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PFA or SRL? Advantages and disadvantages

Beyond the succesful first idea of an entrepreneur, its business plan often starts by weighting the available options for a legal entity – PFA or SRL? Both have advantages and disadvantages, so our advice is to choose that type of legal personality that fits the particular needs of the company that will be established.

Hence, we will try to come to the rescue with a detailed comparison between these two forms of organization: PFA or SRL.

PFA (or freelancers) has the following advantages:

  • Reduced establishment fees (Trade Register will charge for about 250 Lei);
  • Reduced administration costs;
  • An authorised accountant is not mandatory, the owner can manage his own financial situation. If he, however, chooses to employ an accountant, he benefits from lower costs;
  • The submission of documents is easier, only involving placing some statements at ANAF;
  • An authorized freelancer has the right to have employees;
  • Profit can be redeemed at any time, without the necessity of sharing dividends;
  • PFA cancellation is simpler and the fees are lower;
  • Mandatory fees for a PFA are: 16% tax on net income, 5.5% of gross income for health contribution and 26.3% of the monthly declared income goes to CAS;
  • However, if the PFA has an annual income which is less than 35% of the medium wage, it is exempted from paying CAS.

The disadvantages of a PFA consist of the following:

  • The PFA can be established only on the basis of documents proving the applicant’s training;
  • Therefore, it can only declare activities that can be privided by the applicant;
  • If the PFA does not realize any income in a year, it is not exempt from paying CASS and CAS contributions, which are calculated based on the minimum wage;
  • The individual’s liability is maximized if the PFA records debt;
  • The development possibilities are limited.

The Limited Liability Company, known also as SRL, has a number of advantages:

  • The applicant must not certify his/ her training;
  • There are no limits in the choice of declared activity fields;
  • The personal liability of shareholders is limited to the personal initial capital;
  • SRLs have the right to participate in public or private auctions;
  • If the annual income is below 65.000 Eur, the 16% income tax is replaced by a 3% tax;
  • Any person, regardless of age, may receive grants through SRL-D programmes.

Sure, SRLs also have a number of disadvantages that should not be overlooked:

  • The initial investment for setting up a SRL is higher than the one required for a PFA (550 Lei in tax and a minimum registered capital of 200 Lei);
  • A certified accountant is mandatory;
  • Administrative expenses are generally higher;
  • An associate can only benefit from the profits earned by distribution of dividends, which have a 16% income tax;
  • If the shareholder did not obtain enough income to pay his social contributions, the state will automatically retain this amount from dividends;
  • Cancellation of a SRL is a more difficult process, lasting about 2 months.

Analyzing the two types of legal entities (PFA and SRL) by comparison, it is recommended that an entrepreneur chooses based on the individual requirements of the business they undertake. For example, in the case of liberal professions in which the applicant works project-based, a PFA may be a good option. If your business has low expenses and wishes to address several fields of work, then a SRL sounds like a better idea.