Entrepreneur vs LLC

For informational purposes, we’ll present a simplified review of the similarities and differences between Entrepreneurs and Limited Liability Company (LLC):

Registration at SBRA and costs of registration

The process of registration at the SBRA (link to Serbian Business Register Agency – SBRA) for entrepreneurs is significantly simpler and cheaper than for LLC.

In case of registration of business activity, changes and closing of the entrepreneur there is no obligation to create acts while LLC have this obligation. For the founding act of LLC and its changes notarizing is required.

Fees for registration of business activity, changes and deletion for entrepreneurs are lower than for LLC, but in both cases the fees are not significantly high, and usually do not exceed 100 EUR.

An entrepreneur may be a foreinger, a person who does not have residence in Serbia, but for further business activities he must obtain a residence and work permit in Serbia. Founder of LLC can be foreign phisical person and foreign legal entity also. Founder physical person is not obligated to have temporary stay and work permit.

In terms of ownership, through LLC is easier to realize partnerships, as an entrepreneur represents individual who from legal perspective all the benefits and consequences resulting from business activities bears on himself.

Registered name, head office, business activity and the managing

An entrepreneur as the registered business name must have its own name, but may or may not have the “company” name – title, until the LLC business name does not contain the name and surname of the founder, and mandatory have the title.

Regarding registered office and determination of predominant business activity there are no significant differences between entrepreneurs and LLC.

For business activity outside his/her registered office entrepreneur is obligated to register “secondary place of business” at SBRA, while LLC can organize their business activities in “secondary place(s) of business” without registration at SBRA, except in the case of organizing the branch when registering at SBRA is required.

An entrepreneur may entrust management duties to a natural person with full capacity, while LLC can have one or more directors.

All of the above is governed by the provisions of the Law on business companies (link), the Law on the Procedure of Registration with the Business Registers Agency and the Law on Classification of Activities.

These regulations are in section: Useful content

Responsibility for the liabilities, equity

Entrepreneur is unlimited liable with all its assets for obligations from the business activity, and for tax liabilities with assets of all adult household members also (Article 157 of the Law on Personal Income Tax – link).

Founder of LLC for obligation of LLC is correspond only to registered contributions, and does not correspond to its assets. Exceptionally, if the founder does not respect the rule of separation of LLC property and personal property, and LLC property used for personal purposes, or intentional damage creditors, then founder correspond with his own property. (Article 18 of the Law on Companies – Abuse of Legal Personality – link).

LLC in process of establishing mandatory subscribing and register contribution (share) at SBRA, but contribution may not be greater than 100 RSD and can be increased afterward.

It should be noted that all the money paid as contribution represent funds with whom the company from day one may dispose. We see no reason why contribution shoud not be (significantly) higher than 100 RSD.

The entrepreneurs do not have contribution (share), and investment of their personal property for business purposes is not subject of registration at SBRA.

Penalties for infringement

Penalties for infringement are often double, and in some cases up to ten times less for entrepreneurs than for LLC.

For LLC is prescribed penalty for company and penalty for the responsible person in the company while for entrepreneur there is prescribt uniform penalty for the entrepreneur or his manager.

Bookkeeping, flat taxation

An entrepreneur can keep his books on the single or double entry bookkeeping system, while LLC must keep double entry bookkeeping system.

LLC and entrepreneurs who diceded for double-entry bookkeeping are required to submit and publich publicly financial reports at SBRA.

Entrepreneurs can identify and apply for lump sum taxation, except in the cases listed in Article 40, paragraph 2 of the Individual Income Tax Law (e.g. trade activity, any acitivity with turnover higher than 6,000,000.00 RSD in calendar year)

Regardless of the industry, the lump can not be an entrepreneur in the VAT system.

LLC can’t be taxed as the lamp.

Tax on income (profit) and social contributions

Tax on profit (net income) is paid on the difference between income and expenses (profit), as for entrepreneurs also for LLC.

The tax rate for entrepreneurs is 10%, and for DOO it is 15%.

When profit is transfered to personal account, entrepreneur does not pay any additional tax, while LLC pays 15% tax on gross profit.

All physical persons in Serbia on the part of the personal net income which is higher than cca 19,000 EUR has 10% of the annual income tax, and for personal net income higher than 35,000 EUR there is 15% of additional tax. Profit from the business activity of entrepreneur is included in their personal net income, while the profit of LLC owners is not included in their personal net income.

If the founder is also the director of the LLC, he must pay social contributions at least to the lowest base.

An entrepreneur who choose to pay personal salary to himself does not have to pay social contributions to a base higher than the lowest. Second option is to pay contributions to a base equal to the business result realized from the business activity, but again at least on the lowest base.

We see the payment of personal salary as the only logical choice for Entrepreneur.

When founder of LLC, who is also the director, or entrepreneur are already employed somewhere else, they do not pay health and unemployment contributions, but only a pension contribution.

Work of family members

In the case of entrepreneurs, members of the family can be engaged without the employee registration, but only on the replacement of a justified absentee entrepreneur (Article 89, paragraph 4 and paragraph 9 of the Law on business companies).

In the case of LLC members of the founder’s family can not work without registration.

Changing the legal form, statutary changes, and change of ownership

An Entrepreneur may change the legal form in LLC, while LLC can not change the legal form in an entrepreneur.

An Entrepreneur can not have a statutary change of merger, couopling, allocation, or division, while LLC can have it.

LLC may change the owner, while the entrepreneur is one phisical person and that could not be changed.

Temporary termination, deletion from the Serbian Business Register Agency

An entrepreneur may register a temporary termination of business activity, for a time limited or unlimited period without any satisfied conditions, but for LLC there is no such possibility.

An entrepreneur may be permanently removed from the SBRA on condition that he has no tax obligations. Entrepreneur may have outstanding obligations towards other creditors because the entrepreneur fits such obligations with his own property. When deleting an entrepreneur from the business register there is no waiting, the entrepreneur is deleted on the day of submitting the deletion application.

LLC may be deleted by liquidation or bankruptcy proceedings.In order to carry out the liquidation procedure LLC must satisfy all creditors and in the procedure of deletion also attach a certificate from the Tax Administration that there are no tax obligations. The liquidation procedure itself takes at least four (4) months. The deletion of LLC when there is bankruptcy is complicated, costly and time-consuming process, except in a situation when according to the Bankruptcy Law, there is accelerated procedure.

Regulations that treat entrepreneurs and LLC equally

In almost the same way entrepreneurs and LLC are treated by regulations on: trade, VAT, work, safety and health at work, fiscal cash registers, payment transactions and foreign trade and customs operations.

Authors: Jovan Šukara, mag. oec, Marko Šukara, mast. ekon.

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