In this comprehensive comparison of two legal forms of business, we focused on (in our opinion) key points and questions that an entrepreneur should consider before deciding which form of business to pursue:
An S.r.o., or limited liability company, is one of the commercial companies regulated by the Commercial Code. An S.r.o. is a legal entity typically established for business purposes, although it can also be founded for other reasons. The S.r.o. is the most popular form of business in the Slovak Republic, as evidenced by the number of S.r.o.s established.
A sole proprietorship is the simplest form of business for a natural person (sole proprietor). A sole proprietorship is defined by law (the Trade Licensing Act) as a continuous activity carried out independently, in one's own name, at one's own risk, for the purpose of achieving profit.
Establishing an Ltd. is more time-consuming and administratively complex than establishing a sole proprietorship. However, it is still a straightforward process compared to other legal forms of commercial companies. To establish an Ltd., several documents must be drawn up, primarily the memorandum of association or the deed of establishment.
IMPORTANT – significant change from August 17, 2026: Based on an amendment to the Commercial Code, it will be necessary to draw up the deed of establishment or memorandum of association in the form of a notarial deed or a contract authorized by a lawyer, which will make the entire process more expensive. At the same time, from August 17, 2026, entrepreneurs will be exempt from the step of notifying a trade license if the company's business activities include certain free trades.
After the issuance of the certificate, or "trade licenses," it is necessary to submit an application for registration in the Commercial Register and pay a court fee of €220. The application can only be submitted electronically. The entire process of establishing a company up to its registration in the Commercial Register (an Ltd. comes into existence upon registration in the Commercial Register) takes approximately 30 days.
Setting up a sole proprietorship is a less time-consuming and administratively simpler process than establishing a limited liability company (LLC). To set up a sole proprietorship, you only need to notify the relevant District Office, Department of Trade Licensing, also known as the Single Contact Point (JKM). You fill out a form containing basic information about the entrepreneur, the scope of activities or trades, and other data required to verify their integrity. For craft or regulated trades, professional qualifications must also be demonstrated. The business authorization comes into effect on the day the trade is reported. The JKM will issue the entrepreneur a trade license certificate (živnostenský list) within 5 working days. You can also report your trade online via the slovensko.sk portal, but you must have a qualified certificate and a chip-enabled ID card. When submitting electronically via slovensko.sk, you can also automatically register with the tax office and health insurance company.
Comparison result: In terms of complexity, the sole proprietorship wins this round.
Setup costs differ significantly between the two forms:
Comparison result: In terms of costs, the sole proprietorship wins this round.
The tax burden for an LLC for 2026 is set as follows. The company pays corporate income tax at a rate of:
This so far concerns the taxation of profit at the LLC level. If an LLC partner wishes to pay out the profit of this LLC to their personal account, it will be considered a dividend payment. Dividends are subject to a 7% withholding tax on dividends (when paid to an individual – partner). For partners who are legal entities, dividend tax may be exempt under the conditions of the Income Tax Act and international agreements.
From 2025, the so-called tax license (minimum tax) has been reintroduced, which every LLC must pay – even if it reports a loss. Its amount depends on the taxpayer's turnover:
With an LLC, it is therefore evident that an individual is not burdened with health and social insurance contributions (unlike with a sole proprietorship), unless the individual is employed by their LLC or receives a director's fee in the position of a director. The amount of contributions for a director's fee depends on the director's relationship with the company: for a regular director's fee, it's approximately 33.55% social + 16% health contributions; for an irregular fee, it's approximately 28.75% social + 16% health. Importantly, no social contributions are paid on dividends at all, which opens up significant opportunities for tax and contribution optimization.
The income tax burden (applicable to business income) for a sole trader in 2026 is as follows:
The tax base is the difference between income and expenses – an entrepreneur can choose either actual expenses or flat-rate expenses amounting to 60% of income (maximum €20,000 annually). They can also claim non-taxable amounts and various tax reliefs (e.g., a tax bonus for children).
The contribution burden for a sole trader in the form of health and social contributions for 2026 is as follows:
In 2026, the contribution holiday period for new sole traders will be shortened to 6 months. Under the new regulations, the obligation to pay social contributions is no longer contingent on reaching a specific income threshold; instead, it arises from the first day after 6 months from the commencement of the trade. This rule applies to new entrepreneurs, or if more than 60 months have passed since the termination of their last trade license.
