Transformation s.p. v d.o.o.

Transformation s.p. v d.o.o.

 

Introduction

In 2022, 110,000 s.p.s are already registered in Slovenia, which means that almost one in 20 Slovenians already has an open-label independent entrepreneurship. Why this is the case is difficult to answer, but surely when the volume of revenues and consequently profits are lower, it makes more sense to set up an s.p., where there are no costs of establishment, than, for example, where a minimum capital of EUR 7,500.00 is to be invested.

Through years of business and growth, the status of s.p.’s is outgroming, more and more people are employing, and the volume of business has an increasing and therefore responsibility, and that is when the idea of a status process arises: the transformation of sp into a doo.

The legislation allows the transformation of s.p. in d.o.o. in a fiscally neutral way (without payment of taxes at the time of transaction), while taking care to ensure that the procedure is carried out in accordance with the law.

 

Two ways: transforming sp into doo

Let’s see how the transformation of s.p. v d.o.o. is regulated in our legislation. The Companies Act (ZGD-1) provides that the Entrepreneur may be transformed into a doo in the following two ways:

  • by transferring the undertaking to a new capital company set up as a result of the transfer of the entrepreneur’s business (classical transformation of sp into doo);
  •  by transferring the undertaking to the acquiring capital company (transfer of the undertaking in the acquisition method).

In the first case, that is, by transferring the company to a new capital company (a classic transfer of the company to d.o.o.), a new capital company – d.o.o., is created as a result of the transfer of the entrepreneur’s company. In that case, the transfer shall be made on the basis of the decision of the trader to convert. What matters is the fact that the capital company does not yet exist before the conversion and is therefore set up with the aim of transferring all its activity to the trader, all assets and also liabilities.

Another form of transformation of s.p. v d.o.o. is (transformation of s.p. in d.o.o. in the way it is acquisition) to transfer the entire company to a acquiring (already existing) capital company. The transfer of an undertaking to a acquiring company shall apply mutatis mutandis to the conversion rules to the newly created company and to the rules of ZGD-1 on the acquisition of companies.

The two procedures are very similar, but the essential difference is that in the process of conversion s.p. v d.o.o. – to a newly created company, entrepreneurship is transferred by decision, with the establishment of the basic instruments of incorporation (act of formation, decision appointing the Director, decision establishing the business title,…). In the case of another form of transformation (to an existing company), the transfer of the company to d.o.o. is carried out by a contract concluded by a sole trader and the management of the company to which s.p. is attached.

The advantages of operating under the status form of d.o.o. are mainly: a) limited liability for the company’s liabilities and b) a lower tax burden on higher profits.

 

Why is it good to transform s.p. in d.o.o.?

1. Liability

Sole proprietors are liable for the obligations of the company with all their assets. In practice, there may be an event that is una girl (injury at work, recession/crisis and related business decline, etc.), so – as lawyers – we always advise that it is necessary to protect your personal assets well and efficiently. For this reason, the transformation of s.p. v d.o.o. makes the most sense from a legal point of view, since d.o.o. members (owners) are not held accountable personally, but only the company is liable, up to the amount of its assets.

2. Tax burden

One of the fundamental advantages of doing business under the status form of d.o.o. is also the lower tax burden (taxes and contributions), which comes even more to the expression of higher profits. In the table below we prepared an informative calculation of the tax burden for s.p. and d.o.o. (without taking into account any personal and/or investment deductions, and in terms of contributions from the entrepreneur we took the calculation that the entrepreneur made the same profit each year).

s.p. v EUR v EUR v EUR
Entrepreneur’s profits
40.000 100.000 200.000
Income tax
6.006 26.010 76.008
Contributions 15.280 28.138 28.138
Total income tax+prisp.
21.286 54.148 104.146
d.o.o.
Profit 40.000 100.000 200.000
Tax on the dob. – 19%
7.600 19.000 38.000
Tax on the payment of dob. – 25,00%
8.100 20.250 40.500
Total tax+prisp.
15.700 39.250 78.500
DIFFERENCE 5.586 14.898 25.646

The information table shows that the savings of business under the status form of d.o.o. are all the more evident in higher profits. The biggest difference was the contributions, where the entrepreneur quickly falls into the highest class of monthly contributions (EUR 2,344 in 2021 and EUR 2,633.34 in the financial year 2022) while the entrepreneur is employed by a limited liability company and pays contributions on salary (significantly less). (Note: informative calculations are made for fiscal year 2021).

