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Do you have a business idea or already run a company? You don’t know which legal form to choose?

Are you considering SPZOO – limited liability company, but you have doubts whether it is profitable? You probably heard something or maybe even read something, but your head is confused😊

Exploring the topic is time-consuming, difficult and often leads to different answers.

When considering setting up a company, you should consider many circumstances. What is important is that each company is an individual entity and therefore has many factors that are not present in others.

To start, all you need to do is answer a few important questions.

Do you want to be responsible for your company’s obligations with all your current and future assets?

Do you want to employ people and also be responsible for their work with your assets?

Do you want to pay large ZUS contributions – from January 1, 2024, over PLN 2,000?

Do you want to pay high taxes on all of your company’s profits?

Do you want to have more freedom in generating costs?

Do you want to have higher prestige as a company representative?

Do you want to have more control over your company’s finances?

Would you like to get funding?

Would you like to have double your creditworthiness?

Are you thinking about an investor?

Would you like to immortalize your company?

Would you like to have the opportunity to sell your company?

If the majority of people answered YES to the above questions, it means that SPZOO is the right form. Of course, many advisors and accountants recommend JDG for many reasons – because it is cheaper, because it does not require thinking, because a company’s cash register is a private cash register, etc. But what will happen if something bad happens, an accident, a poorly executed contract, death… we will lose everything and the accountant will ONLY lose the client.

1. Responsibility

Running your own business, by definition, always involves certain and full risk. It is assigned to our activities, regardless of the legal form, whether to JDG, SPZOO or S.A.. However, there are solutions to minimize the potential negative effects of the failure of our venture. As the name “limited liability company” itself may indicate, the company itself is responsible for the “faults” of the company.

The limited liability company, as a separate legal person, is liable with the company’s assets, but no less than the share capital.

Please remember that there is a risk of the company’s Management Board being held liable, but it is very complicated and you have to try hard to make this happen, so there are solutions to avoid it. The partners are not liable for the company’s obligations at all.

The very insolvency of a company is already the basis for declaring its bankruptcy, as long as its liabilities are greater than its assets. In such a case, members of the management board are obliged to report this fact to the competent court within 2 weeks.

Can a company be a sole proprietorship?

By definition, the answer should be affirmative, which will probably cause consternation for some.

You can run a limited liability company as the sole shareholder of the company. Is it beneficial? Probably not, because we are obliged to pay the full amount of the ZUS contribution and undertake certain activities in the notarial form, which have a certain date and cost money.

2. Employees

It should be noted that the company is liable for improper performance of the contract for which our employee was fully responsible, and in the case of a business activity, the owner is liable with all his assets. In the case of a company, ONLY the company is liable.

It should be emphasized that in a limited liability company there is no obligation to employ employees, and the partners themselves do not have to pay contributions. There is no need to explain to anyone how much savings this represents on an annual basis.

3. ZUS

All entrepreneurs conducting non-agricultural business activities are obliged to pay ZUS contributions. The Company has a Management Board, whose remuneration is exempt from social insurance. The basis is an appointment and not a mandate contract or employment contract.

In this case, the law clearly regulates this issue, exempting the Company’s Management Board from such an obligation. Of course, the company must have at least two shareholders.

4. Taxes

Taxation in SPZOO is much more complex than in business activity. It should be remembered that in JDG we pay 19% tax on ALL generated profit.

In a limited liability company the company itself is subject to taxation, not ONLY the partners. The tax is levied on the company’s income, which amounts to only 9% of its value. In addition to taxing the income itself, dividends paid to the company’s shareholders are also subject to tax in the amount of 19%. However, the remuneration of the Company’s Management Board is taxed at the rate of 18%, which is automatically the company’s expense.

Additionally, we can receive remuneration from the company with income tax in the amount of 8.5% or 9%. In summary, the limited liability company gives us the opportunity to optimize our income tax to an average value of approximately 12%.

5. Separation of the company from us

There is no doubt that in the ZOO company there is a strong separation between the company and our private life. We represent the company as President/Member of the Management Board.

In the case of JDG, everything is in one bag – we as an entrepreneur and the company

6. Prestige

Private Limited company. is perceived more professionally in business. It is assumed that partners who decide to run a business in this form have greater knowledge about the advantages of a limited liability company, which may influence the conclusion of more lucrative contracts.

The very fact that a company has its own legal personality gives a completely different tone to all business conversations, opening doors that would otherwise remain closed. There is no doubt that prestige also means development, external capital and business proposals that you can expect as the company develops.

7. Financial control

In a company with full accounting, it is much easier to control financial flows, it is possible to separate accounts, i.e. a chart of accounts. The next step is to introduce management accounting.

