LLC vs. Sole Proprietorship: Which to Choose for Your Business?

Here is a detailed comparison between an LLC (Limited Liability Company) and a Sole Proprietorship to help you understand the differences between these two legal structures:

1. Structure and Liability

• LLC: An LLC is a distinct legal entity, meaning members are only liable to the extent of their capital contribution. It is suitable for more complex businesses or those with multiple partners.
• Sole Proprietorship: Directly linked to the individual owner, who is personally liable with their entire personal assets. Ideal for solo operations such as freelancing or small-scale ventures.

2. Employees

• LLC: There are no restrictions on the number of employees.
• Sole Proprietorship: Limited to a maximum of 3 employees under current legislation.

3. Activity Codes

• LLC: Allows an unlimited number of activity codes (CAEN codes).
• Sole Proprietorship: Limited to a maximum of 5 activity codes.

4. Professional Qualifications

• LLC: No proof of qualification is required for the chosen business activities.
• Sole Proprietorship: Requires evidence of qualification or professional experience for specific activities.

5. Taxes and Accounting

• LLC: Mandatory collaboration with a certified accountant. Taxation may involve a 1% or 3% income tax (for microenterprises) and VAT, depending on turnover.
• Sole Proprietorship: Offers the choice between real income taxation (10% of net income) or flat-rate taxation. Accounting can be managed personally, avoiding additional bookkeeping costs.

6. Share Capital

• LLC: Requires a minimum share capital of 1 RON.
• Sole Proprietorship: Does not require share capital.

7. Development Flexibility

• LLC: Facilitates expansion through partnerships or attracting investors.
• Sole Proprietorship: Best suited for simpler operations, though limited in growth potential.

8. Pros and Cons

• LLC: Better suited for larger-scale operations but involves higher costs and administrative obligations.
• Sole Proprietorship: Easier to set up and manage but carries a higher personal liability risk.

Conclusion

Choosing between an LLC and a Sole Proprietorship depends on the nature of your activities, the number of employees required, and long-term development plans. An LLC offers greater flexibility and legal protection, while a Sole Proprietorship is better suited for simple, individual endeavors.

For an informed decision, consult a specialist to understand all legal and fiscal implications. A well-informed choice ensures the success of your business!