Do you have a business idea and don‘t know which option to choose, either sole proprietorship or limited liability company (Ltd.)? It is a really difficult decision – each option has its advantages and disadvantages.
We are going to discuss in short the advantages and disadvantages of the most common types of doing business. First of all it is necessary to bear in mind that entrepreneurship brings you more freedom, higher professional fulfillment and financial independence but it needs to be aware of even bigger responsibility as well. Responsibility not only for yourself but also for your company, clients, the service you offer and in case you decide to employ people for them as well.
Before you start doing business itself, you should be familiar with Slovak law and legislation. You don‘t have to worry – it is not necessary to know everything very detailed as an accountant or lawyer, you should know just general information. The basic knowledge of general information will help you to be prepared for every negotiation and trap that might occur while doing business and to have and idea of what is your accountant and lawyer talking about. It will help you to know the different offices, your rights and obligations. Why do I have to know the general information? First of all, you should realize that YOU and only you are the responsible one for managing a company or for yourself as self-employed, only YOU and nobody else.
A popular form of doing business is a company (s.r.o. / Ltd.). This form is suitable for those who decide to do business through a legal entity or if they are a group of people who would like to do business together. If you don‘t have any experience with establishing a company, we advise you to use the services of the consultancy companies that might help you with it – you will save time and money. Establishing a company from the signing of contracts at the notary to the registration of the company in the Commercial Register takes about 30 days if everything is okay. For those who are hurrying, there is a possibility to buy ReadyMade, a ready-made ready-to-sell company with no history and you can start doing business within a few days. However, here you have to be careful who you buy it from. The affiliate can be a person from anywhere in the world without the necessity to dispose of Slovak citizenship. In the case of a managing partner, the situation is a little bit different – it is necessary to have a residence permit if you are not a citizen of the European Union or of OECD countries.
From the establishment to the registration of the company (s.r.o./Ltd.), the following steps are required:
- to prepare the founding documents
- to determine the main seat of the organization
- to prove of non-indebtedness to the Tax Office and the Social Insurance Institution according to the new regulation from 09/2018 only if you are a debtor
- to choose a business activity and to obtain a trading license
- integrity of founders
- to pay-up of the capital
- to apply for entry into the Commercial Register
- payment of the registration fee
- registration at the Tax Office and getting the identification number (DIČ)
- if necessary, registration for another identification number for VAT (IČ DPH)
- selection of a suitable accountant
The company is established on the day of entry into the Commercial Register.
Establishment of sole proprietorship (SZČO) is one of the most popular forms of business in Slovakia. Establishment of sole proprietorship for Slovak citizens or citizens with permanent residence in Slovakia or in the EU and the OECD is simple. The situation is more complicated and a bit more expensive for citizens who only have a temporary residence permit – then there is a duty to register themselves to the Commercial Register.
For the establishment of sole proprietorship of Slovak citizens or citizens of EU and OECD, it is necessary:
- To fill in the application
- To choose a type of sole proprietorship activity
- Submission of authorization to use the property/place of business
- To pay an administration fee
After receiving the application, the Trading Licensing Office will issue a trading license within ca. 3 days and you can start doing business. Of course, it is necessary to think about the announcement of the start of the business to the tax office and to get the VAT number and to announce it as well to the Social Insurance Institute and the Health Insurance Institute.
For the establishment of sole proprietorship of foreign citizens, it is necessary:
- To determine which kind of business you are going to provide in Slovakia, you can:
- an establishment of a foreign entity‘s business if you have already worked in the place of your permanent residence on the same subject of business
- a foreign person‘s business if you are not an entrepreneur in the place of your permanent residence or in Slovakia you intend to do business in another business subject.
- You need to follow there steps:
- To submit a completed application
- To choose a business type
- In case you don‘t have a residence permit, it is necessary to provide a objects clause, consent and statement of the responsible representative (if the responsible representative is appointed). If you still don‘t have a residence permit (temporary or permanent) in Slovakia when you apply for a trade mark, or if you don‘t meet the special conditions for running a sole proprietorship, you have to appoint a responsible representative.
- Submission of the right to use the property/place of business – it is evidenced either by a letter of ownership/statement of the property certificate (if you are the owner of the property) or by the lease agreement, if you do business in the rented premises or by the written permission of the landlord to run a sole proprietorship there.
- By submitting an extract of criminal records from home country or from country where you have been resident for more than 6 months during last 5 years.
- Passport or residence permit.
- To pay the administration fee.
These two forms of business are the most used in Slovakia. We can see one major difference between them in case of termination of the business. In case of s.r.o. / Ltd. It is necessary to liquidate the company by a lawyer or a special company dealing with it, meanwhile the sole proprietorship can be terminated by notifying the Trade Licensing Office on the day when you end your business. This does not apply to foreign citizens who were required to register themselves into the Commercial Register. In both cases, you should have balanced your liabilities and receivables if possible.
We also know other forms of business, including:
- Joint Stock Company (a.s.)
- Limited Partnership
- General Partnership
- Organizational unit
- other form
If you don‘t have any experience, we recommend you to visit a lawyer or a company that is focusing on setting up different forms of business. Our recommendation: www.mkms.sk