3. Greater reputation among business partners

In our assessment – especially abroad – the business under the status form d.o.o. enjoys a greater reputation among business partners and customers/customers. In some countries, the status of a sole trader is not known, while this is more difficult to say d.o.o. (e.g. GmbH, LLC, Ltd.,…). From this point of view, too, transforming sp into doo makes sense.

4. Universal legal succession

Process of transformation s.p. v d.o.o.  it results in universal legal succession, which means that a new or acquiring company, as a universal successor in title, enters into all legal relationships relating to the transferred sole proprietor’s business. In practice, it means that it is not necessary to modify business cooperation contracts with business partners, employment contracts and other contracts, since d.o.o., by law, enters all legal relationships. While there are some exceptions, it is necessary to arrange a transcript of ownership of means of transport and real estate.

In the case of a universityal legal succession or in the case of a properly performed transformation s.p. v d.o.o.  it constitutes a tax-neutral operation and is not payable on such a transfer of tax. In the case of tax credits already in the case of tax credits or future deductions, due to the university’s legal succession, all benefits and burdens are transferred to d.o.o..

5. Retirement

The reason why many S.P.s recently decide to transform SP into a doo is, among other things, the retirement of an entrepreneur. Under the legislation currently in force, it is not compatible to have a “full” s.p. and receive a pension. For this reason, many older entrepreneurs decide to transform s.p. v d.o.o. in this way, as this can keep their pension, while remaining owners d.o.o. and in this way receive passive income (dividends). Although the newly created company may not assume the office of director, they may assume the function of procurist. Prokura, however, justifies the law all legal acts falling within the legal capacity of the company, with the exception of the disposal and burden of the property.

The process of status transformation s.p. in d.o.o. can be divided into 3 phases, with the entire process lasting from 1-3 months.

 

And what is the process itself

The easiest way to understand is to divide the transfer process to d.o.o. into 3 phases (we describe a very simplified procedure).

The first phase of the scope of the action was carried out before the transfer of the company to d.o.o. At first, in accordance with the Employment Relations Act, it is necessary to inform employees in writing of the process of conversion s.p. v d.o.o.. Then it is necessary to cooperate intensively with the accounting firm of the entrepreneur, as it is necessary to prepare the financial statements on the cut-off day (‘day D’). In the event that the value of the transferred undertaking is greater than EUR 100 000 (the value of the balance sheet item of capital), the presence of an authorised auditor appointed by the court in a non-litigation procedure is required. Once the balances have been drawn up and approved – it is necessary to prepare all the necessary acts for the process of conversion s.p. in d.o.o. (transfer decision/transfer contract, instrument of formation, decision appointing a representative, etc.).

Once all the actions under Phase I have been carried out, we move on to the second phase, which involves signing documents with a notary. The notary – after the signature of the documents – will submit an application for the registration of the process of conversion s.p. in d.o.o. in the register of companies (acquisition or establishment of a new d.o.o.), which, if all the conditions are fulfilled, will also be executed by the registry court of its own motion.

The third and final phase begins when the transfer of the company to d.o.o.  already entered in the register. The third phase is also important because otherwise the tax advantage (neutrality of the transfer of the company to d.o.o.) may be lost. In the third and final phase, accounting and tax tasks must be carried out in order to make the transformation tax neutral and the capital company ready for business.

The process of transformation s.p. v d.o.o. takes between 1-3 months.

 

Costs

It is difficult to estimate exactly what is the total cost of transformation s.p. v d.o.o. . The cost depends on the size of the undertaking and the complexity of the procedure. In principle, however, the costs of running the whole procedure and preparing the necessary acts start at EUR 1 200.00 for the smallest s.p.s. In addition, we would like to mention that from 2019 the Slovenian Enterprise Fund allows for the reimbursement of 60% of the costs of the conversion (costs of lawyer, auditor, notary), so the final cost to the entrepreneur may be significantly lower.

