How will choosing the suitable legal form for my business save me time, money and effort in the future?
Starting a business is no easy task. There are so many things to think about – the company name, the products or services you'll offer, the marketing strategy, and, of course, the finances. One of the most important decisions you'll make when starting your business is what legal form to choose. This decision can have a major impact on the success of your company, so it's crucial to get it right. In this blog post, we'll discuss some of the most common legal forms for businesses and explain why choosing the right one is so important.
The company structure has to serve you and not the other way around. So read on to learn more and make an informed decision!
General Partnership
The General Partnership is the first option in the list of the Austrian Legal Forms. To found a General Partnership you will need at least two partners. They can be individuals or legal entities. The process of founding a General Partnership is relatively simple. Together with your partner, you have to submit an application form for registration and verified samples of your signatures to the Commercial Register. The Partnership agreement doesn’t have to be publicly disclosed. As soon as the partnership is registered with the Commercial Register, it can be commercially active under Austrian Commercial law. The registration process takes approx. two weeks.
The most typical sign of the General Partnership is that there is no legal regulation for a minimum founding capital; basically, the partners agree on it. The downside of this regulation is that the partners are unlimitedly personally liable (with private property as well) for all of the partnership’s debts.
When it comes to taxes, the General Partnership is not a subject of taxation. The profit is directly taxed by the partners. The tax rate is progressive from 20% to 55%, according to the income of the individual. For legal entities, there is a flat rate of 25 %. The partners are mandatorily insured by a Social Security Company (SVS). The insurance contributions make up 27% of the partner’s income.
The costs of founding a General Partnership can vary (from 250,00 to 2.000,00 euros), depending on if you will use the service of a legal professional to assist you with the documents, a notary, or the court to verify your signature.
Limited Partnership
The Limited Partnership is very similar to the General Partnership, with one big difference: There are two types of partners here - the General Partners, who are personally and unlimitedly liable, and the Limited Partners, who are liable up to the amount of their contribution.
Everything said about the registration process and the taxation of the General Partnership is applicable to the Limited Partnership as well.
The most popular form of a Limited Partnership is the one where a General Partner is a Limited Liability Company and individual(s) are limited partners. This way, the liability of the partnership is narrowed up to the registered capital of the LLC and the other partners are liable up to their contributions. This form of a Limited Partnership is mostly used for tax purposes because the Limited Partnership is not a tax subject and losses and profits can be compensated with other sorts of income of the partners.
Limited Liability Corporation
Most of the companies in Austria founded within the last 10 years have chosen the form of the LLC. You can found an LLC with only one shareholder. The liability of the shareholders is limited to their contributions. The minimum share capital is 35.000,00 euros whereby 17.500,00 euros have to be deposited.
The law also allows for the possibility of an “LLC light” for the first 10 years upon founding. The minimum share capital here is 10.000,00 euros, where 5.000,00 euros have to be deposited. The shareholders meet the obligation to extend the share capital up to 35.000,00 euros in the next 10 years.
The registration of the LLC is more complicated than those of the partnerships. There are regulations about the form for the shareholder’s agreement - a notary deed or an agreement with a certified signature, depending on the number of shareholders and the type of founding. The shareholders have to appoint a managing director. The managing director is bound to their instructions. Additionally, there is a list of documents, which the founders have to submit to the commercial register.
When it comes to taxation, the LLC is subject to 25% corporate tax. The dividends paid to the shareholders are generally taxed with 27,5% if the shareholders are individuals and 25% corporate tax for legal entities.
The first big advantage of founding an LLC is that the shareholders are limitedly liable - up to the amount of their contributions. The second is the procedure of decision-making and management of the running operations. With the LLC you have the freedom to decide how many managing directors there will be and what kind of decision they can make on their own. In comparison, with the General partnership, this won't be possible. Based on the more personal foundation of the partnerships, you will be bound to stricter rules when it comes to representation of the company and decision making. Changing a partner and stepping out of the company is bound to stricter regulation than an LLC would impose.
Approaching the end of this article you may have already come to the conclusion that there is no objective right or wrong decision when choosing a legal form for your business. There are suitable and unsuitable legal forms for YOU... Not giving a proper thought about it, will definitely put you in a position in the future, where you are overwhelmed by the legal side of your business and won't have the time you need to work on your service and development for the future.
