Trade licence vs. s.r.o.: which pays off for your business

Choosing between a trade licence and a limited liability company (s.r.o.) is one of the first and most important decisions every entrepreneur makes. There is no universally correct answer – it depends on the amount of your income, the level of risk, your growth plans and how much administration you are willing to handle. Let us look at the key differences.

Liability for obligations

A sole trader is liable for obligations with all their assets, including their personal assets. In an s.r.o., a shareholder is liable only up to the amount of their unpaid contribution, so personal assets are kept separate from business risk. If you do business in a higher-risk field (contracts with high penalties, larger orders), an s.r.o. provides substantially greater protection.

Taxes and contributions

A sole trader pays personal income tax and contributions to the Social Insurance Agency (Sociálna poisťovňa) and their health insurance company, calculated from the assessment base. They can claim flat-rate expenses, which simplifies the administration. An s.r.o. pays corporate income tax, and the profit reaches the shareholder through a wage or a dividend, with each route carrying a different tax and contribution burden. With higher profits, an s.r.o. is generally more advantageous, but you always need to run the numbers for your specific situation.

Administration and accounting

A sole trader usually gets by with single-entry bookkeeping, or with records alone when claiming flat-rate expenses. An s.r.o. uses double-entry bookkeeping, which is more demanding, but it provides a better overview of the company’s finances and comes across as more trustworthy to banks and partners.

Image and working with partners

Larger companies and public institutions often prefer to work with an s.r.o. If you plan to grow, attract investors or sell the business, an s.r.o. is more flexible – an ownership interest can be transferred, and the company can have several shareholders.

When to choose which form

In simple terms: with low income, low risk and a desire to keep administration to a minimum, a trade licence tends to be more advantageous. With higher profits, greater risk and ambitions to grow, an s.r.o. pays off. Many entrepreneurs start out with a trade licence and later switch to an s.r.o.

Related articles: How to set up an s.r.o. in Slovakia step by step, How to set up a trade licence: procedure and costs, Share capital of an s.r.o.: how much and how to pay it in.

Frequently asked questions

Can you switch from a trade licence to an s.r.o.?

Yes, switching is common. The assets and business of a sole trader can be transferred to a new s.r.o.; ideally, you should time this for the beginning of an accounting period and consult an accountant.

Which form has lower contributions?

It depends on the amount of your income and on how you pay out the profit from the s.r.o. No social insurance contributions are paid on a dividend, which can be advantageous with higher profits.