PFA - Form of organisation of a business, useful for beginning entrepreneurs

Publication date: August 29, 2023

Find out from this article everything about what a PFA means, about the main characteristics that define the way of organizing a business, about the legislative acts that regulate the field and about the advantages and disadvantages that such an entrepreneur can have. In addition, you can discover below the procedure to follow for the constitution of the PFA and some tips offered by specialists to maximize the chances of economic success.

Contents:

1. What does PFA mean?

1.1. Characteristics of the authorised natural person

1.2. Legal regulations regarding PFA

1.3. Advantages and disadvantages of PFA

2. How to set up a PFA company - what do you need for registration?

2.1. Acts and documents required for the establishment of a PFA

2.2. Procedure for opening a PFA - what are the steps to follow?

2.3. Fees payable by a PFA

3. Advice for entrepreneurs who want to open a PFA

1. What does PFA mean?

PFA is an acronym for "Authorized Natural Person". This formula designates a form of organization of an economic activity carried out by an independent person. The variant was introduced by the Romanian state authorities to offer novice entrepreneurs an easy way to enter the business world. They can benefit from the simplicity of the establishment process, but also from the tax facilities offered to encourage the development of the business.

Another category of owners of a PFA is represented by professionals who carry out liberal activities, such as doctors, lawyers, legal consultants, architects or even teachers who want to offer meditation for a fee in the field in which they work. The only conditions that such entrepreneurs must fulfill in order to become authorized natural persons are represented by the obligation to be at least 18 years old, the existence of a physical professional headquarters and the absence of sanctions regarding illegal financial-fiscal acts.

1.1. Characteristics of the authorised natural person

The main characteristic of PFA is that this activity is independent. The authorized natural person is not subordinate to a boss and can decide for himself, according to his interests, how to carry out his daily work. This characteristic is also the most important one taken into account by people who no longer want to depend on the orders of any boss and who believe that they have all the qualities at their disposal to turn their job into a profitable business.

Another feature of the PFA is the level of liability, should certain debts or disputes arise. In this situation, unlike other forms of organization, the liability is unlimited, that is, the authorized natural person can be held liable with the entire assets, not only with the company's social fund, as would happen in the case of an LLC.

Another element that must be remembered is related to special taxation, which regulates the field. The legislative bodies started from the idea that a businessman at the beginning of his journey must receive certain facilities to help him in the first years for the development of a healthy business. This does not mean that an authorized natural person does not pay taxes, but only that their level is in certain cases more advantageous than that of other forms of economic organization.

1.2. Legal regulations regarding PFA

The entire field of PFAs, both in terms of the method of establishment, as well as the subsequent activity and the taxation due, is contained in several legislative documents, among which Law number 571 of 2003 regarding the Fiscal Code, Government Ordinance number 44 of 2008 regarding the organization of economic activities by authorized natural persons and subsequent fiscal regulations regarding the level of taxes owed.

Specialists recommend that people who want to develop such an activity consult these legislative norms in order to accurately understand the field and follow any changes that may occur over time.

1.3. Advantages and disadvantages of PFA

In general, the PFA is a company that offers important advantages, but the option is not suitable for all entrepreneurs. Entrepreneurs at the beginning of the journey must know exactly the benefits and risks involved in choosing this economic model in order to make an informed decision about which is the right option.

The main advantages that authorized natural persons can enjoy are:

• Full freedom to organize his own business (the entrepreneur can decide how long he works, who he collaborates with and what the prices are);
• The procedure for opening a PFA is very easy to implement, both in terms of the number of documents that must make up the file, and in terms of financial expenses;
• The level of taxation under certain conditions is lower than in the case of other forms of business organization;
• The authorized natural person can hire workers with an individual employment contract;
• The funds obtained from the activity are available at any time, and can be spent without any justification;
• The legislation does not provide for the obligation to call on an authorized accountant. The authorized natural person can choose to keep the accounting themselves, if the amounts involved are small, or contract the services of an accounting consulting firm, which will take care of all the necessary procedures.

There are also some disadvantages of the organizational form. For example, the authorized natural person must be qualified in the field in which he wants to operate, which implies a rather important limitation. Moreover, even if there is qualification, unlimited activities cannot be carried out. The law stipulates that a maximum of five CAEN-type fields of activity can be chosen.

A rather large risk is related to the liability that the authorized natural person has regarding the contracted obligations. Thus, the owner of the PFA is liable with his entire wealth, which can be dismissed following court rulings.

