Most Common Mistakes When Starting a LLC and Sole Proprietorship in BiH (and How to Avoid Them)

1. Choosing the Wrong Legal Form (Sole Proprietorship vs. LLC)

One of the most common mistakes right at the beginning is choosing the wrong business form. Entrepreneurs often decide on a sole proprietorship because it is cheaper to set up, without thinking about long-term plans and risks.

Main differences and risks:

• Sole Proprietorship (Obrt): The owner is liable with all of their personal assets for all obligations and debts of the business. A sole proprietorship is great for smaller services and independent activities, but it can be limiting if you plan import-export operations or working with larger partners.

• LLC (d.o.o.): The owner is liable only up to the amount of the registered founding capital. Although incorporation and closure are more complex, an LLC provides greater protection for personal assets and a better position when entering foreign markets.

2. Incorrect Business Activity Codes and Non-Compliance with Laws

During registration, it is necessary to list all activities the company or business will engage in.

Mistakes in this phase include:

• Forgetting secondary activities: If you decide to expand your business later, you will have to register an amendment, which incurs additional municipal or court costs.

• Unawareness of special conditions: Certain activities (such as catering, trade, transport, or medical services) require specific technical and spatial conditions, certificates, or approvals from competent ministries before starting operations.

3. Ignoring the VAT System Threshold Deadline

Entrepreneurs are often unsure about when they are required to register for VAT. In BiH, the turnover threshold for entering the VAT system is defined by law (the current threshold is KM 100,000).

Common mistakes:

• Untimely registration with the ITA: If you exceed the legal threshold and fail to submit a VAT registration application on time, you risk heavy fines and retroactive VAT calculations on earned revenue.

• Misjudging automatic VAT registration: Sometimes it is beneficial to enter the VAT system voluntarily right from the start (e.g., if you have high initial costs and equipment purchases), but this requires prior analysis with an accountant.

4. Incorrect Calculation of Salaries, Contributions, and Personal Income

The way an owner withdraws money and pays themselves differs drastically between a sole proprietorship and an LLC.

• In a Sole Proprietorship: Money in the business account is personal property of the owner, but contributions are fixed by law and must be paid regularly, regardless of whether a profit was made.

• In an LLC: Company money is not the owner's personal money. Withdrawing cash without proper justification or legal basis is treated as undeclared income or a loan, incurring high taxes and penalties. The owner/director must have a clear employment status, correct salary calculations, and settled contributions.

5. Hiring an Accounting Service at the Last Minute

Many founders search for an accounting service only after receiving their registration decree and opening a bank account. That is too late.

A quality accounting and bookkeeping service should be involved even before submitting documentation, as an expert advisor can help you with:

• Choosing the most favorable legal form.

• Tax planning and drafting an initial business plan.

• Proper registration of employees and founders with the Tax Authority immediately upon starting work.

Conclusion: Start Your Business on Solid Ground

Every mistake in the early stages of incorporation costs more than timely expert advice. Proper planning ensures that you can focus on growing your business from day one, while your legal and financial frameworks remain fully protected.

Starting a Business and Need a Reliable Partner?

The team at Poslovnost d.o.o. Sarajevo agency provides support through every step of establishing and running a business:

• Tax and financial advisory when choosing between a sole proprietorship and an LLC

• Full scope of services: Bookkeeping and accounting

• Employee registration, payroll, and contribution calculation

• Preparation of documentation and guidance through tax regulations in BiH

Looking to start a sole proprietorship or an LLC? Contact us for a free introductory consultation or visit us in Sarajevo. Leave the administration to the professionals!

🏢Agencija Poslovnost d.o.o.
📧info@poslovnost.ba
📞033/246-421
📍Kotromanića 48, Sarajevo