Self-employed or Limited Company? The best solution for your activityPatrick
Self-employed or SL, this question is asked by thousands of people in Spain looking for the right legal formula to develop their economic activity. Before making a decision, we must assess specific criteria that allow us to evaluate which is better, being self-employed or forming a Limited Company. Below, we consider both options and the process for registration in both cases.
Criteria for becoming self-employed or setting up a limited company
It is important to understand the implications of both legal forms, and these are the key points in both cases.
Your asset liability
A self-employed person will be liable for debts with his or her own assets, whereas in the case of a limited company, the personal assets of the managers are protected, and it is only possible to claim the assets belonging to the company itself.
When we set up a company, we do not think about the possibility of generating debts; however, it is always advisable to evaluate all possible scenarios.
Administrative and administration costs are lower for the self-employed. Another financial advantage for the self-employed is that they can take advantage of the flat rate of €60 per month during the first year, and bonuses of between 30% and 50% during the second year.
Limited companies also have a reduced rate, in this case €85 for the first year only.
Period of incorporation
In addition to the financial costs, it is also necessary to take into account the waiting periods for incorporation. The process for a self-employed person is one day, the day you start the procedure you can register and start your work activity. In the case of limited companies, the waiting period is between 5 and 30 days, depending on the efficiency of the administration.
Are financial contributions necessary?
In this case, the process is very similar: self-employed persons are not obliged to make a financial contribution, while limited companies are obliged to contribute a minimum share capital of €1.
It is possible, in the case of SLs, to make a larger contribution and deposit it in a bank account, as a provident fund.
Being self-employed or a limited company also has tax implications that should be assessed. Self-employed persons pay personal income tax (IRPF), which is a progressive tax, so the higher the profits, the higher the tax rate. In the case of a limited company, the rate is fixed and is 25%.
The 25% rate only applies to the company’s assets, so if you transfer the profits to your personal account, you will have to pay tax on your salary and the profits you have made.
In general terms, the accounting of a self-employed person is simpler, because it is completed with the filing of taxes and basic record books, including invoices issued, invoices received, investment goods and intra-community transactions.
The limited company implies full accounting obligations.
Growth and financing
In reference to the future scalability of the business, limited companies are more likely to obtain credit because they present much more detailed accounts, in the case of the self-employed it will be essential in most cases to present at least one guarantor.
How to set up a limited company
The incorporation process is another key issue when assessing whether it is better to be self-employed or a limited company. In the case of the SL, the basic steps are as follows.
Registration of the company name: It is essential to register a name in the Mercantile Register.
Bank account: The company must have its own bank account.
Articles of association: The articles of association are then drawn up, setting out the rules of the company.
Public deed: All partners sign the deed before a notary.
Tax formalities: An application is made for a Tax Identification Number, registration for Business Tax and Census Declaration.
Registration: The Limited Company is registered in the provincial Mercantile Register.
NIF: Finally, a definitive NIF is issued, which corresponds only to the incorporated company.
How to become self-employed
The process in this case is simpler, in total it consists of the following steps.
- The first step consists of registering with the General Treasury of the Social Security, where a Social Security number is issued, and registering with the Special Regime for Self-Employed Workers.
- Contact with the mutual or insurance company that will cover risks due to occupational illness or accidents at work.
- Registration in the Census of Employers at the Tax Agency.
- Application to the Ministry of Labour to confirm the start of the activity.
- If necessary, application for specific licences.
Asesoría Orihuela Costa, your integral consultancy
If you want to start your business activity with the advice of an expert team, at Asesoría Orihuela Costa, you have the best team to lay the foundations of your business and protect your activity from the beginning.