IKE or Personal Partnership? A Practical Comparison of Costs, Liability, and Taxation

The question “Should I set up an IKE?” is often heard, and it would be useful to have a solid basis to enable a more substantive discussion between accountants and entrepreneurs.

Before diving into the core comparison, it is helpful to briefly outline the various forms a business may take. These include the sole proprietorship, personal partnership (general partnership–limited partnership), capital company (IKE–LTD), and shareholding company (S.A.).

For the purposes of this article, we will focus on personal partnerships and IKEs.

The “trend” of IKEs began with the Katrougalos Law, under which IKE members were not subject to social security contributions, which at that time had risen sharply. Since then, however, things have changed, yet certain arguments have remained and now create misconceptions.

The most common argument heard is the establishment of an IKE with €1. Apart from the fact that a personal partnership can also be established with €1, how exactly is a company supposed to operate without capital? Will it owe everyone money? Will it not pay rent? And even if you are being clever and know that personal partnerships are not required to present a cash balance, what cash balance will an IKE present?

This is exactly where the bureaucratic bulldozer comes in. In personal partnerships, you present income and expenses; in IKEs, you prepare balance sheets, must maintain supplier and customer balances, are subject to more controls, and therefore keep more data. Of course, if you are a startup, you have no choice—you must provide information to investors. In addition, business agreements sometimes require more complex management structures and types of participation, which only the IKE can provide.

Let us move on to the question of liability relating to personal assets. For clarity, liability is divided into two categories: debts to the State and debts to private parties. For debts to the State, both the IKE manager and the general partners are personally liable with their personal assets. For debts to private parties, only the general partners are personally liable. This means that if you owe money to the State, regardless of company type, your personal liability is not limited.

There are very specific cases in which an IKE is required for this purpose, such as significant supplier credit or the receipt of a large loan. But how many suppliers actually grant such large credit limits, and which bank provides a loan without collateral?

The next argument concerns the cost of taxes and fees. Do you remember when we said earlier that you keep more data and have more obligations? This means higher accounting fees, which make no sense if they do not cover a specific need.

We saved the best for last. Companies are taxed at 22%, but in an IKE, the distribution of profits is subject to an additional 5% dividend tax, resulting in a higher tax burden than in a personal partnership.

However, we should also mention an advantage of IKEs: the manager’s remuneration is treated as a company expense. In a personal partnership, the manager’s remuneration is subject to social security (IKA) contributions to be deductible, whereas manager remuneration in an IKE is not. In combination with the previous argument, the tax cost may be reduced, but this requires calculation.

Ultimately, the IKE is neither a “good” nor a “bad” choice. It is a tool with a specific cost, obligations, and usefulness. The problem begins when the legal form is chosen as a trend or as a promise of protection, without a substantial understanding of how it operates in practice. The right business decision is not the one that sounds better, but the one that truly fits the size, needs, and objectives of each activity.

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