8. Funding and subsidies

Quite often, limited liability companies can apply for an EU subsidy. meeting more restrictive criteria, but we are still dealing with solutions that are not available when running a sole proprietorship, because in practice it only allows you to apply for a subsidy for setting up a business.

9. Crediting

Private Limited company. has more credit options. The creditworthiness of the company and its partners do not influence each other in any way. The company is a separate entity with separate capital. Therefore, shareholders can freely take out loans and leases for their own private needs without fear that this will reduce the creditworthiness of the company and, therefore, the company itself incurs liabilities that have no impact on the shareholders’ creditworthiness.

10. Investors

Often, several solutions can be used to scale a company: “private equity” and “venture capital”. These are forms of investment funds that can be used to finance the company’s capital. Venture Capital funds are often associated with investments in the early stages of enterprise development. Companies dealing with innovative ICT technologies, creators of applications and websites often take advantage of the possibility of such financing. Investment agreements are very complex and it is necessary to use the legal services of a specialized law firm during negotiations.

11. Immortal company

In two words… Your death also means the death of your company and the maturity of liabilities, i.e. repayment of loans, closing of contracts, payment of triple salaries to employees, etc.

12. Sale of the company

A solution worth considering starting a business in the form of a ZOO company, which will not be found in JDG. There is simply no possibility of selling a sole proprietorship. If we would like to resign from continuing to run our company, it should simply be closed down or transformed into a SPZOO (the transformation involves high costs). If we decide to withdraw from running a given limited liability company, we can sell it and receive remuneration.

An entrepreneur may deduct expenses for clothes bearing the permanent marking of his company as tax deductible costs. The officials agree to this.

Sewing initials on a shirt and jacket provides tax benefits – these are the conclusions from the interpretation of the director of the National Tax Information. It will please everyone who invests in elegant business attire.

– For many years, the tax office has excluded suits that entrepreneurs bought from their costs. Recently, he has become more relaxed and tolerates spending on elegant clothes, as long as they are marked with branded elements in some way.

Outfit for a business meeting

Let’s look at the case of an entrepreneur who is a representative of a foreign company. For the needs of his business, he bought a suit and a shirt. He wants to settle the expenses as tax deductible costs. He argues that he must present himself well at business meetings. He assures that he will not use the clothes for private purposes. This is confirmed by the permanent marking of the shirt with a monogram (these are the entrepreneur’s initials, which are the symbol of his company), and the jacket with a coat of arms (also identifying the company).

Is this enough to settle tax costs? Yes. The tax office confirmed that the clothing with the company’s logo serves an advertising function. It increases the company’s recognition, which may result in an increase in revenues.

Expenditures on the purchase of a shirt and suit may therefore be tax deductible. Just like the payment for making the monogram and coat of arms. It is also allowed to settle an invoice for washing clothes in the company (interpretation no. 0114-KDIP3-1.4011.235.2017.2.IF).

Does this mean that entrepreneurs have found a way to expense clothes?

– Recent interpretations show that sewing on initials or other markings makes it possible to settle expenses in the company – says Radosław Żuk. – However, you have to remember about the conditions.

First, the designation must actually be associated with the company. Initials alone may not be enough to settle the cost if they are not part of the company’s name. For example, if the company’s name is “Jan Kowalski Przedsiębiorstwo Handlowo-Usługowe”, sewing the initials “JK” on the lapel of the jacket will not give the right to include the expenses for its purchase as costs.

Secondly, the marking must be permanent. It cannot be a badge that can be detached at any time.
Thirdly, the company logo should be visible to other people.

The tax office can check

Entrepreneurs should therefore be careful when settling such purchases. The tax authorities themselves stipulate in the described interpretation that “the validity of including the expenses indicated in the application as tax-deductible costs of business activity may be verified in the course of possible tax proceedings.” And he emphasizes that the entrepreneur is obliged to demonstrate the relationship between expenses and revenues.

The tax office’s interpretation shows that it is easier to settle outfits for companies that buy them for employees. They are usually the same, in characteristic colors, with a clear logo. This is the case in industries where employees have contact with customers, e.g. restaurants, stores, banks.

Summary

In many professions, a suit is normal work attire. It is necessary to run a business, just like a telephone or computer. It’s good that the tax office agrees to include it in costs, but I consider introducing the condition of permanent marking with a company logo as too stringent. Embroidering initials or a name just to gain tax benefits is an unnatural action. The tax office should agree to include costumes without a logo in the costs as well. Of course, some entrepreneurs could abuse this option and deduct private clothes. However, we must not make life difficult for everyone just because there is a group that bends the rules.