Make Life Easier for European Startups: Simpler/Cheaper Limited Liability Companies
As I've mentioned here before, one of the differences between "Europe" and the US is just how cheap it is to start a company in the US. Before we go any further, I'll take a moment to add the standard "yes, I know that Europe is not one country" disclaimer, and specify that I'm mostly talking about continental Europe. Starting a company in the UK or Ireland isn't nearly as bad.
In Oregon, I spent $55 to create DedaSys LLC. If I'd created it with one or more partners, I would have spent something on a lawyer in order to create a solid agreement, but that is of course a voluntary expenditure that we would pay for because it provided us with some value. In Italy, it costs thousands of Euros just to get started with a company; before you've made any money at all. And, while there are gradual improvements, it's still a bureaucratic process that pretty much must involve at least an accountant and a notary public. And you have to involve the very arbitrary number of 10,000 euros of capital in the company, supposedly there as a guarantee for the people you're doing business with. But 10,000 is not nearly enough to cover some kinds of problems you might cause, and way more than, say, a web startup with a couple of guys and their laptops need. My friend Salvatore says it's possible to sort of "get around" sinking the full 10K into your company, but in any case, the principal of "caveat emptor" is a more sensible one. At most, make a transparency requirement so that people dealing with companies can tell exactly how much reserves they have.
During a recent bout of cold/flu, compliments of our daughter's nursery school, when I had some extra time on my hands, I decided to do something about this, however much it may be pissing into the wind. I set up a site:
http://www.srlfacile.org (warning: Italian only)
As well as a Google Group, and petition for people to sign, in an attempt to make a little bit of noise about the problem, here in Italy.
While it's likely that the actual bureaucratic mechanisms are more smoothly oiled in other European countries, I have my doubts as to whether the actual amount of paperwork can compete with the very minimal page or two required by many US states. And in any case, the costs are still quite high, and while we all have different levels on the idea of the role of government, and ideal levels of taxation, I think we can agree that it's sensible to levy taxes only after a company has begun to make money!
So - how about it? Anyone want to create sister initiatives in other countries in Europe where things aren't as simple and easy as they should be? Anyone care to tell of how this problem has been fixed elsewhere? I've heard tell that in Germany, there is now a simpler/cheaper way to create limited liability companies.
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about {{count}} hours later:
No, I will not help. It also makes it too easy for fraudulent people to create holding companies to hide illegal money in.
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So you'd rather hurt all those people willing to work hard to create something, just because there are a few rotten apples? I could understand if it were something that would mostly be used for bad purposes; but it's not.
And you know what? To the rotten apples, a few thousand K here and there isn't much: they're the same ones who drive over to Switzerland or Liechtenstein or wherever and deposit their money there.
In any case: let the police/financial authorities do their job, and let entrepreneurs do theirs. I'm all for transparency requirements to help the tax people do their job, but if you look at Italy's recent history, having expensive SrL's is not really something that stands in the way of people evading taxes, compared to countries like the US or the UK where LLC's or Ltd's are cheaper.
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It is amazing how difficult it is to get a small company started here in Spain, too. Just trying to partner with some friends and have a proper umbrella under which to declare funds seems to be impossible. We're likely going to ante up the necessary cash and whatnot to make this happen but at great cost when compared to other countries.
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@Mike - what are the costs like in Spain, roughly? How much capital do you have to have?
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Here in Sweden, things are quite easy, for both the "sole proprietorship firm" where the owner is personally liable, and the "LLC" (swedish "aktiebolag"), where the owner(s) are not personally liable.
In the case of the latter, the largest obstacle in the process of forming and registering the company comes in the form of coughing up circa 5000 euros in minimal share capital if it's a private LLC, and ten times that, 50000 euros, if it's a publ. LLC.
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@David: Depends on the type of company you want to create.
In the case of an S.L. (Sociedad Limitada, similar to an LLC), it's around 3000€, but then there's all the paperwork (here's a guide, in Spanish, sorry), which involves registering your company in 3-4 different places (Merchant's Registry, Taxes Office, Social Security Office, ...), paying certain taxes, then obtaining an "opening license"; not the easiest. Anyway, exactly as you would hire someone in the US to do your taxes if you want to keep your sanity, you should be able to hire someone in Spain to do all this for you (and to do the payroll in the future, prepare contracts for employees and also do the paperwork related to that, etc.; in here those are called "asesorías" or "gestorías" - this link is in English and will help you understand a lot of things...).
Then again, if you want to set up a Cooperative, that's a whole different can of worms, because every Autonomous Region has their own rules (again, hiring the services of a "gestoría" is a good idea).
Also, you can register as a sole trader ("autónomo"), which may be riskier, as in any other country, but it's way cheaper when it comes to start the business and, in case you were entitled to unemployment subsides at the time of turning into an "autónomo", you can ask for part of the subside that you could still have been paid to be turned into cash, and the other part will go to pay the first few social security quotas. Again, seeking the help of professionals when it comes to dealing with Spanish bureaucracy is highly recommended.
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I guess you haven't been advised properly. It is possible, across the whole of the European Union, to incorporate in any of the other Member States and use that company to do business in any other Member State. So the simple solution to your 'problem' (which was a problem 10 years ago before the SEVIC/Inspire Art series of judgments of the ECJ, but isn't really any more today) is to incorporate in the UK through one of the many online registrars/facilitating companies.
