Individual (independent) or capital company (Sàrl, SA)
In order to make a selection, the following points should be considered:
Incorporation costs and capital:
Depending on the size of the business created, it is sometimes necessary to start from the beginning of the game for the individual reason, the entrepreneur sometimes having no or little funds to start.
In addition, if the entrepreneur has doubts about the viability of his project but has few financial risks, he will avoid creating a capital company in order to avoid possible costs of liquidation and dissolution in the event he gives up.
If one decides to transform his individual reason into a capital company afterwards, it is always possible but the costs of incorporation will often be higher.
The limitation of financial risks:
If the company presents debt risks, it is often wise to make the choice of the capital company. Since the capital company is a legal person and therefore an own legal entity, the entrepreneur does not run the risk in the event of debt, of having to answer for debts on his entire personal fortune as for an individual reason.
If the fixed costs are significant, or if there are risks of collateral or damage that cannot be easily insured, it will be necessary to consider that there is a significant risk of indebtedness.
Since the self employed person is not obliged to subscribe to an occupational pension scheme (LPP) and the premiums may vary considerably with regard to losses of sickness earnings in relation to a capital company, it will be necessary to study its coverage needs and its budget in terms of premiums.
The approach will be different on a case-by-case basis. In fact, the self-employed are taxed on the profit of the company while for a capital company, the taxation is at the level of the profit of the company and on the wages and dividends at the level of the owner of the company. Dividend taxation is mitigated to limit double taxation.
It will therefore be necessary to examine the contractor’s personal situation (tax rates etc…). For example, in case of losses, the rules are not the same. Depending on the case, the individual reason may be interesting.
Also, if, for example, it is planned to use part of the company’s profit for some of its investments, it will probably be wise to opt for a capital company.
The capital company will be subject to other taxes such as stamp duty and advance tax in certain situations.
It should also be kept in mind that in the event of resale of the enterprise, the independent will be taxed, in some cases in a mitigated manner, while for the capital company held in the private wealth, the capital gain will be non-taxable.
As a final point on taxation, in the event of a tax recovery, the consequences are generally much greater for limited companies.
Accounting and administrative rules:
Although good administration is necessary in both cases, the capital company requires particular rigour in accounting and administrative management.
The choice must be made on a case-by-case basis to find the model that best suits you based on your personal strategy activity.
Fiduciaire Monachon Sàrl will gladly advise you in this area.