Below is something for those who have been wondering for a long time what form to take for their business.
SP. Z O. O. – whether and why? Is it worth transforming or establishing a new enterprise in the form of a limited liability company (z o. o.)?
4 min.
06 July 2020
SP. Z O. O. – whether and why? Is it worth transforming or establishing a new enterprise in the form of a limited liability company (z o. o.)?
4 min.
06 July 2020
Below is something for those who have been wondering for a long time what form to take for their business.
- Why are micro and small entrepreneurs increasingly choosing limited liability companies as their form of business?
- In legal transactions, it is increasingly common to encounter micro and small entrepreneurs operating as limited liability companies. There are several reasons why this form may be advantageous.
- First of all, the increase in interest was caused by the amendment to the Corporate Income Tax Act of 2019. Under the new regulations, the preferential CIT rate was reduced to 9%. This rate applies to revenues (income) other than capital gains. This rate is available to taxpayers whose revenues in a tax year did not exceed the amount expressed in PLN equivalent to EUR 1,200,000, converted at the average euro exchange rate announced by the National Bank of Poland on the first working day of the tax year, rounded to PLN 1,000.
- It should be noted that the possibility of applying the preferential rate has been limited by the legislator with exclusions, which will be discussed in detail in subsequent publications.
- Another benefit of operating as a limited liability company may be the fact that shareholders are not required to pay social security contributions, which currently amount to PLN 1,431.48 for sole traders, including health insurance contributions. In order to take advantage of this entitlement, it is necessary to establish a limited liability company that is not a single-member company. At least two persons must participate in it as shareholders. One of them may hold a majority stake. Furthermore, the management board of a limited liability company is also not required to pay social security contributions. Therefore, a partner in a limited liability company who is also the president of the company’s management board is not subject to compulsory social security contributions. However, it should be noted that when determining shares, it is advisable to divide them in a ratio other than 1% to 99%, as according to case law, such a division may be considered illusory. A well-known advantage of limited liability companies is the limitation of the shareholders’ liability for the company’s debts. They are not liable for the company’s obligations with their own assets. The company, as a legal entity, has its own assets, with which it is fully liable for its obligations. Furthermore, in certain cases, the members of the management board may be held liable for the liabilities of a limited liability company. This occurs, among other things, when enforcement proceedings against the company prove ineffective. However, the management board may be released from liability, e.g. if it files for bankruptcy within the prescribed time limit.
- It is worth briefly mentioning the often overlooked, but seemingly most important advantage of a limited liability company from the point of view of financial benefits, namely its separate legal entity and, as a result, its value, which is independent of its owners. A limited liability company is a value in itself. It can own assets, have creditworthiness, and, above all, the sale of a company operating as a limited liability company is much easier, as it is sufficient to sell the shares. There is no need to transfer assets, as would be the case with a company operating as a sole proprietorship.
- Above, we have presented only a few of what we consider to be the most important reasons why micro and small entrepreneurs choose to operate as a limited liability company. There are many more. Since there are advantages, there must also be disadvantages, but more on that in future posts.
- In future publications, our team will prepare a detailed discussion of limited liability companies, including taxation, the liability of the company’s management board, and the value of shares.
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