A signed contract, a first invoice, or a hired employee often arrive sooner than an entrepreneur expects. Therefore, the establishment of a limited liability company should not be reduced to the hasty submission of documents to the Commercial Register. Even before that, it must be determined who will make the decisions, how profits are distributed, what happens in the event of a conflict between partners, and how far the owner's personal risk extends.
For many small and medium-sized businesses, an LLC is the most appropriate form because it combines a relatively clear structure with limited liability. This does not mean that every situation is completely identical. If you will be the sole owner, the company should be established as a single-member LLC. If you are starting with a partner, the key question is not only what shares you will subscribe to, but whether the rules between you are clearly agreed upon even before the first revenues.
When is a LLC the right choice
The limited liability company is an independent legal entity. As a rule, it is liable for its obligations with its property, and the partners bear risk up to the amount of their capital contributions. This distinction is especially valuable when the business works with deliveries, clients, staff, rents, or other significant contractual commitments.
However, limited liability is not an absolute personal protection. For example, the manager has legal obligations to the company, the partners, and state authorities. Personal liability may arise in the event of culpable non-performance of management duties, unlawful actions, assumed personal guarantees, violations related to taxes and social security, or harming creditors. Therefore, the choice of a manager is not a formality, even when the owner manages the company alone.
LLC is a practical solution when there are two or more partners. If there is only a single owner, a Single-Member LLC often offers easier decision-making. In the event of attracting a partner in the future, the structure can be changed, but this also requires due resolutions and entry.
Establishment of a limited liability company: decisions before documents
The most common mistake is to use a previous template for the founding act, which simply needs to be filled out. This creates the risk of omitting important clauses regarding company management and decision-making, which will then have to be supplemented with an entirely new application in the Commercial Register. Even before establishing the company, the documents must be carefully drafted to reflect the actual model according to which your business will operate.
Company name, registered office and subject of activity
The company must have a name that is clearly distinguishable from those of already registered companies. Before using it on offers, stamps, or promotional materials, it is wise to check whether it creates a risk of confusion with an already registered trader.
The seat is the settlement, and the management address is the exact address where the company can be found and receive correspondence. If the address is a third-party property, there should be a clear legal basis for its use. This prevents future disputes with the property owner or difficulties in correspondence with state authorities.
The subject of activity must realistically describe the planned activities broadly enough, keeping in mind that it does not preclude the issuance of specific activity permits when necessary. For example, the mere registration of an activity does not grant you the right to perform it without the necessary license, registration, or permit. In the case of transport, brokerage, certain financial services, trading of specific goods, or activities involving personal data, this issue must be checked in advance.
Capital does not solve everything, but it matters.
The minimum capital for an LLC is 1 euro, and the minimum value of a single share is 1 euro cent. The low statutory minimum often creates the impression that the amount of capital has no practical significance. Formally it may be small, but there are counterparties, banks, and potential partners for whom a larger amount is an indicator of business reliability.
More important than the size is the question of how the shares are distributed. If two partners have equal shares and their relationship deteriorates, this can lead to a deadlock in management and an inability to make decisions. With a 51% to 49% split, there is a clear majority, but the minority partner should be aware of their rights and protections. There is no universally correct distribution—it depends on the capital invested, the work each partner will perform, their expertise, the clients, and the risk assumed.
Management needs to be clear from the very beginning
The manager represents the company before third parties and organizes its day-to-day operations. They can be a partner or an external person, and the company can have one or more managers. In the case of more than one manager, it must be explicitly determined whether each will represent the company independently or only act jointly.
Sole representation provides more flexibility in daily work, but gives a great deal of freedom to each manager. Joint representation guarantees additional control, since only one of the managers will not be able to sign important documents. At the same time, this can delay the signing of contracts, banking operations, and other operational decisions. We will review together which option best suits your specific business.
What documents and actions are required
The exact set of documents depends on the specific structure, the partners, and the chosen method of submitting the application to the register. Typically, a memorandum of association for an LLC (OOO) or a founding act for a single-member LLC (EOOD), minutes with decisions of the partners or the sole owner, documents regarding the acceptance of management, a specimen of the manager's signature in the form provided by law, and the necessary declarations for entry are prepared.
It is also necessary to arrange for the contribution of capital in accordance with legal requirements. In practice, this involves opening an escrow (raising) account and presenting a document from the bank. Following registration, the company must set up a settlement account, accounting services, and the method by which it will issue invoices and store company documentation.
The application is submitted to the Registry Agency and can be submitted electronically. In case of incomplete documents, discrepancy between the decisions, or an issue with the company name, a refusal may be issued.
The company agreement
When business partners are on good terms, they often assume that detailed, agreed-upon rules are unnecessary. In reality, it is best for them to reach an agreement precisely before incorporation. Over time, it may turn out that a different level of involvement in the work is necessary, the need for new financing, the sale of a share, or a dispute over profit distribution may arise.
A well-drafted articles of association provides clear answers to these questions: under what conditions a share is transferred to a third party, how additional monetary contributions are settled, and what the consequences are if a partner fails to fulfill their undertaken commitments. In the case of a business with two partners who plan to participate actively in the activity, it is often useful to also discuss mechanisms for cases of permanent inability to reach an agreement.
Not every issue needs to be included in the publicly accessible articles of association. In some cases, the relationships between the partners can also be regulated by a separate agreement, as long as it does not contradict the law and the founding documents. Here, a balance is needed between the level of protection, confidentiality, and the feasibility of what has been agreed upon in practice.
What comes after the entry
Registration is the beginning of the company's legal life, but work regarding its incorporation continues. As first steps, it will be necessary to check whether the data in the Commercial Register has been entered accurately without errors and whether the company has proper accounting services.
If you are going to hire staff, employment contracts, job descriptions, internal rules, and notifications must be prepared before the employee actually starts work. If you will be processing personal data of clients or employees, you should also provide for appropriate internal rules. Upon reaching the statutory thresholds, issues regarding VAT registration arise, and when working with foreign partners – additional tax and other specifics.
The most secure start is one where the founders have agreed upon clear and detailed rules for their joint activity. If you need legal assistance in establishing a limited liability company, Please don't hesitate to contact me. I can review your specific business structuring idea, prepare the necessary documents, and suggest the most appropriate approach for a secure start.
