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Sole Proprietorship vs. LLC: Understanding the Basics

In Luxembourg, two main statuses dominate to start a business:

  • self employed (independent); 
  • and LLC. (Luxembourg - sarl)

The sole proprietorship is the simplest solution: the entrepreneur acts alone, makes all decisions, and commits personal assets, which means unlimited liability.

The LLC, more structured, protects private assets thanks to liability limited to contributions. It suits projects requiring credibility and growth potential.

Both statuses can be exercised full-time or alongside salaried employment, subject to legal and tax obligations.

In summary:

  Sole Proprietorship (Independent) LLC (Luxembourg - sarl)
Legal Structure No distinction between entrepreneur and business (single entity) Company with its own legal personality
Liability Unlimited (personal assets exposed) Limited to capital contributions
Minimum Capital None EUR 1 (LLC-S) / EUR 12,000 (LLC)
Creation & Management Simple, decisions alone More complex – Notarial deed – Managed by one or more managers, whether partners or not
Prerequisites Certain professions(1)(2) require qualifications or registration with a professional body. Some regulated professions must opt for a specific civil or professional company Authorizations and permits required to operate in Luxembourg(1)(2)
Advantages Simplicity, low cost, full autonomy Protection of personal assets, greater recognition with financial partners, easier growth
Disadvantages Personal financial risk, limited recognition with financial partners More administrative formalities, more complex taxation
Dissolution & Termination In case of death, follows common inheritance law In case of death or bankruptcy of a partner, the LLC continues unless statutes provide otherwise

LLC-S is a simplified version of the LLC:

  • Reserved exclusively for individuals (formation + management);
  • One person cannot hold multiple LLC-S;
  • Minimum capital: EUR 1;
  • Unlike a classic LLC, an LLC-S can be created by notarial deed OR private deed;
  • Maximum capital: EUR 11,999;
  • Limit of 100 partners (beyond that, conversion to classic LLC within one year);
  • Must allocate 5% of net profit annually to a legal reserve until reaching EUR 12,000.
Open an account for an LLC

Alone or With Others?

Sole Proprietorship: Full Autonomy

Ideal for those who want to start quickly, independently, with minimal initial investment. Administrative steps are simplified, but unlimited liability exposes personal assets in case of difficulties.
This status may also be less attractive to banks or investors, who generally prefer more structured legal entities.

From 1 to 100 Partners

Perfect for structured projects requiring shared resources, skills, and responsibilities. Limited liability protects personal assets and strengthens credibility with financial partners.
In return, creation and management involve heavier formalities and strict administrative follow-up.

Major advantage: the LLC is scalable. It can welcome new partners as the business grows.

Learn how to open an account

To attract new collaborators and clients, I need a more credible image and a structure suited to growth.

Sabine, an independent fitness coach, plans to change status.

Legal Responsibility: Assessing the Risks

Self-employed

Unlimited Liability
 
The self-employed individual assumes full responsibility for their activity. Their private assets are not separate from their professional assets: they are therefore fully liable for debts contracted with third parties, which can be a source of concern when the business grows.

LLC or sarl

Liability Limited to Contributions
 
The partners of an SARL are liable only up to the amount of their capital contribution. Their personal assets are protected in case of debts or bankruptcy, and their liability is limited to the sum invested in the company’s capital.

I would like to separate my private assets from my work. In addition, I want to develop my online offer and hire other consultants.

A marketing consultant, self-employed and a parent, who is considering changing status.

Share Capital and Setup Costs

Self-employed

No Required Capital 
 

There is no legal minimum capital required to start a self-employed activity. The entrepreneur can invest any amount they wish in their business.

LLC or sarl

Minimum Capital EUR 1 to EUR 12,000

Creating an SARL requires a minimum share capital of EUR 12,000. This amount must be fully deposited in a bank account dedicated to the company’s creation. Partners can divide this amount unequally. Contributions can be made in cash (money) or in kind (material assets).

Good to know : the incorporation coasts

For an SARL-S, the share capital must be between EUR 1 and EUR 12,000. The SARL-S can be incorporated by private deed, without going through a notary.
In addition to the capital contribution, other costs must be considered when forming an SARL.
For a standard scenario, here are the costs involved in creating an SARL:

  • Capital: EUR 12,000.
  • Notary fees: between EUR 1,000 and EUR 2,500;
  • Publication fees in the Trade and Companies Register (RCS): EUR 200 to EUR 500;
  • Opening a bank account: free(3) at BGL BNP Paribas (management fees apply depending on the chosen banking package);
  • Optional: advisory fees (lawyer, accountant, fiduciary): EUR 500 to EUR 1,000.

In total, incorporation costs range between EUR 13,000 and EUR 16,000 (the EUR 12,000 remains part of the company’s capital and is available after the notary process).

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Accounting

Self - employed

Simplicity
 

The self-employed person is not required to file annual accounts with the Trade and Companies Register (RCS), unless their turnover exceeds EUR 100,000 excluding VAT.

However, they must keep transparent accounts distinguishing money inflows and outflows.

