Single-member limited company

What it means

A single-member s. r. o. is a limited liability company with only one shareholder. It is the most common form in which a sole trader moves to doing business through a company, and the sole member is usually also its managing director.

Such a company does not convene a general meeting. Its powers are exercised by the member through a written sole shareholder resolution, for example to approve the financial statements, distribute profit or amend the memorandum, which here takes the form of a founding deed.

The company is a separate legal person with its own assets. The member is not liable for its debts with all of their property, only up to any unpaid contribution. But the company's assets are not the member's private property, even when they own a hundred per cent stake.

How it works in practice

When a company is formed by a single founder, the entire registered capital, at least 5,000 euros, must be paid up before the application for entry in the commercial register is filed. The founding deed is drawn up as a notarial deed unless the simplified electronic form is used.

Company money and private money must not be mixed. Withdrawing cash from the company account without a legal basis is not income of the member but a receivable of the company or a hidden profit distribution. Legitimate routes are director's remuneration, a dividend or a written loan with interest.

Profit is paid out on the basis of approved financial statements and a distribution resolution, and the dividend is subject to dividend tax withheld at source. When comparing with a sole trade, count corporate income tax, dividend tax, contributions on remuneration and higher accounting costs.

What to watch out for

In a company with one member the line between business and person blurs easily. If the member uses company assets privately, enters into transactions with it without documents or withdraws money without a resolution, they risk additional tax assessments and, in insolvency, liability towards creditors.

Contracts between the company and its sole member who also represents it must be in writing with officially certified signatures, otherwise they may be invalid. A contract does not come into being simply because the member decided with themself; it has to be properly drawn up and kept.