EOOD vs sole trader — which to choose?
The choice between an EOOD (sole-owner limited liability company) and an ET (sole trader) determines how you bear risk, how you are taxed and how complex your reporting is. Both forms are legal and common, but suited to different stages of business. The decision is not purely an accounting one — it affects how clients and banks perceive your structure and what personal risk you take on when contracts are not fulfilled.
What Is an ET (Sole Trader)?
A sole trader is a natural person who carries on trade in their own name. There is no separate "legal entity" in the sense of a company — you are the trader and you are liable with all your personal assets for the obligations arising from the activity.
What Is an EOOD?
An EOOD is a limited liability company with one owner. The company is a separate legal entity — it enters into contracts, holds bank accounts, hires employees. The owner is liable only up to the amount of the contributed capital (and when the rules are followed — not with personal assets for ordinary commercial risks).
Key Differences
Liability
- ET: unlimited liability with personal assets for trade obligations.
- EOOD: limited liability within the company and its capital, when the legal requirements are met (capital, separation of personal and company expenses, etc.).
Taxes and Social Security Contributions (Summary)
- ET: generally subject to personal income tax on business income — often cited as a 15% flat rate on income from economic activity as a guide (under the applicable provisions of the Personal Income Tax Act), plus mandatory social security contributions to the NSSI as a self-insured person based on the chosen insurable income.
- EOOD: company profits are taxed at a corporate tax rate of 10%. Distributing profits to the owner as a dividend incurs a 5% dividend tax for a resident individual. Insurance for a manager who does not have an employment contract elsewhere usually runs through self-insurance with separate rules and thresholds.
Accounting and Administration
- ET: lighter accounting structure in many cases, but depends on turnover and the applicable regime.
- EOOD: mandatory double-entry accounting, annual closing, reporting to the NRA — more formal steps but better separation between personal and company finances.
Comparison Table: ET vs EOOD
| Criterion | ET | EOOD |
|---|---|---|
| Liability | Unlimited (personal assets) | Limited (company capital) |
| Tax logic | Personal income (typically 15% + contributions) | 10% corporate + 5% dividend on distribution |
| Minimum capital | No capital contribution as with a company | Statutory minimum (1 EUR) |
| Social contributions | Mandatory self-insurance under statutory conditions | Manager is often self-insured if no other contract exists |
| Closure | Procedure for deregistration as an ET | Liquidation/closure of a company — more formal |
| Prestige and contracts | Suitable for very small services | More often preferred in B2B and with larger clients |
When to Choose an ET
- Very low turnover and minimal contracts.
- Low legal risk (rare contractual liability, no employees, no loans).
- You want the simplest possible structure with no capital account.
When to Choose an EOOD
- Any activity with real commercial or contractual risk (client claims, rent, suppliers).
- Plans for growth, hiring people, investments.
- Need for greater credibility with partners and clients.
- Desire to clearly separate personal and company finances.
Registration and Next Steps
An ET is registered through a different procedure from an EOOD — for a company you need Articles of Incorporation, an escrow account, a specimen signature and registration in the Commercial Register. This involves more administrative steps at the start, but afterwards you receive a separate UIC and clearly structured corporate contracts with clients. If you are already an ET and growth calls for limiting your liability, discuss the transition to a company with a lawyer — it is not always a one-click "conversion."
Practical Tip
Most modern entrepreneurs seeking a sustainable business choose an EOOD from the very beginning — the combination of limited liability and a predictable tax framework often outweighs the lighter administration of an ET. If you are on the fence between the two, consult an accountant for a simulation based on your expected revenues and expenses.
Myths You Should Debunk
- "An ET is always cheaper on tax" — it depends on the level of social contributions, expenses and whether you reinvest profits in the company or withdraw them as a dividend.
- "An EOOD is only for big companies" — the minimum capital is symbolic; the real barrier is accounting discipline, not turnover size.
- "I'll switch to an EOOD later" — the transition is possible, but changing the legal form from ET to a company costs time and money; if you expect growth, it is often cheaper to start directly with an EOOD.
For details on EOOD documents and timelines see Registering an EOOD in Bulgaria. Start the process online at company registration.
Firmify's Position
Firmify is best suited for standard EOOD and OOD registrations. As a rule we do not recommend an ET as a first choice — in most standard cases an EOOD offers better protection, a lower tax rate and a clearer business structure.
Summary: An ET is suitable for very low risk and a simple structure; an EOOD is the more practical choice when risk, scale and the need for a professional image in front of counterparts are involved. The choice should combine taxes, social contributions and liability — not just the short-term "registration price."
With Firmify you register an EOOD with automatically generated documents and a clear sequence toward the Commercial Register — in minutes rather than weeks of manually preparing templates.