A CRAFT BUSINESS OR AN LTD.? (AND WHAT DOES J.D.O.O./A SIMPLE LTD. STAND FOR?)

The very first step in starting up a business is making a decision whether you should opt for a Craft business or a Limited Liability Company.

It is often said that those who used to have a Craft 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 trading company had been closed. The thing is, it is possible for a natural person to conduct a business activity in one’s own name, with Citizen’s Personal Identification Number and thus become a part in a market competition as any other Limited Liability Company does.

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

On the plus side, it is much cheaper to set up and dissolve a Craft business (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, a purpose or a reason is not required for money withdrawals as everything is considered to be an income.

In a Limited Liability Company, an entrepreneur is responsible only up to the amount of his founding capital except if there is a doubt of a criminal activity. Setting up a simple Limited Liability Company is 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 (a setting up is 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 20,000,00 Kn. A question arises why setting up a Limited Liability Company at all when there is an option of 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, there is a perception which business partners might have. In case you plan to do a bigger and more serious business, some competitors might look down on your simple Limited Liability Company due to a small founding capital and a bad reputation many simple Limited Liability Companies have gained being established and then dissolved.

The other major constraint of a simple Limited Liability Company is the fact that there is no possibility of paying a profit until it has become a Limited Liability Company and the founding capital has risen up to 20,000,00 Kn at least. The process of the transition itself bears certain costs as a notary public and an auditor need to be paid for again unless the founding capital is withdrawn from the profit the Company had made.

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

The above text provides an insight for every entrepreneur to opt for one direction or the other according to their potentials and future needs. It is completely different from a perspective of a young caterer who opens a beach bar and an entrepreneur who is planning big turnovers trading in oil, for example. A 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].
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