Firm or Self-Employment: What to Choose in Latvia?

Mar 13, 2024 | Law

The choice between registering a company and self-employment is one of the key stages for aspiring entrepreneurs in Latvia. In this article, we will examine the advantages and disadvantages of each option to help you make the right choice.

When it comes to registering a company, it is usually an LLC or a limited liability company in Latvia. There are many advantages to this type of registration, let’s list those that our clients most often highlight as significant.

  • An LLC can be registered under certain conditions with a share capital starting from 1 euro.
  • The presence of a company can enhance credibility in the eyes of clients and partners, especially for international transactions with foreign partners.
  • The company is liable for its obligations, with some exceptions, only with its assets, not the personal assets of the owner.
  • Companies can avail themselves of the services of banks, leasing companies, etc., on more favorable terms.

However, there are factors that sometimes raise additional questions and concerns:

  • The process of registering a company takes more time than registering as a self-employed person, requiring a visit to a notary and the opening of a separate bank account for the company.
  • Higher costs associated with the registration process include payment for notary services and government fees, and in some cases, banks charge a commission for reviewing and opening a separate company account.
  • More paperwork, as companies are required to maintain full accounting records.

As for the second popular option for running a business, it is self-employment, and if desired, obtaining the status of an individual entrepreneur. Here, attention should be paid to the following advantages:

  • Ease of registration, becoming self-employed can be done very quickly and simply, without resorting to outside help.
  • Low costs, no expenses for the contribution of share capital or fees for registration as a self-employed person.
  • Minimum paperwork, self-employed individuals are not required to maintain full accounting records.

However, not everything is so pleasant, and there are also disadvantages, some of which require careful study and additional calculations:

  • Progressive taxation, the more you earn, the more you pay.
  • Unlimited liability, self-employed individuals are liable for their obligations with all their assets.
  • Self-employed individuals may experience difficulties in obtaining loans, leasing, etc., on favorable terms.

So what should you choose?

The answer to this question depends on your goals, tasks, and resources. If you initially plan a large-scale business, understand that from the initial stages, you are interested in financial reporting and indicators in various aspects, and you want to build a reputation from the very beginning, including working with major players, then considering registering a company makes sense.

If, however, you:

Are starting your own business, do not want to deal with extensive paperwork, hire accounting specialists, and plan to prepare reports yourself, self-employment may be suitable for you.

It is important to carefully weigh all the factors, conduct tax burden calculations before making a decision. In any case, you can contact us for consultation to get help in choosing the optimal option for your business.

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