Business transitions: Comparing PFA and SRL structures in Romania

Business owners in Romania face several considerations when deciding whether to transition from a Sole Proprietorship (PFA) to a Limited Liability Company (SRL). While an SRL offers the significant advantage of separating personal assets from business liabilities—protecting personal property in the event of debts or litigation—it also introduces higher administrative burdens.

Key differences include taxation and bureaucracy. A PFA may benefit from simplified taxation or income norms, whereas an SRL requires mandatory double-entry bookkeeping and incurs higher accounting costs. Additionally, an SRL is subject to profit tax or micro-enterprise tax, plus additional taxation when distributing dividends. For businesses with low expenses and modest incomes, the transition to an SRL can result in a higher overall tax burden.