Similarities and differences between a sole proprietor and an LLC — a text to help you choose the more appropriate form of business entity.
Sole proprietor as a form of conducting business
A sole proprietor is a natural person who carries out an activity for his own account in order to generate profit.
Key characteristics:
- A sole proprietor is liable with all of his personal assets for all transactions he undertakes in the business
- If the sole proprietor does not operate under his own name but under another name or trade name — he is obliged to register that name with the CRPS
- In the event of a name change, notification to the CRPS within 30 days
LLC as a form of conducting business
A limited liability company (LLC) may be established by natural or legal persons — no more than 30 of them — who are liable for the company’s obligations up to the amount of their contributions.
Characteristics:
- The most common form of registration in Montenegro
- Very suitable for small enterprises
- The founder can be one or more persons
- Minimum amount of share capital: EUR 1
- The name must contain the designation “DOO”
By paying the initial contribution, the persons acquire a share in the company proportional to the size of their contribution. By acquiring a share they become members of the company. A member holds only one share which represents his percentage of capital ownership.
Key differences between a sole proprietor and an LLC
Liability
The most important difference:
- Sole proprietor — a natural person liable with all his assets (both those acquired through the activity and those acquired independently of it)
- LLC — only the assets held in the company’s name may be the subject of collateral and seizure; founders and owners are not liable with personal assets
Corporate income tax
Sole proprietor
- During the year, the taxpayer pays income tax from self-employment in the form of monthly advance payments
- The amount of the advance payment is determined on the basis of the tax from the previous year’s return
- The advance payment is made by the end of the current month for the previous month, in the amount of 1/12 of the tax liability
- The advance payment is treated as credit against the tax return liability
- New sole proprietors: the advance payment is determined on the basis of estimated income for that year
LLC — progressive rate 9 % / 12 % / 15 %
Corporate income tax in Montenegro is regulated by the Corporate Income Tax Law. Rates are progressive:
| Taxable profit | Rate |
|---|---|
| Up to EUR 100,000 | 9 % |
| EUR 100,000.01 – 1,500,000 | EUR 9,000 + 12 % on the amount exceeding EUR 100,000 |
| Over EUR 1,500,000 | EUR 177,000 + 15 % on the amount exceeding EUR 1,500,000 |
Fines for offences
Fines for offences are most often double (in some cases up to 10 times) lower for sole proprietors than for LLCs.
Additional difference:
- For an LLC, two fines are prescribed — for the company and for the responsible person in the company
- For a sole proprietor, a single fine is prescribed — for the sole proprietor or the manager
Work of family members
- Sole proprietor: family members may be engaged in work without registration — but only as a replacement for a justifiably absent sole proprietor
- LLC: family members of the founder cannot work without registration
Change of legal form and status changes
- Sole proprietor → LLC = POSSIBLE ✅
- LLC → sole proprietor = NOT POSSIBLE ❌
- A sole proprietor cannot undergo status changes (merger, acquisition, spin-off, division)
- An LLC can undergo all status changes
- An LLC can change its owner
- A sole proprietor cannot change its owner
Administration
One of the major differences: the level of administration is considerably higher for an LLC. For this reason, natural persons often opt for registration as a sole proprietor during the initial period of business.
Not sure which form of registration is best for you? Contact Finance Plus — we will help you make the right decision.
