If you are a tradesman carrying your business as a natural person, a transition from a self-employment to a legal entity (LLC or JSC) may be beneficial to you. Profispolečnosti.cz will help you with the entire process of this transition, which, most probably, will not take longer than one week.
The transition from a self-employment to a legal entity (LLC or JSC) can take place anytime during the year and you will immediately be able to convince yourself about the many advantages of such a transition.
The most significant advantages of running your business under a legal entity
- Much better corporate image for negotiations with trading partners and banks
- Lower tax burden both for LLC and JSC and the possibility of tax optimization
- Acting on behalf of the company may be possible for more persons without power of attorney
- You will not warrant for commitments of the company by all your property
- The Company warrants for commitments with all its assets, shareholders, however, only up to the amount of their unredeemed share. It is therefore recommended to always redeem the share as soon as possible
- You do not have to pay high social and health insurance fees
- Availability of subsidies from the EU funds
- Possible change of partners and their contributions and shares, easy access of a new partner in the company if necessary (more capital, better know-how, involvement of key staff, etc.) - a better form of cooperation with business partners
- Advantages for potential sale - lower taxes - after 5 years of an existence of the limited liability company no proceeds from the sale shall be burdenened by the income tax
Disadvantages associated with carrying out a business as a natural person
- Higher tax burden and a low possibility of tax optimization
- Higher social and health insurance fees
- Absolute liability for personal business commitments
- Assumption for the liabilities by the entire property of a natural person - self-employed (if you have employees, this is a big disadvantage in the event that your liquidity is temporarily limited), further problems may occur upon termination of your business activities when a consequential impacts of encumbrance may affect your life as well as the relatives‘ ones
- Business partners and clients perceive a legal person as a more credible and financially stable partner – generally, in business practice, this clearly affects negotiations with corporate entities
- Inability to easily sell the undertaking of a natural person (because a natural person shall remain responsible for all outstanding liabilities at the date of sale of a undertaking)
- Business continues even after the termination of a natural persons‘s undertaking (death)
- Impossible disposing of shares and business as a whole
How does the transition from self-employed natural persons into a legal entity (LLC or JSC.) work
In practice, the most common way is the transition to a company with limited liability, especially for the fastness of its establishing or an acquisition of an already pre-registered ready-made limited liability company and its low administrative burden.
Naturally, in the course of such transition an entire continuity with your existing business it is not possible. A legal entity established by you will always have a new ID and your old business ceases to exist at the date of your choice. However, a business name of your new company can match the name that you used to have and which has been familiar also to your partners and customers, if not interchangeable with another registered company.
When transiting from a natural person to a legal entity no existing liabilities and receivables cease to exist - that means in practice that you do not enter into new contracts, as in such a case all discretions and duties assign to a new entity – your company.
You just inform your business partners about changes in business and provide them with any new information – ID number, tax payer‘s number, bank account number and other important information
Transition manners from a natural body to a legal entity:
1) Establishment of a new legal entity and entry of the whole business of natural persons in the share capital of such a legal entity.
Such a form of transition is quite lengthy and albeit expensive, however, beneficial for an owner. The end result is a company with a higher share capital which makes it easier for you to maintain the business continuity with all partners, employees and other interested parties. A new company undertakes all discretions and duties of a fomer natural person as of the day of its inception.
2) Establishment of a new legal entity and subsequent sale of the natural body‘s undertaking or its part to the resulting business company.
This is a faster form of transition of your previous undertaking or its part with end result in a newly formed company with a standard share capital. Also in this case all discretions and duties are transferred to the legal entity.
3) Establishment of a new legal entity and concurrent undertaking of a natural person with the gradual transfer of property to a legal person and the phasing out a former undertaking (or even maintaining the original ID for a part of your businesses if required).
In practice, this is the most common and the chaepest variant of the transition from self-employement - all you need are financial means for an establishment of a new company or a purchase of ready made company. However, this solution cannot be characterized as fully legally clean and will also not guarantee a continuity linked up to your past undertaking - there is no transfer of liabilities and receivables.
Nevertheless, this solution may be used in practice for small enterpeises with a small-scale property and number of commitments – at a certain day they will cease their activities and start to operate under a new limited liability- or joint stock company.
Furthermore, it may be advantageous for cases where it is not appropriate to transfer all or a part of the company at the time of establishment of a legal entity, and when it is desirable or necessary that a natural body own carries its business (retaining a portion of assets or stocks, property, commitments and liabilities etc.).
If you are interested in transition towards a legal body, feel free to contact us to arrange a meeting and explain all details of this process.