2. How to set up a PFA company - what do you need for registration?

The procedure for registering a PFA is a very simple one and can be completed in about 1-2 months, from the beginning to the receipt of the authorization. Normally no fees are paid to carry out this step unless the services of a consultant are used to carry out the whole step instead of the person himself. If the business consulting option is used, the investment is minimal, the amounts paid are acceptable because the procedure will be done quickly and easily.

For those who wonder where to register a PFA, the answer is at the Trade Registry or ANAF, in case a tax registration certificate is requested for the practice of liberal professions.

2.1. Acts and documents required for the establishment of a PFA

The conditions for the establishment of a PFA are provided for in the economic legislation. In this regard, it is specified which documents must be held by a person who wants to create a PFA:

• Application for registration;
• The document regarding the fiscal registration;
• Affidavit regarding the fulfillment of the mandatory conditions;
• Proof of verification and reservation of the company name;
• The document certifying the identity of the holder;
• The document attesting to the training and qualification in the field in which it will be active (it can be in the form of a diploma of passing through a specific educational institution or in the form of a document attesting to passing through a qualification course);
• Proof of the existence of the professional headquarters (if the activity will be carried out in a housing block, the approval of the Association of owners is required);
• Fiscal record.

2.2. Procedure for opening a PFA - what are the steps to follow?

In order to open a PFA, the following steps will be taken:

• The first step is to consult the availability of the name, which can be done online on the website of the National Trade Registry Office. It should be noted that the legislation stipulates that the name of the PFA must be composed of the person's name, either in full, or from the name and the initial of the first name, to which the formula "PFA" or "authorized natural person" is added. If there is availability of the name, obtain a document certifying this;
• The second step consists in establishing a registered office and having documents to prove this. In this case, it will be necessary to have a sale-purchase contract, a rental or sharing contract for the space;
• The last step is the submission of the complete file to the Trade Registry Office, after which the institution will issue the documents regarding the establishment of the PFA in no more than 30 days.

2.3. Fees payable by a PFA

The level of taxation is a special one, which offers facilities especially if the receipts are at a relatively low level. Thus, if the annual net income does not exceed the sum of twelve minimum gross wages in the economy, the owner of a PFA only pays the ten percent income tax, being able to choose in this sense to calculate it either in the real system or as an income norm.

If annual net income exceeds this limit, the ten percent income tax will also be subject to a social security tax of twenty-five percent of total income, plus a ten percent health insurance tax from the same income. It should be mentioned that, if the authorized natural person also has employees (minimum one, maximum three), he will have to pay the usual fees, stipulated in the collective labor agreement.

3. Advice for entrepreneurs who want to open a PFA

Entrepreneurs who want to become licensed individuals should follow certain steps after establishing the PFA to maximize their chances of success. In this sense, the best choice would be to request the support of a business consulting firm, which offers a wide range of services, both in terms of opening the PFA, and in terms of financial consulting, consulting legal and accounting. Such collaboration is welcome because the company's specialists have extensive experience in organizing the first steps of profitable businesses.

Another welcome step is related to the proper recording of income and expenses. This not only provides organization to the business but is also a tax obligation that must be done correctly for debt settlement. Also from this approach, advantages can be obtained by making tax deductions. To avoid hefty fines, PFA owners must keep complete accounting records, file tax returns on time and pay taxes and fees in full.

Business development is a must. Entrepreneurs should not be satisfied with the level they are at. The market must be researched all the time to identify the trends required by the customers in time and to provide them with the products and services required before the competition. Also in this direction, efforts must be made to achieve a solid marketing activity, which will develop the customer base and lead to increased revenues.

In certain cases, when collaboration with companies outside the country is expected, it will be necessary to purchase an intra-community VAT code. Normally, PFAs do not pay VAT, but in this situation, it will be necessary to do so in order to be fully legal. Another concern is related to registration with ANAF, in the virtual private space, through the annual submission of the single declaration. The procedure must take place no later than 30 days after the establishment of the PFA and then every year at the appropriate time.

In conclusion, entrepreneurs at the beginning of the journey and people who want to practice liberal professions, without being employed in a company, can turn to the form of economic organization of the PFA type to benefit from the advantages it offers.

*This material has been prepared for informational purposes only and is not intended to provide tax, legal or accounting advice. We recommend that you consult with our team of tax, legal and accounting advisors before making any decisions regarding the topics mentioned in this article.