Table of Contents:
- Unlimited liability of sole proprietors (JDG)
- Social security contributions (ZUS) and taxes
- Other advantages of running a company
- Is it possible to easily sell a sole proprietorship?
- How does the death of a sole proprietor affect the business?
- Summary
Unlimited liability of sole proprietors (JDG)
The primary difference between a sole proprietorship (JDG) and a company lies in the scope of liability. A sole proprietor bears unlimited liability for obligations incurred during business operations, extending to their personal assets.
In contrast, shareholders in a limited liability company bear no liability for the company’s obligations, while the liability of board members is strictly regulated.
Creditors of a JDG can make claims directly against the owner’s personal assets, even if those assets are not used for business purposes.
Social security contributions (ZUS) and taxes
Sole proprietors can choose from three tax regimes: progressive tax rates, a flat tax, or a lump-sum tax on recorded revenues.
However, JDG owners cannot benefit from the particularly advantageous tax regime known as the Estonian CIT.
The solidarity levy is 4% of income exceeding PLN 1 million.
Operating a JDG also requires mandatory ZUS contributions, including health insurance premiums calculated based on income. Unlike JDG owners, shareholders of a limited liability company do not pay a solidarity levy or income-based health insurance premiums.
Other advantages of running a company
Capital companies allow for a transparent separation of ownership, supervisory, and management functions.
Companies also make it easier to implement motivational tools, achieve specific business goals, plan succession, or integrate new individuals into the organization’s structure.
Is it possible to easily sell a sole proprietorship?
Under current market conditions, selling a sole proprietorship is almost impossible. Investors are generally not interested in acquiring JDG businesses.
Selling a JDG also involves more burdensome tax consequences for the exiting owner compared to selling shares in a limited liability company. Converting a JDG into a capital company is usually the first step before an “exit” strategy.
How does the death of a sole proprietor affect the business?
The sudden death of a JDG owner often causes significant challenges to business continuity. Succession of a JDG is an enormous organizational challenge for heirs and frequently leads to the termination of the business.
While appointing a succession manager can simplify inheritance, this is only a temporary solution that operates between the owner’s death and the determination of heirs.
Converting a JDG into a company provides a more effective way to secure the business.
When the company is the contracting party, employer, and payer, the death of a shareholder does not automatically paralyze the business. With a well-planned succession strategy, complemented by a will or family foundation, the risk of chaos and disruption is significantly reduced.
Summary
Entrepreneurs in Poland value JDGs for their simplicity.
However, at a certain stage of business development, it’s worth considering converting a JDG into a capital company.
A company tailored to specific needs can prove to be a far better, cheaper, and more advantageous form of business operation.
