The very first step in starting a business is deciding whether you should opt for a trade company or a Limited Liability Company.

It is often said that those who used to have a trade company are very reluctant to repeat the experience because of a situation where a debt or a failure to submit a report was still present in their lives long after the trade company had been closed. Trade companies make it possible for a natural person to conduct a business activity in one’s own name, using the citizen’s Personal Identification Number and thus becoming a part in the market competition as any other Limited Liability Company.

At the same time, this is a big drawback since an individual places everything he/she owns (real estates, movables etc.) in the market competition, whereas a director of a Limited Liability Company is responsible only up to the height of the founding capital. Therefore, in a trade company private life interferes with business and even a speeding ticket is regarded as a company debt. Moreover, potential problems in doing business mean that your house will be exposed to your business partners’ distraints.

On the positive side, it is much cheaper to set up and dissolve a trade company (a cost in the amount up to 500,00 Kn). Also, if your receipts are up to 3,000,000,00 Kn it is not necessary to keep more expensive and more complicated double bookkeeping. Also, it is not necessary to specify a purpose or a reason for money withdrawals as everything is considered as an income.

In a Limited Liability Company, an entrepreneur is responsible only up to the amount of his founding capital except if there is suspicion of criminal activity. Setting up a simple Limited Liability Company costs about 1,000,00 Kn and the lowest amount of the founding capital can be 10,00 Kn.

A standard type of a Limited Liability Company (d.o.o.) is somewhat more expensive at the beginning (setting up costs from 3,000,00 Kn to 5,000,00 Kn depending on how complex the Memorandum of Association is). The minimal amount of the founding capital is €2.500,00. The question arises why establish a Limited Liability Company when there is an option of starting a simple Limited Liability Company?

There is a number of reasons for that and an entrepreneur himself should decide how relevant these reasons are for him. First and foremost is the perception which the business partners might have. If you plan on doing serious business on a large scale, some competitors might look down on your simple Limited Liability Company due to the small founding capital and a bad reputation many simple Limited Liability Companies have gained.

The other major constraint of a simple Limited Liability Company is the fact that there is no possibility for the distribution of profit until it is turned into a Limited Liability Company and the founding capital is increased to at least €2.500,00. The transition process itself bears certain notary public costs as well as auditor costs if the founding capital is withdrawn from the profit of the company.

The third limitation is the number of founders (a maximum of three) and the number of people responsible (there can only be one director).

This overview provides an insight for every entrepreneur to opt for one direction or the other according to their potentials and future needs. For example, a small entrepreneur opening a beach bar has a different perspective than an entrepreneur who is planning big turnovers trading in oil. The founding capital bears no relevance to an average customer who comes to a beach bar for his coffee or juice, whereas the solvency of a company trading in oil is very important for its business partners.

It is up to you to decide. For further questions go to: [email protected].
We have a complete guide on how to open a company or business in Croatia