LLC or sarl

Governance Rules  
 
The SARL must:
 
  • Keep accounts according to a standardized chart of accounts (PCN);
  • Validate its accounts electronically on the eCDF platform and file them with the RCS.
SARLs with more than 60 partners are subject to mandatory supervision by statutory auditors. These auditors verify that annual accounts accurately reflect the company’s financial situation. This supervision is also mandatory for SARLs that, at the balance sheet closing date and after 22 consecutive financial years, exceed:
 
  • EUR 4.4 million in total assets;
  • EUR 8.8 million in net turnover;
  • 50 full-time employees on average.

Good to know

Self-employed merchants whose turnover exceeds EUR 100,000 excluding VAT must produce a balance sheet according to the standardized chart of accounts (PCN), validate it on the Financial Data Collection platform (eCDF), and file it with the RCS for publication.

Tax Regime: What Do You Really Pay?

Self - employed

Tax Regime
 

As a natural person, the self-employed entrepreneur is subject to:
 

  • Municipal business tax;
  • Personal income tax.

Social contributions are calculated based on professional income. For a newly established self-employed person, they are calculated based on the minimum wage until actual income is declared.

Tax increases with income (progressive rates). A flat-rate allowance of EUR 40,000 applies to professional income, reducing the taxable base for municipal business tax calculation.

LLC or sarl

Tax Regime
 

As a legal entity, the SARL is subject to:

  • Business tax;
  • Municipal business tax;
  • Wealth tax;
  • Corporate income tax.

Corporate income tax is proportional. Since January 1, 2025, it is:
 

  • 14% when taxable income does not exceed EUR 175,000.
  • 16% when taxable income exceeds EUR 200,000.

​Good to know for a LLC

Once profits are taxed, they can be distributed as dividends to partners or shareholders, subject to a 15% withholding tax.
Business tax helps municipalities finance their expenses, including additional costs caused by companies established in their territory. SARLs benefit from an automatic allowance of EUR 17,500 without conditions or formalities.
SARL taxation is more optimizable than that of self-employed individuals, thanks to the separation between company income and partners’ income.

Social Protection: What Rights Apply to Each Status?

Self - employed

Mandatory Minimum Coverage  
 

Every self-employed person must declare their activity to the Joint Social Security Center (CCSS) within 8 days of starting, to be covered in case of:
 

  • Illness;
  • Maternity;
  • Accident;
  • Pension;
  • Dependency.

LLC or sarl

Status Depends on Role in the Company
 

The status of the company manager affects social charges and coverage.

A managing partner holding more than 25% of the company’s shares is considered self-employed and must register as such with the CCSS.

If they hold no more than 25% of shares or are not a partner, they are considered an employee.
 

Good to know

A self-employer can join the Employers’ Mutual Insurance to protect against financial losses in case of incapacity for work. Indeed, in case of incapacity, sickness benefits are only paid starting from the 4th month after incapacity begins.
Maternity and parental leave benefits are the same as for employees, under certain conditions.

For pension insurance, self-employed individuals fall under the general regime and receive an old-age pension under the same conditions as employees.
To prepare for retirement as a self-employed person in Luxembourg, consult our page on OptiLib, the life insurance offered by BGL BNP Paribas.
Regarding unemployment rights, self-employed individuals may be eligible under certain conditions, but this right is not automatic.

Frequently asked questions

  • icone faq question
    Can you create an SARL alone in Luxembourg?

    Yes, via a single-member SARL (SARL with a sole partner).

  • icone faq question
    What is the minimum capital for an SARL in Luxembourg?

    EUR 12,000 or EUR 1 for an SARL-S.

  • icone faq question
    Is it possible to switch from self-employed to SARL later?

    Yes, you can create a new company to continue the activity under a legal entity status. Some professions cannot create a commercial company.

  • icone faq question
    Can a self-employed person hire in Luxembourg?

    Yes, but specific administrative formalities must be respected.

  • icone faq question
    Is it possible to combine salaried and self-employed activity?

    Yes, in Luxembourg it is possible to combine two activities, but regulations set limits. Employer consent may be required in case of exclusivity or non-compete clauses.

  • icone faq question
    What is the average time to create a company in Luxembourg?

    Between 2 weeks and 3 months.

(1) Lean more about access to a profession
(2) Learn more about business licenses and list of activities
(3) Offer subject to terms and conditions and approval of your application by the bank. Opening an account is free of charge, except for the cost of the banking package and banking transactions. Check out the price of the banking packages and services in the pricing guide.

Key sources :

Voulez-vous créer une entreprise ? - Guichet.lu - Luxembourg
Forme juridique - Guichet.lu - Luxembourg
Société à responsabilité limitée simplifiée (SARL-S) - Guichet.lu - Luxembourg
Loi du 23 juillet 2016 - Legilux
S'affilier - CCSS (Centre commun de la sécurité sociale) - Luxembourg
Version consolidée applicable au 22/06/2024- Legilux

Your devoted BGL BNP Paribas Team, 13/01/2026

 

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