There are several possible solutions to transform a sole proprietorship into an SRL. The two most common ways are the transfer of the sole proprietorship into a new company or the closure of the firm. Let’s see in detail all the steps to be taken, the costs and advantages of each choice.
How to transform the sole proprietorship into SRL?
The transformation of the sole proprietorship is a need that arises when one wants to continue in a more structured way an activity initially started as a sole proprietorship. The reason for this choice depends on three main advantages of the SRL:
- the possibility of having separate assets from that of the entrepreneur and of involving more shareholders and investors
- the limited liability of the shareholders who are liable for the debts of the business within the limits of the paid-up share capital
- the possibility of paying fewer taxes for a turnover greater than € 65,000
There are more ways to transform the sole proprietorship. The choice depends on the characteristics of the business, the costs and risks of the operation. Let’s see in detail the various possibilities.
1. Transfer of the sole proprietorship to a new SRL
The most common solution for the transformation is the transfer of the sole proprietorship into a new SRL. In these cases, a certain continuity of the activity is guaranteed as the whole of the company’s assets are transferred to the new company. Furthermore, the SRL will take overall contracts to continue carrying out the business activity. Let’s see what it is and how to proceed.
What is the provision?
The contribution is what each shareholder pays to endow the company with initial assets. The total value of the contributions makes up the share capital. The contribution can be made in cash or with any other asset that has an economic evaluation. In fact, it is also possible to confer all the assets and contracts of a sole proprietorship, following a particular procedure. In this way, the assets of the new SRL will include the value of the company.
How the transfer takes place: assessment and tax aspects?
The transfer of the sole proprietorship (or company) requires as a first step the verification of the value of the company. This value is established through the appraisal of an auditor. Based on the value of the appraisal, the individual entrepreneur receives a share of the SRL in exchange for the contribution. For example, the contribution of a company with an estimated value of € 50,000 to a single-member SRL entails for the new SRL the consideration in share capital and 100% of the share for the individual entrepreneur.
The next step to the appraisal is to go to the notary for the stipulation. The auditor’s report must be delivered to the notary, which must be attached to the company’s constituent documents. In addition, the oath of the appraisal must be taken, a procedure that can be done directly before the notary (or in court) and which allows you to obtain a sworn appraisal.
The conferment of the company involves some tax consequences to keep in mind. In fact, based on the tax regime adopted for the transaction, some taxes could be applied. Furthermore, in some cases, if the estimated value with the appraisal is greater than that of the whole of its assets (book value), a tax gain is created on which taxes will be paid. These are specific aspects that the professional following the operation deals with.
2. Contribution of the sole proprietorship into an existing company
The transfer of the company to an already established company involves a procedure very similar to the one just described. Also in this case, in fact, the appraisal and the deed of the notary will be necessary. In this case, however, the appraisal will be more complex as it will be necessary to evaluate both companies, both the firm and the company. This double evaluation is necessary to calculate the correct balance between the future shareholders. The notary’s deed, on the other hand, will not be of constitution but of modification of the company’s share capital.
3. Close the sole proprietorship
The alternative to the transfer is to close the sole proprietorship and set up a new company. This solution is the fastest but it is not always recommended as it is suitable for simpler cases and less structured realities. For example, when assets and employees do not have to be transferred from the firm to the company.
The closure of the sole proprietorship does not require any expertise, only a series of communications to the competent offices. To cease the activity, it is necessary to close the VAT number, the INPS position and that at the Chamber of Commerce.
Liability and effects
The transition from a sole proprietorship to SRL profoundly changes the way the business is carried out. With the SRL, in fact, the shareholders have limited liability and are not directly liable for the obligations and debts of the business. We pass from an activity carried out by a single owner who is directly liable for debts to a business activity carried out with a separate asset from that of the individual entrepreneur and the possibility of having several partners.
With the closure of the sole proprietorship, there will be no automatic transfer to bank accounts as well as to any other contract. In particular, it will be necessary to open a new bank account. This account will be in the name of the company and can only be opened after the establishment of the SRL.
How to avoid risks and errors?
The conferment is the most correct solution to transform more structured companies that need to guarantee continuity of the activity. In particular, it must be done when there is a need to transfer the complex of assets and employees of the sole proprietorship. The conferment avoids exposing oneself to the risk of errors and penalties. Let’s see in detail what are the mistakes to avoid.
When a sole proprietorship is closed, equipment and employees are often transferred from the company to the SRL. In these cases, a company sale is made without paying the due taxes. The risk is to expose yourself to penalties for failure to pay taxes and failure to estimate the value of the company. The Revenue Agency may contest the failure to pay the registration tax and the failure to pay taxes based on the market value of the company. This is why it is recommended to provide in most cases.
Costs of transformation of the firm into a partnership
The costs to transform the sole proprietorship depend on the solution chosen, the city and the notary of reference. Let’s see in detail the costs applicable to:
- transfer of the sole proprietorship to a new SRL
- transfer of the sole proprietorship into an existing company
- closure of the sole proprietorship
Tax and accounting costs
For the management of the company, it will always be necessary to complete the obligations for the mandatory accounting of the SRL (options 1, 2, and 3). Generally, the costs of the first year of activity are around € 2,500 + VAT for the accountant’s fees and € 700 for taxes. The costs for the years following the first depend on the turnover and maybe slightly higher.
Our customers can also request the online accounting service at a price of € 299 + VAT for the first four months, plus approximately € 700 of initial taxes. This price includes all the necessary formalities after the establishment of the company.
Cost of the appraisal
The cost of the appraisal to estimate the value of the company applies in all cases in which the contribution is made (options 1 and 2). The amount to be paid to the auditor varies according to the complexity, the value of the contribution, and the reference professional. This cost starts from at least € 3,000 + VAT and higher in the case of transfer to an existing company (option 2).
Our customers who join the accounting service can request a dedicated quote with advantageous prices for the individual firm’s appraisal. This is an additional and optional service that requires a dedicated tax analysis. The professional will be able to guide you in an overall assessment with dedicated advice to minimize the tax burden of the transformation.
Cost of the notary
The costs for setting up the SRL (option 1) are those relating to the notary’s fee and the taxes to be paid. On average, the total cost to open an SRL is around € 1,500 + VAT + about € 600 of taxes. These amounts do not include the costs for the swearing of the expert opinion before the notary which has an additional cost starting from € 100 + VAT (only for options 1 and 2). The costs to change the share capital (option 2) are slightly higher than the simple constitution and vary a lot according to the city and the notary of reference.
Our SRL incorporation service allows you to open your company in 7 days with 1 year of 100% online legal support. The service costs € 999 + VAT + approximately € 600 in taxes and includes the online creation of the deed of incorporation and statute, the advice of an expert professional and the constitution with the notary. You will also receive the guidance of a professional who will indicate in advance the additional costs required for the possible swearing of the expert opinion and the conferment of the company. Furthermore, if you need to transform the company into an existing company, you can ask for dedicated advice to receive a tailor-made quote at affordable costs.