Apart from this, if you get good advice, you can save a lot on taxes if you set up a good corporate structure, all while staying 100% within the law.
Finally, comparing an Oregon (or, US in general) LLC to a civil law form of incorporation is quite misleading. Even within European LLC forms there are considerable differences between Member States. Saying 'I spend $55 in Oregon and I'd have to spend 1000's in Europe' is comparing apples and oranges.
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In Poland, starting an LLC is quite easy (one visit to a nearby notary) but it takes around 600 Euro in registration costs (minimum - it takes more if you're injecting more startup capital), plus you need some starting capital (the minimal amount is ca. 1300 Eur).
What is problematic though, is that whenever you'd like to set up one of your employees with some shares, you need to register the shareholder an pay another registration fee, visit a notary (a clique-like monopoly in this profession makes potentially good material for a rather long rant) and pay another fee. Tax offices vary from region to region in their interpretation of the tax law, and dealing with an audit (which you get immediately after claiming a VAT return) is a major pain.
I'm not really convinced by Wilfred's argument - there are tons of companies that have operated legitimately and had to shut down (travel agencies, anyone?), so having 1k or 1m as startup capital makes absolutely no difference (this cash gets spent anyway, so it's not like it is there and can be claimed as collateral for the company).
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As an Italian, I confirm everything here exposed: in those days I would like to start a society with a pair of friends, and the problem to recover such an amount of money just for burocracy needs is well know by me. Temptation to bypass the formal registration, move in informal ways and evade taxes is strong, too strong... It is incredible we (Italian people) need the initiative from an American immigrant to act against this absurd system!
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Here in Germany this problem was a bit defeated with the introduction of the "UG".
Prior to that, you had to start a GmbH (similar to the LLC) with 25.000 € or 12.500 € as a 50% downpayment and then later get the other 12.500 € from your profit.
But now you can start the UG, which pretty much stands for Small-GmbH with just 1 €. But you have to pay 25% of your early profits towards those 25.000 €, so that your company can finally become a GmbH.
So my company also started as an UG and we are very happy with this.
Greetings from Germany, Sebastian
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Go yankee go! Save us all! I totally agree!
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Here in France we had the SARL (minimal money to start = 1€, still some paperwork, and more than a few people will tell you that it's not sensible to start without a few thousands, and you will pay taxes either you win money or not), and now we have the "auto entrepreneur" (self company?) that won't cost you anything to create, just sign up to a website, get some little headache if you are a complete newbie to this, and you are done, you will only pay taxes if you earn money. I started one just to see, but as I'm quite busy with my studies and my main work, did not do anything with it, but hey, it's there if I have opportunity of selling a website to somebody. :)
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Note that Oregon recently enacted a minimum tax for businesses (including LLCs), and increased the fees. Still beats what you've described elsewhere, though. :)
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@Roel - the accountants I've asked here in Italy say that, yes, it's possible to set up a UK company and use that, but that by the time you end up making it legitimate in Italy, you're basically back to square one in terms of costs and paperwork. You'd have to speak with an accountant for the actual details. I don't think it's apples and oranges at all. An LLC is the equivalent of a UK Ltd or an Italian SrL, and it's a hell of a lot cheaper to register in Oregon. Granted, there are differences in laws everywhere, but I don't see reasons why my thousands of euros in Italy are getting me anything more than what I'd get in Oregon.
@Sebastian - that seems like a reasonable approach, thanks for explaining it.
@jasiek - Italy has the "notaio" as well and they're just as bad, from the sounds of it. I didn't have to go near one to create a company in Oregon.
1 day later:
It's a mess in Belgium too when you need even the simplest form of limited liability company: * accountant to prepare statutes (+-500€) * notary (>1000€) * national registration of the company at the chamber of commerce (+-250€) * another obligatory registration with any of 9 subsidised private administrations (75€, includes VAT registration) * personal registration as an independent * corporate social tax registration (+-300€ a year for small llcs)
Capital requirements have decreased to a symbolical 1€ for so called "startersbvba" (startup llc), where it was between +-6000€ and 12500€ before, with the same caveat that it needs to be raised within x time.
For an IT business, it might be interesting to incorporate in a business friendly EU country. Estonia looks tempting, especially with the euro coming up: * very simple corporate taxation system * 0% corporate income tax (only 20% when taking income out of the company) * remote electronic setup from several EU countries with electronic ID (Belgium, Portugal, ...) * limited fees
1 day later:
Confirming everything Mark said.
Here in Estonia, it's pretty easy to set up a company. Online setup takes about 15 minutes and 190 euros. (+ up to 24h for someone to review and confirm it) The minimum capital required is ~2500 euros though.
1 day later:
Situation in Latvia is pretty close to Estonia right now (no online setup, however), BUT there is a law coming up that is planned to allow starting a company with up to 5 people with just 1 LVL of capital (and <50€ in total fees) aimed at microbusinesses.
The plan also calls for a special microbusiness tax that you can volunteer your company into that will eliminate VAT, social security tax, personal income tax of your employees and company profit tax and would just tax 20% of the turnaroud. Flat and trivial to calculate. Best used with high value added companies that pay most of their money to their workers. It should come into force on the 1st of January 2011.
As far as I understand the EU laws, such a company in Latvia would be able to operate all over the EU on equal legal footing with all other LLCs.