From January 1, 2026, the minimum assessment base will increase. For the year 2026, the minimum assessment base is €914.40, from which a sole trader pays social contributions of €303.11 per month (after the shortened contribution holiday period, or if they exceeded the income threshold). If the sole trader did not exceed the income threshold of €9,144.01 for 2025, they pay insurance contributions to the Social Insurance Agency of €131.34 per month.
Every sole trader is obliged to pay monthly health insurance advances of €121.92 – with exceptions for those who are also employed or are state-insured (students, pensioners, individuals on maternity leave). The health insurance company then performs an annual health insurance settlement, which retrospectively calculates the actual amount of insurance based on the sole trader's real earnings. If they paid more, they will receive an overpayment; if less, they must pay the difference.
Comparison result: This point is not black and white, and to determine whether an s.r.o. (limited liability company) or a sole proprietorship is better from a tax and contribution perspective (which is generally the most significant factor in decision-making), it is advisable to consult your specific case with an advisor. If you need advice, or a precise calculation and analysis of what is more advantageous for you regarding tax and contribution obligations, please feel free to contact us.
Liability for s.r.o. obligations in a limited liability company is, as the name suggests, limited. This limitation means that a company partner is liable only up to the amount of their unpaid capital contribution registered in the commercial register. In practice, the partner's contribution is most often paid in full upon the establishment of the s.r.o., meaning the partner's liability for the s.r.o.'s obligations is then zero.
In contrast, a sole trader's liability is unlimited, meaning they are liable for business obligations not only with their business assets but also with their personal assets. It is important to note that this includes assets belonging to the joint marital property, unless the spouses have dissolved their joint ownership.
Comparison result: This point also clearly favors the s.r.o. legal form, as it eliminates the risk of a partner's personal assets being liable.
Profit distribution from an s.r.o. is significantly more complex than for a sole proprietorship. An s.r.o. partner is entitled to profit distribution in the form of dividends only after the company's tax period has ended (i.e., at year-end), after filing the tax return, and after income tax has been paid. Only then can the partner pay out the taxed profit designated for distribution among partners. Another way to receive income from the company is through director's remuneration. Since the sole partner is often also the director of the s.r.o., the payment of such director's remuneration is subject to tax and contributions as if it were an employee.
Distributing profit from sole proprietorship income is straightforward. Income received into the sole trader's account is their property, but it is always important for the sole trader to set aside funds for contributions and taxes.
Comparison result: This point favors the sole proprietorship.
The question of image is quite debatable today. Generally, the prevailing opinion was that s.r.o. companies have a better image because they are a capital-based company form, which is perceived as financially stronger than sole proprietorships. It was also believed that this business structure appears more trustworthy and attractive to clients, customers, and so on. However, in reality, this may not always be the case. In practice, a sole trader is often more trustworthy because, as previously mentioned, they are liable with all their personal assets. This is precisely why these entrepreneurs tend to be more reliable, as they are constantly aware of the risk of full personal liability and approach their work or craft more responsibly. Conversely, in recent years, there have been numerous cases of fraudulent entrepreneurs who exploited the "limited liability" for s.r.o. obligations, unfairly liquidating them and leaving behind tax and contribution debts.
Comparison result: It is not clear-cut, and both have their advantages and disadvantages from an image perspective.
Entrepreneurs often don't consider selling their project when starting their business, yet it's a relevant and important question. If you succeed, you can sell your project for a good sum. From a tax and contribution perspective, there's a significant difference whether you sell the project as an Ltd. company or as a sole trader. With an Ltd. company, it's possible to set up the ownership structure of the business from the very beginning so that when you sell the company, you don't pay any income tax, but only a 7% dividend tax.
Comparison result: Clearly in favor of an Ltd. company.
The fastest way to start a business as an Ltd. company is to buy a so-called ready-made Ltd. company – meaning a pre-established Ltd. company that is exclusively intended for sale to a client. With a ready-made Ltd. company, you can start doing business within 24 hours. If it's more advantageous for you to establish a sole proprietorship, a quick way to start doing business as a sole trader is to register your sole proprietorship online.
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