  • the double-entry accounting system has certain advantages over simple ones. Each type of both simple and double-entry accounts has its own specific features where it is possible to argue about strengths and weaknesses. Without some expertise, it is basically not possible to keep accounting records. To gain this knowledge, however, double-entry accounting is more demanding, but it compensates for this with some variability and the ability to influence the resulting company's performance. In addition, there are a lot of specialized software in accounting, where the cost of procurement does not differ significantly from simple accounting versions,
  • Ltd. can be quickly abolished, sold and used for a one-time deal and then liquidated,
  • and, last but not least, the minimization of the risks of any business failure that is closely linked to the limited liability of the partners. In the case of an unfavorable situation and a lack of control of business ventures, a natural person, such as a company's shareholder, minimizes his losses only up to the amount of his stake in the company's capital.

Not only in Slovakia, but also globally, the legal form of a limited liability company is very much used. From the point of view of the ratio of advantages and disadvantages, the slightly higher administrative burden of the legal entity's agenda is offset against the easier administration for a natural person (trade) by a greater degree of minimization of the risks of failure and failure.