Pavle Knežević

Pavle Knežević

CHOOSING A LEGAL ENTERPRISE FORM

From nowaday experienced and successful entrepreneurs, very often we can hear how much easier it would have been for them if before opening the company they knew at least part of what they know now, or that they were familiar with certain information they would have helped them. What is the essential information that any prospective entrepreneur or start-up manager should know in order to bring the best possible decisions?

After we have developed our business idea and made a quality Business Plan, we will need a registration of the company, according to the available legal forms of enterprise. The most common legal forms in Croatia are limited responsibility companies (d.o.o./j.d.o.o.) or business craft (obrt). What form of enterprise to choose is a very important question and before deciding on this step, a professional advice would be considered. Namely, each of the forms in comparison with others has some advantages and disadvantages, and given the character of the business idea and at least the medium-term Business Plan (five years), it is necessary to choose such a form that will benefit the entrepreneur most. Quality business consultants, tax advisors and accountants can help with this. In addition to the different terminology used in establishing a company, the basic difference between limited responsibility companies and business crafts is precisely in that – in responsibility. A company, as a standalone entity that has its own tax number, name, seat, bank account and other, is liable for its own obligations independently.

Therefore, founders and/or persons involved in the ownership and/or management structure of the limited responsibility company, do not respond to the obligations of that company with their own property, while in the Business craft all personal belongings of his or its owners are exposed to those obligations. A very important difference is also in the tax treatment, at least to one specific level of annual turnover. Namely, companies are in the corporate tax system while Business crafts pay tax on the income of the owner, who actually has no salary but is obligated to pay contributions and his salary is the part that remains between the realised receipts and expenses. For limited responsibility companies, founders are usually but do not necessarily have to be members of the board (directors). They can employ themselves in the company and do not have to, and in case they are employed they have to pay wages, associated contributions and taxes as well as for all other employees. In limited responsibility companies we have revenues, expenditures and profit as the difference between them, while in the business crafts we are talking about incomes and outcomes and net incomes as a difference between them.

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