Both a sole proprietorship and a limited liability company (LLC) have certain advantages and disadvantages. Let’s take a closer look. First, some background: we didn’t open any sole proprietorships in Montenegro for 10 years, simply because we were afraid to. In 2015, it became nearly impossible to obtain a residence permit through a sole proprietorship. In theory, it was possible, but in practice it involved significant difficulties. For the next ten years, all foreigners exclusively opened companies. But it seems that those difficulties are in the past, so now we can return to the discussion of opening not only an LLC but also a sole proprietorship.

Disadvantages of a Sole Proprietorship & an LLC

A sole proprietorship is liable with all personal assets. Meanwhile, an LLC is liable only with the company’s assets. For example, if you receive a fine of €20,000, the sole proprietor must pay it regardless of whether there is money in the business account. You are personally responsible. On the other hand, if an LLC has no assets, you could, in principle, bankrupt it and open a new one in your spouse’s name and thus legalize your status in the country.
A sole proprietorship is limited to one type of activity. An LLC can register an unlimited number of activities. In our company statutes, we include all types of activities except for a few dozen that require prior approval. This restriction makes a sole proprietorship unsuitable for many lines of business. For example, if you want to work in tourism, you can open a sole proprietorship, but tourism usually includes multiple activities: tour operator + car rental + other services. As a sole proprietor, you are allowed only one.
Registering a sole proprietorship with the tax office is significantly more complicated than registering an LLC.
- For an LLC, we prepare a relatively simple document package and submit it. The entire registration process takes just a few days.
- With a sole proprietorship, after receiving a residence permit, you need to submit your information to the tax authority. After 2–3 days, you receive a confirmation, which is needed to open a bank account. Then we prepare the documents for the bank and submit them.
- Next, you need to obtain what’s called a prijava zanata from the tax office — a permit for your chosen activity. If you change your activity, you’ll need a new permit.
- One of the required documents for prijava zanata is an office rental contract — we provide this to you free of charge.
- Once you get the prijava zanata (rješenje), you submit another document package to the tax office and wait for your tax number to be assigned.
A sole proprietorship may sound less professional, which can matter in some business contexts.

Advantages of a Sole Proprietorship & an LLC

Many believe that a sole proprietorship doesn’t need a bookkeeper and that accounting can be done independently. This is a misconception, and here’s why:
- Montenegro offers both simplified and standard taxation regimes for sole proprietorships. The simplified regime does allow operation without a bookkeeper.
- However, this simplified system is not available to programmers, designers, etc., and most foreigners living in Montenegro work remotely.
- Moreover, the simplified tax regime is not available to foreigners at all, and this can lead to complications when renewing a residence permit.
- Therefore, you must choose the standard taxation regime, which requires a bookkeeper.
What’s the difference in accounting between a sole proprietorship and an LLC? If you have no employees, you don’t need to calculate salaries, but — as with an LLC — you must track bank statements, invoices, fixed assets, etc. The annual report format is also different. So yes, the accounting is different, but it is required — and you won’t be able to manage it alone.
Taxes are lower for sole proprietorships.
- If your annual profit is under €8,400 — no taxes.
- Between €8,400 and €12,000 — 9% tax.
- Above €12,000 — 15% tax.
How are taxes paid? You make a monthly advance payment — the same as companies pay on the director’s salary. Currently, this is €75 per month. At year-end, a final calculation is made, and if needed, you pay the difference.

VAT (Value Added Tax)

Whether you open an LLC or a sole proprietorship, you become a VAT payer once your annual revenue exceeds €30,000.
VAT is not paid on exports of goods and services, meaning that, for example, a programmer with international clients will not pay VAT.

My Recommendations

If you do not plan to operate a business in Montenegro, then absolutely go with an LLC.
If you do intend to run a business, consider carefully — both a sole proprietorship and an LLC have specific pros and cons, which I have described above.