Small partnership (MB) / Individual enterprise (IĮ) accounting

How do the accounts of an MB and an IJ differ from those of a UAB?

The main differences between these forms of business are in the distribution of profits, the responsibilities of the owners and the tax regime.

Accounting for an LLC requires strict application of the double-entry principle from the first day of incorporation, and profits can only be paid out to shareholders once a year in the form of dividends. In contrast, the financial management of MBs and IJs is more flexible. Owners and members of these forms can withdraw profits in advance during the year.

Another important aspect is civil liability. LLCs and LLPs are legal entities with limited civil liability, which means that in the event of a failure, the owners only risk the company’s assets. A sole proprietorship is an entity with unlimited civil liability, so the owner is liable for the debts of the company with all of his personal assets.

What taxes do MB members pay?

The tax treatment of members of a small partnership depends on how the funds are withdrawn from the company. Unlike in an LLC, where tax is calculated on a standard salary, members of an LLP usually pay personal income tax on distributed profits or on funds withdrawn for personal use.

Contributions to National Social Security (NSS) and Compulsory Health Insurance (CHI) are only charged to members of an MB if they withdraw funds for personal use, which is treated as employment-related income under tax law. If an MB member manages the partnership under a civil service contract, only personal income tax is payable on the manager’s salary and no social security contributions are due.

What is the difference between accounting for an MB and an IJ?

Although MBs and IJs are often considered similar forms of small business, their accounting and legal nuances differ. The key difference is the status and responsibilities of the owner. The owner of a sole proprietorship is a single person who is legally inseparable from the obligations of his/her company. If the sole proprietorship lacks the means to pay its creditors, the obligations are transferred to the proprietor.

A small partnership can have up to ten members and their personal assets are protected. From an accounting point of view, the owner of an IJ cannot enter into civil service contracts with his company, whereas a member of an LLP can legally provide services to his partnership under a civil contract, which allows for a more efficient optimisation of the company’s costs.

MB vs IĮ vs UAB Main differences

To help you assess the specificities of each form, a comparison table of the main financial and legal criteria is provided below.