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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.
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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.
Frequently asked questions
What is the main difference in liability between a self-employed person and LLC?
A self-employed person is responsible for all their business obligations with all their personal property. On the contrary, if LLCs, the liability is limited to the property of the company. The entrepreneur, as an executive, guarantees only up to the amount of the outstanding deposit, which protects his private property.
When is the best time to start a business as a self-employed person?
Starting as a self-employed person is ideal for start-up entrepreneurs, freelancers, and consultants who want flexibility and low administrative costs. It is the simplest and fastest form of business, suitable for smaller projects, where the main role is played by the entrepreneur himself.
What is the “False self-employment” and what are the new penalties for self-employed people?
False self-employment is a form of illegal disguised employment where the self-employed person performs dependent work (e.g., fixed working hours, working on instructions from a supervisor). From 2025, the State Office of Labor Inspection (SÚIP) gained new powers, such as the use of covert recordings. Penalties include a ban on activity for up to 2 years and public disclosure of fines.
When is the right time to switch from self-employed to a limited liability company?
Transitioning from Self-employed to LLCs is worth considering when your project grows. Are you planning to recruit staff, or do you want to acquire investors? LLCs provide limited liability, which is key to protecting personal property, and are seen as a more trustworthy partner for business expansion.
What is the biggest disadvantage of LLC?
The main disadvantage of LLCs is a higher administrative and financial burden. Establishing and running a company is more complicated, requires more complex bookkeeping, and frequent cooperation with external consultants. In addition, it is more complicated to manage wages for employees.