Individual companies advantages and disadvantages

Being a sole trader is a popular choice among entrepreneurs in Portugal due to the simplicity and flexibility it offers. However, it is important to know both the advantages and disadvantages associated with this type of business structure to make an informed decision.

Key Points

• The incorporation and dissolution of an individual company are simple processes with less bureaucracy.
• There are tax advantages, such as the deduction of expenses and the possibility of opting for a simplified taxation regime.
• Business management is flexible, allowing full control and quick decisions.
• There is no need for a minimum share capital, resulting in lower initial costs.
• The biggest disadvantage is unlimited liability, which can affect the entrepreneur's personal assets.

Simple Constitution and Dissolution Process

Setting up and dissolving a sole proprietorship is a process extremely simple. Unlike the usual bureaucracies associated with setting up or closing companies, here everything is more direct and faster. Let's explore the advantages of this simplified process.

Less Bureaucracy

Simplicity is one of the biggest advantages. You don't need to go through the complex legal procedures of a commercial company. This means less paperwork and less time wasted on administrative processes.

Facilitated Closing

Closing a sole proprietorship is equally simple. There is no need to comply with a series of legal requirements, which makes the dissolution process much faster and less stressful.

Tax Advantages

Expense Deduction

One of the great advantages of sole proprietorships is the possibility of deducting expenses related to the activity. This includes computer equipment, machines, tools, office furniture and even vehicles. These deductions can significantly reduce your tax burden.

Simplified Taxation

Individual companies benefit from a simplified taxation regime. This means that the entrepreneur's tax declaration is unique and includes the company's results. If you record losses, you can include them in the IRS tax base in the financial year to which they relate, which can be a great advantage in less profitable years.

Flexibility in Business Management

Total Control

One of the great advantages of having a sole proprietorship is the full control on all decisions. You don't need to consult other directors or shareholders, allowing you to develop your business as you see fit. This freedom is ideal for those who like to have the reins in their hands and adapt quickly to market changes.

Quick Decisions

With a simpler structure, you can make decisions much faster. There is no need for long meetings or bureaucratic approvals. If you need to adjust prices, change product or service offerings, or respond to customer feedback, you can do so immediately. It is agility It can be a decisive factor in the success of your business.

Low Initial Cost

No Minimum Share Capital

One of the great advantages of opening a sole proprietorship is that you don't need a minimum share capital. This means that you can start your business without having to invest a large amount of money right from the start. It is an excellent option for those who want to test a business idea with few resources.

Reduced Costs

In addition to not needing a minimum share capital, the costs associated with creating and maintaining a sole proprietorship are significantly reduced. You don't need the services of a foundation agent or solicitor, which eliminates these fees completely. You can even register your company on Company On Time, making the process even more economical and faster.

Starting a business has never been so accessible and simple. With low initial costs, you have the freedom to explore and expand your idea without major financial concerns.

Unlimited Liability

Risks to Personal Assets

When you choose to be a sole trader, you assume a unlimited liability. This means that all debts incurred in the course of your activity can be collected through your personal assets. In other words, there is no distinction between personal assets and business assets.

Implications for the Spouse

If you are married under joint property arrangements, the company's debts may also affect your spouse's assets. Therefore, it is crucial to keep in mind that the financial risk is not just yours, but can extend to your family. This is one of the biggest disadvantages of not separating personal and business assets.

Simplified Tax Regime

Fixed Taxation

Under the simplified regime, the tax payable is automatically calculated on 75% of the declared gross value. This greatly simplifies the process, as you do not need to present proof of all expenses associated with the company to Finance.

Assumed Expenses

In this regime, expenses are assumed, which means you don't have to worry about justifying every penny spent. This can be a significant advantage for those who want to avoid bureaucracy and focus more on business growth.

The simplified regime is ideal for those with a turnover of up to 200 thousand euros, allowing for simpler and less costly management.

Fewer Legal Obligations

No Organized Accounting

One of the great advantages of having a sole proprietorship is that you don't need to keep organized accounting. This essentially means less paperwork and more time to focus on your business. You will not be required to provide Annual Accounts or detailed statements like companies with other structures. Of course, you still need to record your invoices and expenses, but this significantly reduces your accounting bill.

Fewer Mandatory Reports

Furthermore, you are free from all the bureaucracy and costs related to single-person or collective companies, subject to the commercial companies code. This translates into fewer mandatory reports and fewer constant bureaucratic updates. In short, you have more freedom and fewer legal concerns, allowing you to focus on growing your business.

Possibility to Sell Products and Services

Diversification of Offers

When you have a sole proprietorship, you have the freedom to diversify the products and services you offer. You can explore different business areas such as bars, hairdressers, online stores, street vending, taxis and assistance services. This flexibility allows you to quickly adapt to market needs and your customers' interests.

Increased Revenue

With the possibility of selling a variety of products and services, you increase your sources of income. This is especially advantageous for those who want to maximize profits and ensure business sustainability. Furthermore, diversification can help mitigate financial risks, as you are not dependent on a single source of income.

The ability to diversify offers and increase revenue is one of the great advantages of having a sole proprietorship. You can quickly adjust to market changes and explore new business opportunities without major bureaucratic complications.

Disadvantages of Not Separating Assets

Financial Risks

One of the main disadvantages of not separating assets is the financial risk. The entrepreneur is responsible for the company's debts along with all his personal assets. This means that, in the event of financial difficulties, you could lose your home, car and other personal assets. Additionally, it is more difficult to obtain financing as lenders see a greater risk.

Impact on Personal Property

If you are married under a joint property regime, your spouse's assets are also at risk. This can create additional tensions and problems in your personal life. The lack of separation between company assets and personal assets can lead to significant legal and financial complications.

Comparison with a Sole Proprietorship Company

Advantages and disadvantages

When comparing a sole proprietorship with a sole proprietorship, it is important to consider the advantages and disadvantages of each one. The main advantage of a single-member limited liability company is the separation between personal assets and business assets, which protects your personal assets in the event of company debts. On the other hand, a sole proprietorship offers greater simplicity in its formation and daily management.

Accounting Obligations

Accounting obligations also differ between these two types of companies. In a single-person limited liability company, it is necessary to maintain organized accounting and comply with more legal and tax requirements. In a sole proprietorship, accounting requirements are lower, which can be an advantage for those looking for simpler, less bureaucratic management.

Choosing between a sole proprietorship and a sole proprietorship depends on your priorities: protection of personal assets or simplicity in business management.

Frequently Asked Questions