When a self-employed person retires, the question isn't just whether they can stop working, but what happens to the business that continues to operate. Retirement for a self-employed person doesn't always mean closing the business.
There is a widespread (and not entirely accurate) belief that, once retired, a self-
employed person must completely sever ties with their business. The regulations don’t quite work that way.
The General Social Security Law generally establishes that a retirement pension is
incompatible with employment, but it includes some important caveats. Among
them, one is particularly important: it is possible to retain ownership of the business while retired.
However, here is the key distinction: being the owner is not the same as managing
the business.
Keeping the business in your name does not mean you can continue working in it as before. That is where problems usually arise.
1. What a retired business owner can (and cannot) do
The limitation does not lie in ownership, but rather in the type of duties performed.
Regulations and legal doctrine have defined this point quite precisely:
What they can do:
- Sign contracts
- Formally represent the business
- Interact with government agencies
- Set general guidelines
What they cannot do:
- Manage the day-to-day operations of the business
- Be regularly present at the business
- Operationally supervise employees
- Perform tasks specific to the business’s operations
To put it more clearly: they can be an “owner,” but not an “active manager.”
Regular presence at the business or direct involvement in its operations may result
in ineligibility for the pension.
2. The role of family members. This is where the structure often breaks down
One of the most common mistakes in these cases occurs when people try to
maintain roles that no longer fit. This is especially true for the “collaborating self-
employed” status.
This status requires something very specific: there must be a primary self-employed
individual who is carrying out the work. If the primary individual is retired and not
working, that requirement no longer applies.
Therefore, it is not correct to retain a family member as a collaborating self-
employed worker if the principal is no longer carrying out any actual activity.
Retaining a collaborating self-employed worker in this situation may be questioned
by Social Security.
3. So who should take over the activity?
This is where the structure must adapt to reality. There are two main options, and
they are not simply interchangeable:
Option 1: The family member becomes the primary self-employed individual
- Take over the business operations
- Registers with the RETA
- Directly manages the business
- Becomes the actual person in charge of the business
This is the most logical option when the family member is already running the business in practice.
Option 2: Employment Relationship
It might be considered that the family member could be an employee under the
General Social Security System, but two key elements come into play here:
- Actual dependence
- Third-party involvement in the business
And, furthermore, a determining factor: cohabitation.
In many family situations, these requirements are not clearly met, making this option more difficult to sustain.
Registering a family member as an employee without meeting the requirements may
result in corrective actions and penalties.
4. The Option of Active Retirement
There is another option, albeit with specific conditions: active retirement. This allows
you to combine your pension with continued work, but it is not automatic. It requires,
among other things:
- Having reached the standard retirement age
- Having made sufficient contributions
- Waiting at least one year after reaching that age
- Remaining employed in the private sector
For self-employed individuals:
- It can be combined with a percentage of the pension (generally 75% in certain cases)
- It requires employees to be hired under specific conditions
It is an interesting option, but it does not always apply in every case.
Do not confuse full retirement with active retirement. They are completely different
situations for legal purposes.
5. A practical conclusion to keep in mind
When a self-employed person retires, the business can continue… but not just any old way.
The key is to understand this:
- Ownership can be retained
- The business cannot be operated directly
- Employment arrangements must reflect reality
- And the structure must reflect who is managing the business
In practice, many family-run businesses operate smoothly… until they are reviewed.
If the structure does not reflect the reality of who works and who manages, the risk is not theoretical. It usually ends in a regulatory audit.
You can contact this professional firm for any questions or clarifications you may have regarding this matter.
For more information, please consult our Labor Consulting
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