{"id":3228,"date":"2024-07-18T15:52:44","date_gmt":"2024-07-18T13:52:44","guid":{"rendered":"https:\/\/www.krestonslovakia.com\/obchodna-spolocnost-versus-zivnost-plusy-a-minusy\/"},"modified":"2025-01-13T15:03:22","modified_gmt":"2025-01-13T14:03:22","slug":"company-vs-trade-license-pros-and-cons","status":"publish","type":"post","link":"https:\/\/www.krestonslovakia.com\/en\/company-vs-trade-license-pros-and-cons\/","title":{"rendered":"Company versus self-employment \u2013 pros and cons"},"content":{"rendered":"

In the preceding section we discussed the legal aspects of the establishment and incorporation of companies.<\/span><\/p>\n

However, if a new entrepreneur decides to implement their business plans, they might also consider conducting business as a sole trader on the basis of a trade license (i.e., a self-employed person, in Slovak <\/span>SZ\u010cO<\/span><\/i>).<\/span><\/p>\n

Under the provisions of Section 2(1) of the Commercial Code, the term business means systematic activities that are independently conducted for the purpose of profit making by an entrepreneur in their own name and at their own responsibility.<\/span><\/p>\n

That statutory definition sets out the characteristic features of business, i.e.:<\/span><\/p>\n

Activities carried out systematically \u2013 activities carried out continually, repeatedly and\/or regularly and not as a one-time, random activity without an intention to repeat it; <\/span>Independence \u2013 unlike employment (dependence on employers), entrepreneurs organise their activities by themselves;<\/span><\/p>\n

In their own name \u2013 entrepreneurs act on their own behalf;<\/span><\/p>\n

At their own liability \u2013 entrepreneurs\u2019 financial liability differs according to the form of business entity;<\/span><\/p>\n

Profit making \u2013 the actual profit gaining is not decisive (i.e., a business may also generate losses), only the intention and endeavour to make a profit is decisive.<\/span><\/p>\n

Entrepreneur\u2019s conduct and liability<\/strong><\/h2>\n

Entrepreneurs act in their own name and at their own responsibility. A sole trader \u2013 <\/span>SZ\u010cO <\/span><\/i>acts as a natural person and their liability for damage is unlimited (is liable for damage with all of their property), as opposed to a legal entity, whose statutory body acts on behalf of and at the responsibility of the legal entity.<\/span><\/p>\n

Example:<\/span><\/i><\/h3>\n

An entrepreneur is a sole trader \u2013 <\/span>SZ\u010cO<\/span><\/i>. The entrepreneur\u2019s scope of business is earth and excavation works. During excavation works, an important fibre-optic cable is cut or a gas pipeline damaged. In this case, a sole trader \u2013 <\/span>SZ\u010cO <\/span><\/i>has unlimited liability. Damage claims can be astronomical, resulting in a significantly negative impact on the person\u2019s property.<\/span><\/p>\n

On the other hand, an entrepreneur \u2013 legal entity, has limited liability to the amount of assets of the company. In addition, liability of a member of a limited liability company is limited <\/span>to their <\/span>unpaid contribution to the registered capital of the company.<\/span><\/p>\n

We should certainly not omit the obligation of a managing director (statutory body) of a legal entity to act with due and professional care and in accordance with the interests of the company and all its members. A managing director that breaches those obligations when acting on behalf of the company shall compensate for damage they have caused.<\/span><\/p>\n

Scope of business<\/strong><\/h2>\n

The scope of business of an entrepreneur is one of the factors influencing the decision-making on the territorial extent and capital scope of business and the related decision on suitability of a certain form of business.<\/span><\/p>\n

 <\/p>\n

If the scope of one\u2019s business is the manufacture of garments and the entrepreneur is a sole trader manufacturing and selling the garments alone, on a small scale and does not plan to expand, it is irrelevant to carry out those activities as a legal entity and contemplate switching to an <\/span>s.r.o.<\/span><\/i> for example. However, if an entrepreneur plans to carry out construction activities that may be associated with a higher risk of damage during construction and subsequent use of real property, for which the entrepreneur will be liable, the entrepreneur should certainly consider doing it as a limited liability company. Such an activity is usually associated with higher profitability, therefore conducting business as an <\/span>s.r.o.<\/span><\/i> would be more suitable also from the perspective of accounting and taxation.<\/span><\/p>\n

Initial costs and operating expenses<\/strong><\/h2>\n

Initial costs and operating expenses may be among the factors influencing one\u2019s decision on the form of business. They are much higher in an <\/span>s.r.o.<\/span><\/i> and include the cost of incorporation, administrative load and subsequent business operation that entails higher operating expenses for example for bookkeeping.<\/span><\/p>\n

Summary<\/strong><\/h2>\n

When is it worth to be sole trader \u2013 <\/span>SZ\u010cO<\/span><\/i>?<\/span><\/h4>\n

Services providing or goods selling locally;<\/span><\/p>\n

Low actual expenses, i.e., flat rate expenses claiming;<\/span><\/p>\n

lower probability or lesser extent of damage potentially caused by the business activities;<\/span><\/p>\n

Small scope of business activities.<\/span><\/p>\n

When is it worth to conduct business as a limited liability company \u2013 <\/span>s.r.o.<\/span><\/i>?<\/span><\/h4>\n

Larger territorial scope of business activities;<\/span><\/p>\n

Higher actual expenses and their application;<\/span><\/p>\n

Higher probability or extent of damage potentially caused by the business activities;<\/span><\/p>\n

Higher turnover and associated taxable income.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

In the preceding section we discussed the legal aspects of the establishment and incorporation of companies. However, if a new entrepreneur decides to implement their business plans, they might also consider conducting business as a sole trader on the basis of a trade license (i.e., a self-employed person, in Slovak SZ\u010cO). Under the provisions of […]<\/p>\n","protected":false},"author":1,"featured_media":1649,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[],"class_list":["post-3228","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-law"],"_links":{"self":[{"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/posts\/3228","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/comments?post=3228"}],"version-history":[{"count":0,"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/posts\/3228\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/media\/1649"}],"wp:attachment":[{"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/media?parent=3228"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/categories?post=3228"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.krestonslovakia.com\/en\/wp-json\/wp\/v2\/tags?post=3228"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}