“We need a new period of company foundation”. With this headline the Austrian ministry of science, research and economy introduced a brochure how Austria would like to become to the most friendly country for company founders.The reason for this initiative is obvious. Start-ups contribute essential to the further development of Austrian economic system as well as social security system and will boost the job market.
As the selection of legal structure is one of the key topic for start-ups from tax perspective this master thesis is focused on this subject. Therefore it is not only of interest for company founders but also for tax advisors. The legal structure defines the companys appearance in terms of business operation and legal relations, concerning tax code, questions of liability, tax payment for future profits, personal drawings and shares or transfer of enterprise. Additionally the legal form has also an impact on billing and annual financial statement requirements.
The choice of legal structure is an individual decision and there isnt any general formula available. Whether sole trader, open incorporation, limited partnership, GesbR GmbH, GmbH & Co KG or stock company the legal structure is ideal if it is of economic advantage and fits the personal objectives. Besides economic and personal considerations also legal aspects from various fields of law are essential in the decision process. That means that the legal form is an important framework to lead an successful company even though the economic success depends mainly on other factors like skills of the founders, market potential or marketing measures.
Particularly during the start-up phase the issue to find the best appropriate legal structure is a huge challenge. Usually determination of legal structure takes place during creation of business plan where forecasts, assumptions and uncertainties influence many decisions. The question of tax burden is a very important topic for small and medium-sized businesses. As most of the Start-ups are assigned to the area of small and medium-sized businesses many company founders raise the issue concerning the most qualified legal structure from a tax point of view. So is it possible that an enterprise operating under same conditions can save a lot of money because of selection of an tax optimized legal structure.
As the legal structure is defined by Austrian company law the choice of an optimized legal structure has also to be based on this legal framework. There is a close integration between tax law and company law.
A change of the legal structure over the years of existence is common and often useful. Important is to consider that such a change of legal structure can cause high costs and the loss of facilitations. Therefore a change of legal structure has to be calculated carefully and it is recommended to keep the legal structure up for the first years.
Goal of this master thesis is to compile criteria for finding out the best legal structure from tax lax perspective under consideration of the company law framework.
Based on compiled criteria the master thesis point out the advantageousness of the various legal structures in different scenarios to provide in this way support to start-ups when they have to find out the best legal structure for their company.
For this reason this paper is focused on the legal structure choice for the first business years. The limitation on the first years is meaningful as forecasts and assumptions of future developments are becoming more and more imprecise the longer the planning horizon is. With increasing length of the planning horizon increases the probability to select the wrong legal structure.