This question is also important for Ukrainian citizens living in Slovakia who wish to start a business. The choice between a sole proprietorship and an s.r.o. may affect not only taxation and administrative procedures, but also liability for obligations, the way income from business activity is received, residence-related matters, and the future functioning of the business.
What is a sole proprietorship?
A sole proprietorship means doing business as an individual. This means that the entrepreneur carries out business activities in their own name and at their own responsibility.
A major advantage of a sole proprietorship is simplicity. Registering a sole proprietorship is generally faster, cheaper, and less administratively demanding than establishing a limited liability company, known in Slovakia as an s.r.o. For simple types of business activities, a sole proprietorship may be a suitable solution, especially at the beginning of business activity.
A sole proprietorship is often used, for example, in services, crafts, online work, consulting, marketing, IT services, hairdressing and beauty services, cleaning, construction work, or other types of independent activities.
In the case of a sole proprietorship, the income from the business belongs directly to the entrepreneur. There is no need to deal with the withdrawal of money from a company, as is the case with an s.r.o.
Disadvantage of a sole proprietorship: liability with all personal assets
The biggest disadvantage of a sole proprietorship is liability for obligations. The entrepreneur is liable for their business activity with all of their assets.
This means that if debts or other obligations arise in connection with the business activity, they may also extend to the entrepreneur’s personal assets. Simply put, an enforcement officer may recover debts even from property that the entrepreneur does not use for business purposes. Therefore, in the case of riskier types of business activities, a sole proprietorship may not be the most optimal solution.
A sole proprietorship is suitable mainly if the entrepreneur is just starting out, wants to test the business first, has a simple business model, and does not need a complex organisational structure.
What is an s.r.o.?
An s.r.o. is the abbreviation for spoločnosť s ručením obmedzeným, meaning a limited liability company. Unlike a sole proprietorship, it is not a business activity carried out by an individual, but a separate legal entity.
This means that the company has its own assets, rights, and obligations. Money received into the company’s account does not automatically become the personal money of the shareholder or managing director. It is the company’s money.
If the owner wants to withdraw money from an s.r.o., they must use a legally permitted method, for example in the form of a salary, remuneration of the managing director, payment of a profit share, or another appropriate form depending on the specific situation.
Advantage of an s.r.o.: limited liability
The main advantage of an s.r.o. is limited liability. In practice, this means that the company itself is primarily liable for obligations connected with the business activity.
An s.r.o. may therefore be more appropriate in the case of a larger or riskier business, cooperation with business partners, employees, larger orders, or when the entrepreneur plans to develop the company in the long term. It is also necessary if there are to be several co-owners in the business.
Disadvantages of an s.r.o.
An s.r.o. is administratively more complex than a sole proprietorship. It is necessary to prepare founding documents, determine the registered seat of the company, choose a business name, define the business activities, appoint a managing director and shareholders, and ensure registration in the Commercial Register.
Therefore, establishing an s.r.o. is somewhat more complicated than setting up a sole proprietorship. Even more importantly, cancelling or liquidating an s.r.o. may be a lengthy and financially demanding process. While a sole proprietorship can be terminated relatively simply, terminating an s.r.o., known as liquidation, may take months and can be costly.
Taxation and contributions
From the point of view of taxation and contributions, it is advisable to consult an accountant or tax advisor. In simplified terms, it can be said that with lower income, a sole proprietorship may be more advantageous, while with higher income, establishing an s.r.o. may be more beneficial.
Conditions for establishing an s.r.o.
When establishing an s.r.o., it is important not to focus only on preparing the documents. Before setting up the company, it is advisable to verify several circumstances that may affect the successful registration of the company or its future operation.
When establishing an s.r.o., it is necessary to check in particular:
• whether the company’s business name is available,
• whether a company with the same or a very similar name already exists,
• whether the business name is registered as a trademark,
• whether the founder is registered as a debtor with the tax authority,
• whether the founder has debts with the Social Insurance Agency,
• whether enforcement proceedings are being conducted against the founder,
• whether the founder is the sole shareholder in more than three limited liability companies.
These checks are important mainly in order to avoid unnecessary refusal of registration, delays in establishing the company, or problems in the future.
Do these conditions also need to be met in the case of a sole proprietorship?
In the case of a sole proprietorship, the conditions are simpler than in the case of an s.r.o. A sole proprietor does not create a separate legal entity and does not register a new company in the Commercial Register. Therefore, in the case of a sole proprietorship, the availability of a business name is not dealt with in the same way as with an s.r.o.
In the case of a sole proprietorship, what is checked primarily is whether the person meets the general conditions for doing business. These include, in particular, reaching the age of 18, legal capacity, and a clean criminal record. In the case of craft or regulated activities, professional qualification is also required.
Therefore, in the case of a sole proprietorship, the same scope of checks as when establishing an s.r.o. generally does not apply. Nevertheless, even in the case of a sole proprietorship, it is advisable to check practical aspects, in particular:
• whether the foreigner’s residence status allows them to carry out business activities,
• whether the business activities have been selected correctly,
• whether the activity is a craft or licensed activity requiring professional qualification, and if so, whether the entrepreneur has the necessary documents.
Sole proprietorship or s.r.o. from the perspective of a Ukrainian citizen
If the entrepreneur is a Ukrainian citizen, it is always necessary to also check their residence status in Slovakia.