The Slovenian Enterprise Fund provides a voucher to reimburse 60% of the total transfer costs of the company to d.o.o.

Finally,

As mentioned above – transformation from s.p. v d.o.o. is not so easy and given the fact that the entrepreneur is transformed only once, it is good that he is led through the process by an expert who knows the process well.

In the Law Firm Križanec , we have also been working very well in the transformation of s.p. in d.o.o., so we can assure our clients that we are going after the law and practice.

preoblikovanje sp v doo

5 FREQUENTLY ASKED QUESTIONS ON THE PROCESS OF TRANSFORMING SP INTO DOO

 

Tax and registration number – will it be the same?

Status form s.p. – actually means a natural person carrying out an activity. The sole trader is not a legal person, such as d.o.o.

For this reason, the newly-established d.o.o. (classical transformation sp into doo) will acquire a new tax and registration number.

Do we have to change our employment contracts after the transfer of s.p. to d.o.o.?

As already stated – according to the last practice of the administrative authorities – there is no need to change employment contracts, since it is a universal legal succession. However, for the reason of correct recording, it is necessary to make the physical unsue of the worker from the insurance of the then-deleted company s.p. and subsequently register those same workers electronically in the insurance of the newly created company.

Do I need a new bank account?

In most cases transforming sp into doo, the newly created company will need a new bank account. However, some banks allow the possibility of transferring the account number to a newly created company. For each individual case, it is necessary to contact the individual bank.

In the last 5 years we have successfully implemented over 100 procedures of status transformation s.p. v d.o.o.

 

I’m a carrier – what about OZS licenses?

In accordance with the Road Transport Act, it is necessary to amend the licence or any permits for the pursuit of transport activities. Licenses are issued by the Chamber of Commerce. Since it takes a few days for the licence to be changed, it is good as soon as the documents of the conversion sp into doo are signed), with a notary record and a list of vehicles or other necessary documentation, apply to the Chamber of Crafts to prepare an amendment/new licence. When an entrepreneur receives a decision from the registry court on the successful procedure of ‘conversion sp into doo’, the licence may also be taken over. The same applies to a Community licence for the operation of transport. As regards the Community licence for the operation of international road transport: The fulfilment of the relevant financial situation shall be demonstrated by the notarial record of the contract or the transfer decision of the undertaking.

How’s the taxes?

As already stated in the text itself, the procedure for the status conversion of sp into doo tax is not payable , such a transaction is tax neutral. However, care must be taken to ensure that all decisions are properly taken, all documents are signed and, above all, all the necessary forms are submitted to the Financial Administration.

How is the voucher from the Slovenian Enterprise Fund?

For many years, the Slovenian Enterprise Fund has been offering so-called vouchers in the process of transforming sp into doo. The current public appeal is open until 31.3.2023. The Slovenian Enterprise Fund thus offers reimbursement of eligible costs up to 60% of all eligible costs when transferring sp to the doo. The eligible costs for the sole entrepreneur’s transfer process to the doo are in particular: contractor costs, auditor’s and notary’s costs. More information on the public appeal itself can be found on the Fund’s website: SPS PUBLIC CALL – TRANSFORMATION OF SP INTO DOO.

Why do we think we can help you in the process: transform sp into doo - help ?

  • Proper implementation of the procedure – Over the years of the implementation of the transformation of sp into doo, we have faced many issues and challenges that we have always solved.
  • Fixed price – our offer/price for carrying out the conversion process sp to doo will always be fixed, which means that there are no hidden costs or additional billing according to the procedure. If there is more work – the price remains the same.
  • “One-stop shop” – We have the team and the knowledge to guide you throughout the transaction – in the process you will not need other consultants.
  • Responsiveness – If you have any questions or dilemmas during or after the status transformation process, we will always help you.
  • Experience – in the last 5 years we have successfully implemented over 100 procedures of the status transformation of sp into doo. We’re sure we can help you.

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