What is the difference between an LLC and an individual entrepreneur - which is better to choose for business

• 1. What is the difference between an individual entrepreneur and an LLC?
• • Output
• 7. What to choose LLC or individual entrepreneur - video

1. What is the difference between an individual entrepreneur and an LLC?

The first and most significant difference of these two forms of ownership is that the Limited Liability Company is a legal entity, and the Individual Entrepreneur is not.

The meaning of this difference is that an individual entrepreneur is essentially a self-employed citizen, whose activities are permitted by the Federal Tax Service. An individual entrepreneur as an individual has the right to freely conduct commercial activities, invest his personal money in the business, and easily withdraw and spend profits at his own discretion.

In turn, an LLC is rather an abstract business entity that does not imply a specific person or group of persons. LLC is an organization that has:

• your legal address, which may, but is not required to, coincide with the registered address of the founder;
• your current account- is not a personal "wallet" of the owner of the LLC;
• your "personal deposit"- authorized capital (MC), formed by the participants in a joint effort. Nevertheless, the Criminal Code cannot be withdrawn and spent for personal needs by any of the co-owners of the Company.
• its legal name in full and abbreviated format;
• regulated document management system, in which each action of the members of the Company is formalized by a certain document - an order, an advance report, etc.

We note right away that it is impossible to categorically assert that one of the two considered forms of business organization is an absolute good, while the other has a number of obvious shortcomings. Each of them has its own pros and cons, so the choice is purely individual.

2. Responsibility to creditors and government agencies

Consider the main points of how an LLC differs from an individual entrepreneur in the field of financial relationships. The main thing worth paying attention to is the measure of liability for obligations to creditors. When choosing a form of ownership in each case, you need to worry about possible risks in advance.

From whose pocket will the debt be collected in case of failure? If an LLC is chosen as the organizational and legal form, the founders will be liable for the company's losses only by the authorized capital (). No one will get into your pocket, no matter how much money is on your personal accounts.

The measures of administrative responsibility are also strikingly different for LLCs and individual entrepreneurs. So, in case of violation of the law, an individual entrepreneur can get off with a fine of 2-5 thousand rubles. For LLCs, the size of the fines is much higher and already measured in tens of thousands of rubles.

3. Procedure and conditions of registration

There are also differences in the registration procedure. The founder of an LLC can be either one person or a group of like-minded people. (We advise you to read -)

The only condition is to limit the number of companions: there cannot be more than 50 .

The state duty for opening an individual entrepreneur today is 800 rubles. without any additional investment. A receipt for payment of the state duty for registration of an individual entrepreneur when contacting through the MFC can be easy to form yourself.

When registering an LLC, it is necessary to pay already 4,000 rubles, and the presence of an authorized capital of at least 10,000 rubles is also required. (it can be represented by the equivalent of the enterprise equipment). Since the Criminal Code is deposited exclusively to the current account, you will have to spend money on its opening. The amount may be different and depend on the tariffs: each bank offers its own cost of servicing the bank account for legal entities.

The period during which the tax authority registers an LLC and an individual entrepreneur is the same for both entities - 3 days.

It is worth paying attention to the fact that if an LLC is required to be registered as an employer immediately from the moment the legal entity is created, then for an individual entrepreneur a prerequisite is hiring the first employee.

SP or LLC?

4. Contributions, deductions and taxes

After registering an LLC, a legal entity immediately becomes a member of various funds:

• Pension Fund,
• Social Insurance Fund,
• Compulsory Health Insurance Fund.

An organization in the form of an LLC instantly becomes an employer, which means the mandatory payment of taxes both on the salaries of its employees and on the remuneration of the general director. If, for example, you are the sole owner and founder of an LLC, then you will also be listed as its employee.

An individual entrepreneur, if there are no employees in his subordination, is not obliged to register as an employer. It is enough for him to constantly pay insurance payments for himself to the Pension Fund of the Russian Federation.

In 2018, the amounts of fixed insurance payments were determined as follows: 26,545 rubles. for compulsory pension insurance and 5,840 rubles. for compulsory health insurance. In addition, a condition has been introduced: an individual entrepreneur is limited to making fixed payments if his annual income does not exceed 300,000 rubles.

If the entrepreneur managed to earn more than 300 thousand rubles, then, in addition to fixed contributions, he is obliged to pay to the Pension Fund 1% of income in excess of this amount.

With regard to the application of the taxation system, both individual entrepreneurs and LLCs have the right to choose the one that will provide the minimum tax burden. Among these "preferential" systems, the most popular are:

• Simplified taxation system - simplified taxation system;
• UTII - unified tax on imputed income;
• ESHN - similar to the previous system, but created only for those who conduct business in the production or service of agriculture;
• Patent system.

Differences appear in relation to the payment of certain types of taxes. So, individual entrepreneurs, unlike LLCs, are exempt from paying personal income tax, VAT, property, land and transport taxes, even if these assets are used in business.

5. Disposal of funds

How to dispose of the proceeds from the results of your activities? For many, the answer to this question is obvious: "As the entrepreneur wishes." However, not all so simple. If an LLC was chosen, the founders have the right to receive dividends only once a quarter after taxes.

The very process of managing funds in the company's accounts is also significantly different. If the individual entrepreneur, after paying all taxes, is free to dispose of at his own discretion, then all funds belonging to the LLC, from the point of view of the law, do not belong to the founders, but directly to the Company itself.

Therefore, it is impossible (if you comply with the law) to withdraw money from the current account. Funds can go to pay salaries to employees, pay for their business trips, or for some economic needs. This means that all expenses must be supported by accounting documents.

The only way to legally withdraw funds from LLC accounts directly to the founders is to pay dividends, the amount of which is indicated in the financial statements.

Geography of activities

The difference between individual entrepreneurs and LLCs also lies in the localization of entrepreneurial activities.

An individual entrepreneur is given the opportunity to engage in commerce throughout the Russian Federation, regardless of the place of registration. Nuances arise only if the IP is on UTII and on the Patent. In the first case, the individual entrepreneur must register with the local tax authority. In the second, the entrepreneur is obliged to pay and obtain a patent in the city / region where he plans to conduct his business.

If an LLC wishes to develop new settlements and regions, it must obligatorily register the opening of a branch. At the same time, the taxation system applied by the Company does not play a role.

6. Termination procedure

As experienced businessmen say, it is easier to open an LLC than to close it.

The termination procedure for LLC founders is indeed more laborious and time-consuming. It consists of the following chain of steps:

• members of the Society make and document their decision on liquidation;
• within 3 working days the LLC notifies the tax office at the place of its registration - sends the completed Form No. Р15001, to which it attaches the Decision on liquidation;
• in parallel with this, a liquidation commission and an interim liquidation balance sheet are formed;
• the liquidator publishes a message on the termination of the activities of the LLC in the newspaper “ State registration bulletin". Creditors, if any, can find out about the procedure and timing for filing their claims in this message.
• the state duty is paid in the amount of 800 rubles. The receipt of payment is attached to the general package of documents for liquidation.

After 6 working days, the applicant can receive the coveted Unified State Register of Legal Entities, which will indicate that the organization has been successfully liquidated.

Output

Thus, giving a detailed explanation of how an LLC differs from an individual entrepreneur, conclusions can be drawn. The determining factor in the decision to choose the form of organizing entrepreneurial activity is the set of advantages that the businessman considers more significant in a particular case.