Legal tip 351. Self employed or limited (SL)
In the case of a self-employed, the liability is unlimited, as there is an absence of divission between company and personal assets . While limited liability companies is limited to the capital. Thus, when a limited company goes bankrupt, only respond with his assets, and never will with the properties of their owners.
A limited requires a minimum capital of € 3006.00 €. In this case when it comes time to grant a loan, banks require the partners or directors to provide personal guarantees.
No initial capital is required to be registered both in Social Security system and Taxes for a self employed.
Self-employed individuals obtain directly the benefits of their business and are taxed in the income tax. However, the limited is taxed through corporation tax. Sometimes corporation tax is more advisable than income tax levels when this are very high.
Number of members:
More than one person trading together usually makes a company, although law envisages the possibility of one-person limited companies, consisting of a single person or entity.
Social Security and Taxes formalities:
To commence a business as a sole trader is much faster and easier than opting for a limited company. As a self-employed you just need to register within the Treasure Department and start paying taxes and social security fees. As a limited company, you need to first establish the company- through the granting of a Notary deed and register it in the Commercial Registry- and also perform registration at Taxes and Labour departments, basically.
Some independent proffessional can pay fees to the Proffessional Mutual Benefit Society instead of fees to the Social Security.
Bases for calculation of the Social Security fees are published by the Ministry of Finance each year. Therefore, the worker must pay a monthly fee, which varies according to the chosen base. The larger the base, the higher the fee. The type of base and fee wil also have an impact on the volume of coverage that Social Security provides for sickness, disablement and retirement.
There are not automatical criteria for deciding between self-employed and limited company. The most advantageous option depends on the specific circumnstances of each one.
A tip: If you are starting an activity and are not sure of its viability, better to choose to be a self-employed with a low base and see what happens.... who knows? You may become a multinational company in the future...
By Jesús Castro and María L de Castro
Castellar.Houses inside the Castle by Roberto Pecino at Flickr.com