In practice, we most often encounter the following situations:
• the Ukrainian citizen has the status of a displaced person,
• the Ukrainian citizen has temporary residence for the purpose of business,
• the Ukrainian citizen has temporary residence for the purpose of study,
• the Ukrainian citizen has temporary residence for the purpose of employment.
The conditions for carrying out business activities may differ for each type of residence permit. Therefore, it is not enough to consider only whether a sole proprietorship or an s.r.o. is better. It is first necessary to check whether the specific residence permit allows the person to carry out business activities.
Temporary refuge and business activity
If a Ukrainian citizen has temporary refuge status in Slovakia, i.e. the status of a displaced person, they may work and carry out business activities in Slovakia. In such a case, both registering as a sole proprietor and establishing an s.r.o. may be considered.
Temporary residence for the purpose of business
If a Ukrainian citizen has temporary residence for the purpose of business, then this activity is the purpose of their stay. In such a case, they may carry out business activities as a natural person — entrepreneur, or through a limited liability company, provided that the statutory conditions are met.
With this type of residence, it is also very important to monitor the conditions for renewal of residence. The requirements for proving income or profit differ for a sole proprietorship and an s.r.o. In practice, a lower income is usually required for the renewal of residence in the case of a sole proprietorship than in the case of doing business through an s.r.o. Therefore, for some foreigners, a sole proprietorship may also be simpler from the point of view of residence matters.
Temporary residence for the purpose of study
If a Ukrainian citizen has temporary residence for the purpose of study, they may carry out business activities alongside their studies.
Temporary residence for the purpose of employment
If a Ukrainian citizen has temporary residence for the purpose of employment, the situation is more complicated. This type of residence is connected with employment, not with business activity. If a person with temporary residence for the purpose of employment wants to start a business, it is necessary to deal with a change of purpose of residence or obtain temporary residence for the purpose of business. This process may be administratively demanding and should be resolved before registering a sole proprietorship or establishing an s.r.o.
What is needed to open a sole proprietorship
To open a sole proprietorship, it is necessary in particular to:
• choose the business activity,
• check whether it is a free, craft, or regulated trade,
• prepare an identity document and residence document,
• determine the place of business,
• obtain the consent of the property owner,
• submit an application for trade registration to the relevant trade licensing authority,
• in the case of craft or licensed activities, prove professional qualification.
For foreigners, it is also important that their residence status allows them to carry out business activities in Slovakia.
What is needed to establish an s.r.o.
To establish an s.r.o., it is necessary in particular to:
• choose the company’s business name,
• check whether another company uses the same or a similar name,
• check whether the name is registered as a trademark,
• determine the company’s registered seat,
• obtain the consent of the property owner,
• determine the shareholders and managing directors,
• choose the business activities,
• prepare the founding documents,
• check whether the founder has debts, enforcement proceedings, and similar issues,
• obtain trade authorisations for the selected activities,
• submit an application for registration of the company in the Commercial Register.
All of the above can be summarised in the following table:
| Question | Sole proprietorship | s.r.o. |
|---|---|---|
| Who carries out the business activity? | Natural person | Separate legal entity |
| Establishment | Simpler and faster | More administratively complex |
| Establishment costs | Generally lower | Generally higher |
| Liability | The entrepreneur is liable with all personal assets | The company is primarily liable for obligations |
| Money from business activity | Income belongs directly to the entrepreneur | Money belongs to the company |
| Withdrawal of money | Simpler | It is necessary to resolve the legal method of payment |
| Suitable for | Simpler business, services, starting a business | Larger or riskier business |
| Multiple co-owners | No | Yes |
| Name check | Not carried out in the same way as with the business name of an s.r.o. | It is necessary to check the availability of the business name |
| Checking debts and enforcement proceedings | Practical verification is recommended | Important check when establishing the company |
| Professional qualification | Required for craft or licensed activities | Resolved according to the selected business activities |
| Termination of business activity | Generally simpler | Cancellation and liquidation may take months |
| Foreigner’s residence | It is necessary to check whether this type of residence allows business activity | It is necessary to check whether the residence allows business activity |
Which form is more suitable?
A sole proprietorship is suitable especially if you want to start quickly, simply, and with lower costs. It is convenient for individuals who provide services or are starting a small business.
A limited liability company, or s.r.o., is a better option if you plan to run a larger business, have a higher level of risk, cooperate with several people, or want to separate the business from your personal assets.
In addition to business-related aspects, Ukrainian citizens should always also consider residence-related matters. Not every type of residence automatically allows business activity. Therefore, before opening a sole proprietorship or establishing an s.r.o., it is advisable to first check the specific residence status.
Conclusion
Both a sole proprietorship and an s.r.o. can be good solutions, but each form is suitable for a different situation.
A sole proprietorship is simpler, faster, and often suitable for starting business activity. Its disadvantage is liability with all personal assets.
An s.r.o. is administratively more complex, but it provides a higher level of protection and is better suited for more complex business operations.
If you are a Ukrainian citizen and want to start a business in Slovakia, we recommend first checking your residence status and only then choosing the appropriate form of business activity. The right choice at the beginning can save you time, money, and complications in running the business or renewing your residence permit.
If you have any questions or would like to register a sole proprietorship or an s.r.o. in Slovakia, you can contact me by phone at +421 905 650 150 or by email at advokat@frnco.sk. I will help you assess your situation, verify the necessary conditions, and prepare the entire business registration process.
JUDr. Roman Frnčo, attorney-at-law