IKE vs Other Business Forms – Advantages and Disadvantages

24 Mar IKE vs Other Business Forms – Advantages and Disadvantages

ΙKE (Private Company) is often compared to other key business forms in Greece:  General Partnership (OE), Limited Partnership (EE), Limited Liability Company (EPE), and Société Anonyme (AE). Each type has distinct characteristics. Below is a comparative overview, focusing on the main advantages and disadvantages of IKE compared to other forms:

IKE vs General Partnership (OE) / Limited Partnership (EE)

Personal companies (OE/EE) are known for their simple establishment and operation, but their major drawback is the unlimited liability of general partners. In an OE, all partners are personally and jointly liable with their entire assets for the company’s debts. Additionally, the company’s bankruptcy leads to the personal bankruptcy of the partners. In an EE, at least one partner also has unlimited liability (general partner), while limited partners are only liable up to their contribution. In contrast, IKE protects the partners’ personal assets – liability is limited to the company’s assets. Thus, IKE offers greater security against business risks. Furthermore, IKE has a clear governance structure (manager) and legal personality, whereas a small OE/EE often operates more informally. However, OE/EE have some advantages: they require simpler bookkeeping (they can maintain single-entry books if they are small) and single taxation of profits (profits are only taxed as personal income without an additional dividend tax). Additionally, no minimum capital is required for OE/EE.

Conclusion: IKE is preferable for those seeking limited liability and a structured company form, even if it sacrifices some of the simplicity of personal companies.

IKE vs Limited Liability Company (EPE)

EPE (Limited Liability Company) was the main corporate form for SMEs in Greece until 2012. However, with the introduction of IKE, the EPE was largely replaced due to its operational rigidities. Key differences: (a) IKE does not require a minimum capital, whereas EPE previously required one (although the minimum capital requirement for EPE was abolished in 2018). (b) IKE can be established with a private Articles of Association, whereas EPE traditionally required a notary public (although today EPE can also be formed through the General Commercial Registry (GEMI) using a model Articles of Association). (c) Decision-making: EPE requires the “double majority rule” (majority of partners and capital), making general meetings cumbersome. IKE operates with a simple majority of shares, without this restriction. (d) Types of contributions: In EPE, all contributions were capital, whereas IKE allows more flexible financing through non-capital and guarantee-type contributions. (e) Sole ownership: IKE can be single-member from its inception, whereas EPE initially required two partners (although it could later become single-member – now direct single-member EPEs are also allowed). (f) Market perception: IKE is seen as a modern business form and is widely preferred, whereas new EPE formations have declined significantly.

Conclusion: IKE outperforms EPE in terms of flexibility, ease of formation, and decision-making. EPE is rarely used for new businesses, mostly surviving in older firms that have not transitioned. However, in cases of larger businesses requiring higher prestige, EPE may still be considered.

IKE vs Société Anonyme (AE)

AE (Société Anonyme) is the oldest and most complex corporate form, suitable for larger enterprises. Compared to IKE, AE has the following characteristics: (a) Minimum capital requirement: AE requires a minimum share capital of €25,000, making entry more costly, whereas IKE can be formed with just €1. (b) Governance structure: AE is managed by a Board of Directors (at least 3 members) with a fixed term, whereas IKE only needs one manager. (c) Decision-making: AE has a complex decision-making process, requiring Board of Directors meetings, an annual General Assembly, quorums, and specific majorities. IKE has simpler governance (even allowing decisions without a meeting if all partners sign the resolution). (d) Publicity & Audits: AE has extensive disclosure obligations (balance sheet publication, GEMI announcements) and, if exceeding specific thresholds, mandatory audits by certified auditors. IKE also publishes financial statements in GEMI but generally faces less regulatory scrutiny (it only requires audits if it meets the same high thresholds applicable to EPE/IKE under Law 4308/2014). (e) Shares vs. Equity Units: AE issues shares, which can be easily transferred, especially if they are bearer shares, without GEMI notification. In contrast, IKE’s equity units have no physical form and must be transferred via a private agreement, with changes recorded in GEMI, making transfers less flexible. Furthermore, AE shares can be listed on the stock exchange, facilitating capital raising and investor exits, while IKE units cannot be publicly traded. Regarding pledging, AE shares can be used as collateral, whereas IKE equity units have more restrictions, depending on the company’s Articles of Association. (f) Prestige and Purpose: AE is necessary for very large businesses, publicly traded companies, or firms requiring significant credibility and financing. However, for small and medium-sized enterprises (SMEs), IKE is more practical as it avoids AE’s bureaucracy.

Conclusion: IKE is superior to AE in flexibility, cost, and capital requirements, but AE excels in financing options and business scale. However, both IKE and AE can now be single-member, eliminating any differentiation based on the number of founders.

IKE vs Sole Proprietorship

Although not a corporate form, sole proprietorship is a common starting point for entrepreneurs. Its advantages include absolute simplicity (no legal entity, just tax registration) and low operating costs. However, it has significant downsides: Unlimited personal liability for business debts, Difficulty in separating personal and business finances, High taxation and social security contributions for profits beyond a certain threshold.

Since 2022, tax incentives have facilitated the transformation of sole proprietorships into IKE, helping entrepreneurs protect their personal assets while benefiting from the legal framework of a company.

Comparative Conclusion

IKE combines the best features of other business forms while avoiding their major drawbacks. It offers: Limited liability, like AE and EPE, Easy setup, like OE and sole proprietorships, Flexible capital contributions and governance,
Low entry barriers without minimum capital.

Unlike AE, IKE is simpler and cheaper, and unlike EPE, it is more modern and flexible. As a result, IKE has become the preferred choice for most new businesses in Greece.

Final Thoughts

IKE is currently the most flexible and accessible option for establishing and operating a business in Greece. It combines the advantages of other corporate forms while ensuring limited liability for its partners. At Karpouzis-Lianou & Associates Law Firm, we have the expertise and experience to guide entrepreneurs in selecting the most suitable legal form for their business, ensuring the optimal legal and tax structure based on their needs and objectives.