⚖️ How to Choose Between a Sole Proprietorship and Establishing a Company?
A Simplified Legal Explanation According to Libyan Legislation
✍️ Prepared by: Nader Abdullah
📌 Educational Content Dedicated to the Company Formation Page
👇👇 When considering starting a business, the first question is often:
Should I start as a sole proprietorship or establish a company?
The answer isn't just about procedures; it extends to liability, taxes, management, and the legal future of the project.
First: Who is a merchant? And what is a company?
🔹 Sole Proprietorship
Any person who conducts business in their own name and for their own account is considered a merchant, whether they are a professional trader or simply operate a business, even if it's not their permanent occupation.
The law requires a minimum age of 18 to engage in commercial activity.
🟢 A sole proprietorship is legally linked to the individual and cannot be separated from them.
🔹 Company
A company is an independent legal entity, established according to a form specified by law (general partnership, limited partnership, joint-stock company, limited liability company, etc.). It acquires its legal personality only from the date of its registration in the Commercial Register.
🟢 A company is a legal entity separate from its partners.
Second: Financial Liability… Herein lies the fundamental difference:
🔸 Sole Proprietorship
There is no separation between:
The merchant's personal funds
And the funds of the business activity.
❗ Any debt or commercial obligation can be enforced against the house, car, or personal account.
🔸 Companies
🔹️Joint-Stock Companies and Limited Liability Companies:
Liability is limited to the value of the share or shares only.
🔹️General Partnerships:
Partners are jointly and severally liable for the company's debts.
Important Exception:
If serious mismanagement is proven to have led to the company's inability to pay, the manager may be held personally liable.
Third: Incorporation, Registration, and Publication
🧾 Sole Proprietorship
Registration in the Commercial Register within 10 days of opening the business.
Simple and quick procedures.
🏢 Companies
A memorandum of association and articles of association in official documents.
Registration in the Commercial Register.
Company registration within 10 days.
Mandatory data must be included in all correspondence (capital, headquarters, registration, etc.).
Fourth: Management and Oversight
👤 Sole Proprietorship
Managed directly by the owner.
Or by a commercial agent acting on their behalf and for their account.
🏛️ Companies
Managed by a manager or board of directors.
Mandatory oversight:
Supervisory body (in certain cases).
Certified external auditor.
🟢 The larger the entity, the greater the oversight to protect partners and clients.
Fifth: Advantages for Small Businesses (a point often overlooked)
The law takes into account the category of small businesses (such as street vendors):
Exemption from maintaining commercial books.
Not subject to bankruptcy proceedings.
🟢 Social protection for a group that relies more on labor than capital.
Sixth: Books and Accounting
✔️ The general rule is that:
Every merchant (individual or company) must maintain:
A daily journal
A ledger
Inventory and balance sheet
✔️ These must be retained for 10 years.
✔️ Electronic bookkeeping is permissible and will have legal validity.
Seventh: Taxes… Where does the balance tip?
📊 Income Tax
Companies:
A flat tax of 20% of net profit.
Individual Activity:
Trade: 15%
Industry and Crafts: 10%
Freelance Professions: 15%
🎯 Exemptions (a significant advantage for individuals)
1800 LYD for a single person
2400 LYD for a married person
300 LYD for each child
Insurance premium deduction
❌ Companies do not benefit from any personal exemptions.
Eighth: Salaries and Employment Tax
Salaries are deducted from employees at the following rates:
5% on the first bracket
10% on any amount exceeding that
The employer (company or individual) is responsible for deduction and remittance.
Ninth: End of Business
Individual Business
Ends due to:
Death
Retirement
Incapacity
Bankruptcy may be declared within one year of cessation.
Companies
Are dissolved due to:
Expiration of term
Achievement of purpose
Partners' decision
Loss of half the capital
Enters the liquidation phase while retaining their legal personality.
👇👇👇 Continued: How to Calculate Income Tax
⚖️ A Guide to Establishing Training Companies and Private Education Companies in Libya 🔻
👇👇👇
Investing in the private training and education sector is one of the most promising sectors in Libya. However, its success begins with proper establishment and adherence to the relevant authorities and regulatory requirements.
🎯 Below is a detailed and correct explanation of the procedures and requirements according to applicable Libyan laws and regulations 👇
🧑💼 First: Establishing Training Companies (Private Training Centers)
🔹 Authority Responsible for Initial Approval
Ministry of Labor and Rehabilitation or Ministry of Technical, Vocational and Professional Education (if the activity is vocational or technical training)
🔹 Key Requirements:
1. Submitting an application for initial approval to conduct training activities.
2. Selecting 3 to 4 proposed names for the trade name.
3. Copies of the founders' national ID cards or passports.
4. A statement confirming that they do not receive a salary from the government (required in some cases to prevent conflicts of interest). 5. The company's articles of incorporation and bylaws.
6. A premises that meet occupational safety and health requirements.
7. A statement of training programs, curricula, and qualified training staff.
📌 Note: Vocational training is subject to the provisions of the Technical, Vocational, and Professional Education Regulation Law No. (21) of 2023, and licensing is not permitted without the approval of the competent authority, depending on the nature of the activity.
🎓 Second: Establishing Private Education Companies and Institutions
Private education in Libya is divided into three levels, each with its own independent authority:
🏫 1️⃣ Basic and Secondary Education (Private Schools)
🔹 Competent Authority: Ministry of Education – Private Education Department
Requirements:
Preliminary approval from the Private Education Department.
Fulfillment of school building and safety requirements.
Approval of curricula and teaching staff.
Submission to inspection and final accreditation.
🏢 2️⃣ Intermediate and Higher Institutes
🔹 Competent Authority according to the nature of the specialization:
Ministry of Technical, Vocational and Professional Education (for technical institutes).
Or Ministry of Education (for academic institutes).
Requirements:
Preliminary approval.
Accreditation of educational programs.
Compliance with admission regulations and teaching staff requirements.
🎓 3️⃣ Higher Education (Private Universities and Colleges)
🔹 Competent Authority: Ministry of Higher Education and Scientific Research
Essential Requirements:
1. Preliminary approval from the Ministry.
2. A complete institutional file (Statutes – Administrative Structure – Funding).
3. Institutional and program accreditation from quality assurance bodies.
4. Final licensing after fulfilling all requirements.
🏅 Quality Assurance and Accreditation
✔️ All types of private education (schools, institutes, universities) are subject to quality assurance requirements, whether institutional or program accreditation, before granting final licensing or allowing continued operation.
⚠️ Warning
Commencing any training or educational activity without the approval of the competent authority is a serious legal violation that may result in closure and license revocation.
📍 Advice
Proper establishment from the outset saves you from disputes, ensures legal continuity, and enhances trust with regulatory bodies and stakeholders.
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