Establishing a limited company is smart when your business accumulates a continuous profit, which does not need to be used immediately. As turnover increases, a limited company is a safer option than a business name in terms of risk management, because the business name entrepreneur is always responsible for the company's debts and obligations with his personal assets.
A limited company enables the entrepreneur to bring in new shareholders or investors. The limited company form is also useful if the company has employees whom it wants to bind with the help of shareholder or option arrangements, if necessary. Also, bearing the employer's responsibilities at the time of problems can be safer from a limited company's point of view.
Business name entrepreneurship is the most agile and easiest form of business, but it also looks like a small-scale business. In many industries this does not matter at all, but for example in business trading, a company in the form of a limited company can often be a more attractive business partner.
In addition, double-entry bookkeeping, which is mandatory for limited companies, is optional for business names under certain conditions: Businesses and professionals must, however, keep double-entry bookkeeping if two out of three of the following occur:
- the balance sheet total exceeds 100 000 euros
- the turnover or the corresponding income is more than 200 000 euros
- the company employs an average of more than 3 people
There are many advantages to establishing a limited company
- Compared to business name business, the financial responsibilities are smaller.
- Bringing in new capital or new shareholders is agile, which enables growth.
- Wider opportunities in tax planning and thereby saving.
- In terms of marketing, a limited company is more credible than a business name.
- The limited company pays 20% taxes on its profit.
- When a limited company makes a profit, the profits can be distributed to its owners as dividends. Dividend taxation is lighter than salary income
- The bookkeeping period can be any 12-month period, i.e., it is not linked to a calendar year.
Challenges in establishing a limited company
- A limited company operations require more financial and time investment.
- The bookkeeping obligations of a limited company are stricter: double bookkeeping.
- In a limited company, the entrepreneur does not withdraw money, but receives a salary. This means that the entrepreneur must take care of the salary payment.
- A limited company must have a board of directors. This means that in addition to the founder of the company, at least one deputy member is required for the board of the limited company.
- Even, if necessary, the termination of a limited company cannot be done instantly.