Which form of business organisation to go for?
Part 1: Small and Medium Business
You want to register a company in Bulgaria, but you don’t know what legal form to choose?
Selecting the right company format is an important issue to consider, prior to setting up your business. A proper choice on the legal form can save you money, time, and a lot of hassle.
To make the right decision, we suggest that you take into consideration not only the size and nature of your business, but also all accompanying legal and accounting aspects.
When it comes to small and medium sized business, usually the dilemma lies in the choice between ET (Sole trader) and OOD / EOOD (Ltd). Therefore, in the lines below we will outline the advantages and disadvantages of both legal forms.
Pros & Cons of ET
ET in Bulgaria stands for a sole proprietorship (sole trader). This is a type of enterprise that is owned and run by one natural person (residing in Bulgaria) and in which there is no legal distinction between the owner and the business entity.
PROS of ET registration:
- No need for initial founding capital.
- The state taxes and fees for the registration of ET are lower than those for registration of OOD / EOOD.
For a number of commercial activities, such as restaurants or other catering and entertainment venues, paid parking lots, and some types of services, the sole traders pay a patent tax. The tax amount depends on the location of the premises (in some cases – also the size) and the type of patent activity. You might be wondering what is the benefit of this taxation? The answer is that you will not be subject to personal income tax. For sole traders, the tax equals 15% of the profit. With a significant income (but not more than 50,000 BGN per year) and low operational costs, patent tax can be a great option.
The ET closure procedure is easier and quicker.
CONS of ET registration:
- In the event of insufficient company capital, the owner of a sole proprietorship remains personally liable for all the business’s debts.
- In most cases, the levying of a patent tax is less advantageous than the flat tax paid on the profits of OOD / EOOD.
- If the ET does not hold a patent, you’ll have to pay 15% tax on the realized profit.
- If you would need to raise some capital for your business, bear in mind the relatively low confidence by banks when granting loans to ETs.
Now that we’ve outlined the pros and cons of Bulgarian ET, let’s look at the OOD/ EOOD characteristics.
Pros & Cons of OOD / EOOD
OOD /EOOD stands for Limited liability company/ Single-member liability company and is one of the most appropriate forms of development for small and medium capital.
PROS of OOD / EOOD registration:
- Very low founding capital – the minimum required capital at registration of OOD / EOOD is 2 BGN (1 EURO)
- Flexibility with respect to the number of partners and the amount of capital
- OOD / EOOD is responsible for its obligations to the amount of the capital and not to the partners’ personal assets.
- Regardless of the activity of OOD / EOOD, you pay a 10% flat tax on profits.
CONS of OOD / EOOD registration:
- The state registration fees for OOD / EOOD are higher than those for ET registration.
- OOD / EOOD closing procedures are more complicated and take several months.
In conclusion, we will suggest that prior to registering your business in Bulgaria, you evaluate all the pros and cons of ET and OOD in the light of your individual situation. In any case, it would beneficial to consultant an experienced accountant or lawyer, who will guide in the process.
No matter, which legal form of business you choose, you are going to benefit from the:
- Lowest setup fees within the EU
- Lowest required founding capital
- Lowest Tax on Dividends in the EU
- Lowest Tax on Corporate & Personal Income
- Lowest Social security contributions in the EU
Should you consider company registration in Bulgaria, you can rely on a professional advice and top-notch service from Aidos BG. Our experienced experts will help you make the right choice and will support through the whole registration process. If you want to learn more, don’t’ hesitate to contact us.
Don’t forget to check our next article, coming in August, when we will discuss the pros and cons of different legal forms for large businesses in Bulgaria. If you want to be sure, you never miss a news from us, feel free to sign up for our monthly newsletter here.