What are the most important advantages of a limited liability company?
Limited liability of shareholders for the company’s obligations
The fact that the shareholder’s private assets are not at risk in the case of the company’s financial problems often constitutes the most important advantage resulting from conducting business activities in the form of a limited liability company. The liability of the limited liability company’s shareholders is limited, in principle, to the risk of loss of the contribution made to the company.
Possibility to establish a single-person limited liability company
The possibility to establish a single-person limited liability company constitutes an exception to the principle that the company should consists of at least two shareholders. It allows independent entrepreneurs to conduct business activities on a larger scale in the form limiting the economic risk.
Possibility to establish the company online
A limited liability company can be established online, which is a significant simplification in comparison with the standard process of the company establishment. It also allows avoiding costs related to the preparation of the articles of association in the form of a notarial deed.
Low share capital
The limited liability company’s share capital must be at least PLN 5,000, which is definitely a lower amount than in the case of a joint-stock company, where the minimum share capital is PLN 100,000. Therefore, the necessity to collect the capital does not constitute in practice a barrier to conducting business activities in the form of a limited liability company.
Lack of health and social security contributions
In contrast to partnerships, shareholders of limited liability companies are not obliged to pay health and social insurance contributions. The exception to this rule is the shareholder of a single-person limited liability company.
Benefits from the sale of a company
A limited liability company can be the most advantageous legal form in the case of the intention to carry out a company sale transaction. In the case of natural persons, the income from the sale of shares in a limited liability company is, in principle, taxed at the level of 19%, while the income from the sale of general rights and obligations in a partnership (e.g. in a general partnership) is in principle subject to taxation according to the tax scale (i.e. at the rate of 12% or 32%).
It is worth underlining that also for many investors the purchase of a limited liability company or the acquisition of new shares in it will be the most advantageous solution. Sometimes it will be even the necessary condition of the transaction.
Income tax - CIT in the amount of 9%
A limited liability company with the status of a small taxpayer, whose revenue in the tax year did not exceed EUR 2 million and which fulfils other requirements set out in the Polish CIT Act, may pay the CIT in the amount of 9% on all income, except for the income that is recognised as the source from capital gains. In some cases it allows relatively favourable taxation of this company’s income.
Possibility to benefit from the so-called Estonian CIT
If the company intends to make investments in subsequent years, it may benefit from the Estonian CIT. This solution assumes lack of the occurrence of the CIT obligation as long as the profit generated by the company is reinvested.
Purpose of activities can be freely chosen
A limited liability company may be established for any purpose. Therefore, in contrast to partnerships, a limited liability company does not have to conduct business activities; it may conduct charitable or sports activities.
Simple procedure in the case of changing the shareholder
In contrast to partnerships, in a limited liability company the shareholder may dispose of (e.g. sell) only part of their shares, which allows reducing the involvement of capital, with the simultaneous maintenance of the status of the company’s shareholder.
Lack of the solidarity surcharge
The surplus of income above the amount of PLN 1 million, less the social insurance contributions paid, is subject to taxation with the solidarity surcharge in the amount of 4%. However, in contrast to income generated through partnerships not being CIT payers or sole proprietorships, income from dividend paid by limited liability companies is not included in the base of taxation with the solidarity surcharge. Therefore, the payment of dividend to the shareholder of a limited liability company is not subject to taxation with the solidarity surcharge.