Self-employed vs. Limited Company: Which Is Right for You

Self-Employed: Flexibility and Less Red Tape

Starting out as a self-employed person is usually the easiest and fastest way to begin doing business. It is an ideal option for freelancers, consultants and smaller projects where the entrepreneur is also the main worker.

• Simpler Administration and Higher Net Income: Bookkeeping and fulfilling tax obligations are significantly easier. Statistics show that this model is attractive because of its more favorable financial distribution. For example, from a cost of 50 000 CZK, a self-employed person can receive net income about 43 000 CZK,while an employee would take away approximately 30,000 CZK for the same cost.
• Risk Compensation: Many do not realize that employee benefits such as paid vacation or sick leave are not free. The employer bears these risks, and therefore they are reflected in lower net salaries for employees. As a self-employed person, you take on these risks yourself – but this is compensated by higher financial rewards.

Disadvantages and Risks:

• Liability of All Personal Property: Self-employed persons are responsible for their business with all their personal property.
• Risk of False Self-Employment and New Sanctions: If the work of a self-employed person meets the characteristics of dependent work (e.g. fixed working hours, working under the instructions of a supervisor), there is a risk of fines. In addition, from 2025, the State Labor Inspection Office (SÚIP) has gained new powers such as use of hidden recordings during inspections. The new sanctions include prohibition of activity for up to 2 years and public disclosure of fines, creating considerable reputational pressure.

Limited Company: Risk Separation and Long-Term Growth

Establishing a limited company is more suitable for ambitious projects and businesses that aim to grow, recruit employees, or attract investors in the future.

• Limited Liability: The main advantage of a limited company is the separation of personal assets from company assets. The entrepreneur is liable only up to the amount of the unpaid capital contribution, which significantly reduces personal financial risk.
• Greater Credibility: A limited company is perceived as a more stable and trustworthy partner in business relationships, whether with suppliers, clients, or banks.
• Easier to Scale: This form of business is better suited for hiring employees, building a team, and raising investment. Profits can be reinvested or distributed among partners.

Disadvantages and Risks:

• Higher Bureaucracy and Costs: Setting up a limited company is administratively and financially more demanding. Accounting is more complex and often requires the support of professionals.
• More Complex Payroll Management: Employing people in a limited company comes with the obligation to manage payroll and pay all statutory contributions.

In general, for smaller and less risky projects, it is better to start as Self-employed. But if you plan to build a larger business, have higher ambitions, and want to separate personal risk from business, an Limited company is the smarter choice. Many entrepreneurs start as self-employed and after achieving a certain turnover or acquiring significant assets, transition to a limited company.