Limited liability company or sole proprietorship – which form is most profitable in Poland?

Choosing between a limited liability company and a sole proprietorship is one of the first dilemmas faced by a novice entrepreneur. This decision affects not only the scope of liability, but also taxes, business operating costs, and growth opportunities. In practice, it is difficult to find a single universal answer to the question: company or sole proprietorship? It all depends on the business model, scale of operations, and risk profile. In this article, we compare a limited liability company with a sole proprietorship in terms of real costs, obligations, and benefits. 

What is a limited liability company and how does it work?

A limited liability company (spółka z o.o.) is the most popular form of capital company in Poland. The partners are not liable for its obligations with their private assets – the risk is limited to the contribution made. The company may be established by one or more persons (partners). Another capital company may also be a partner, with the exception of another single-member limited liability company, as this type of entity cannot be the sole partner in the new company. The minimum share capital is PLN 5,000.

What is a sole proprietorship (JDG)?

A sole proprietorship (JDG) is the simplest form of running a business in Poland. It does not require share capital, a notary, or a contract— registration is free and takes place online through CEIDG.

Unlike a limited liability company, a sole proprietorship does not have legal personality, and the owner is liable for the company's obligations with all of their private assets. This is a good solution for freelancers, service providers, and local businesses.

Limited liability company vs sole proprietorship – differences in structure and liability

A limited liability company (spółka z o.o.) and a sole proprietorship (JDG) differ primarily in their legal status and the scope of liability of their owners. A limited liability company has legal personality—it operates as a separate entity, and the liability of the company's owner is limited to the amount of the contributions made. In the case of a sole proprietorship, the owner and the company are one and the same. The entrepreneur bears full responsibility for the obligations of the business, including with their personal assets. 

In terms of structure, a sole proprietorship does not require management bodies or partners —decisions are made by one person. A company requires the appointment of a management board and sometimes also a supervisory board. Although more formalized, it works better when scaling up and cooperating with investors. Both a company and a sole proprietorship can employ staff.

Taxes and social security contributions – how do limited liability companies and sole proprietorships differ?

In a sole proprietorship, income is taxed according to PIT rules, and you can choose between: a tax scale (12% and 32%), a flat tax (19%), or a lump sum on recorded income. 

In the case of a limited liability company, the income of the company itself is taxed – CIT is 9% (for small taxpayers and companies with revenues of up to EUR 2 million per year) or 19%. The payment of profits to shareholders (e.g., in the form of dividends) is subject to an additional flat-rate tax – 19% PIT. Formally, the recipient of the dividend (partner or shareholder) is the taxpayer, but in practice, this tax is collected and paid by the company paying the dividend, which acts as the tax remitter. As a result, this is often referred to as double taxation. 

Social security contributions also vary significantly:

• In a sole proprietorship, the entrepreneur pays full social security contributions (with the possibility of taking advantage of reliefs at the beginning of the business, e.g., small social security or start-up relief).
• In the case of limited liability companies, this issue depends on the company's structure and form of employment – there is no obligation for shareholders to pay social security contributions if they are not employed under an employment contract or do not perform work for the company on a contract basis. The exception is when there is only one shareholder in the company – in this case, they are treated as if they were running a sole proprietorship and pay full social security contributions, which are not included in the company's operating costs. 

Business operating costs – what to choose to save money?

A sole proprietorship is a cheaper form of business: it does not require share capital, registration fees, or full accounting. Costs are limited to basic accounting and social security contributions. 

In a limited liability company, costs are higher due to:

• full accounting obligation;
• legal and advisory costs (e.g., preparation of contracts, supervision of the company's compliance);
• fees related to registration and changes in the National Court Register;
• additional reporting obligations, e.g., annual financial statements.

On the other hand, a limited liability company offers more opportunities for cost optimization and better protection of assets. The choice therefore depends on the scale of the business and long-term goals— a sole proprietorship offers lower start-up costs, but a limited liability company offers more opportunities.

A company or a sole proprietorship? Which will be more advantageous for foreign entrepreneurs?

For foreigners, a limited liability company is usually more advantageous— it does not require registration (a residence card), it can be set up online, and the partners are not liable for the company's obligations with their private assets.

An alternative is sole proprietorship, but in this case, registration with CEIDG requires providing proof of residence and a PESEL number. In addition, foreigners from outside the European Union without a PESEL number must submit an application in person at the municipal office.

What are the procedures for registering a limited liability company and a sole proprietorship?

Registering a sole proprietorship is simple and free of charge. The application is submitted online to CEIDG (using a trusted profile) or at the municipal office. Registration usually takes one day, and you can start operating almost immediately. 

Registering a limited liability company requires concluding a company agreement (via the S24 portal or at a notary public), contributing share capital, and appointing a management board. Next, an application must be submitted to the National Court Register via the Court Register Portal or S24, and after registration, the company must be reported to the Central Register of Business Entities within 7 days.

For entrepreneurs who value time, an alternative may be to purchase ready-made companies, which allows them to start their business almost immediately, without waiting for registration.

Registration of a sole proprietorship is free of charge, while registration of a limited liability company costs PLN 250 in S24 and PLN 600 in the Court Register Portal if the articles of association are concluded in the presence of a notary public. In the case of a notarial agreement, there are additional costs for the preparation of the agreement, the notary, and, if necessary, a sworn translator if the partners do not know Polish. 

Partner or sole proprietor – which is more profitable?

The owner of a sole proprietorship earns profit directly—all after-tax income belongs to them and they can dispose of it as they wish, but they bear the financial risk and cannot differentiate between forms of remuneration. 

On the other hand, a partner in a limited liability company does not have an automatic right to the company's funds – profits can only be paid out after a resolution has been passed and are subject to a 19% dividend tax. However, in practice, a partner can legally withdraw funds in another form, e.g., as a member of the management board, on the basis of an employment contract or as part of B2B cooperation. 

For small, low-cost businesses, sole proprietorship will be cheaper and easier to manage. For companies planning to expand, hire employees, or attract investors, becoming a partner in a limited liability company may be more profitable in the long run.

What are the pros and cons of both forms of business?

A sole proprietorship is a quick and inexpensive way to start a business— minimal formalities, no capital required, and full control over profits. It works well for low-risk, simple services. 

A limited liability company requires more formalities and higher costs, but offers a key advantage: limited liability and greater growth opportunities. It also allows for better tax planning and builds credibility with partners.

The choice depends on the scale of your business and your priorities—a sole proprietorship is a practical solution for getting started, while a limited liability company is better suited to more ambitious business plans.