Often, when planning to open your own business, the question arises: what is better to register: an individual entrepreneur or an LLC? These forms of business have their advantages and disadvantages. There are many differences between them. Therefore, before deciding what form the business will take, it is worth understanding all this.
What is IP: pros and cons
Sole Proprietor or Sole Proprietor for short. business person. Any citizen of the Russian Federation can become an individual entrepreneur, if there are no restrictions by a court decision. Even minors can become IP. True, there must be the consent of the parents / guardians. But there are categories of people for whom entrepreneurial activity is either prohibited or has restrictions. Such persons include:
civil servants; military; foreigners, in the absence of citizenship; minors without permission.
The benefits of IP include the following:1.
The registration procedure takes place in a simplified form. In terms of terms, it takes an average of up to 5 working days from the moment all the necessary documents were submitted. Moreover, it is possible to register an individual entrepreneur only at the place of residence. Read more about what documents are required below in this article. 2.
You can choose one of the following taxation systems: simplified, single tax, single agricultural tax, general system. For individual entrepreneurs, there is a special taxation system - patent. 3.
Individual entrepreneurs do not need to keep accounting, respectively, there is no need to spend money on attracting such a specialist. You need to keep a ledger of income and expenses. 4.
The registration fee is small. If you do everything yourself, without resorting to the help of special organizations, then the state duty will be about 800 rubles. 5.
The profit received in the course of the activity becomes the property of the entrepreneur and can be used when necessary and in the way that pleases. 6.
Ease of closing. An individual entrepreneur must simply apply for liquidation, and also pay a state duty in the amount of 160 rubles. After 7 days, the IP will receive a decision on exclusion from the USRIP. 7.
No authorized capital is required for establishment. 8.
An individual entrepreneur not only does not pay taxes on property used in activities, but there is no need to report on what means and equipment are involved in production. 9.
Small penalties. 10.
If an individual entrepreneur is going to open additional points under his own name, then there is no need to make changes to the registration data. Despite the many advantages, IP also has a number of disadvantages:1.
For the debts of the individual entrepreneur will be responsible for his own property. 2.
Individual entrepreneurs cannot engage in the sale of alcoholic products and some other activities. 3.
Losses of previous years cannot be taken into account when calculating personal income tax. 4.
An individual entrepreneur must pay contributions to the Pension Fund without fail. It does not matter if the activity is ongoing or not. Only in the event of an official termination of activities, there is no need to pay contributions. 5.
An IP can conduct its activities through intermediaries / representatives. However, in this situation, there must be a corresponding power of attorney certified by a notary. 6.
IP cannot be sold. You can only sell some property. 7
. An individual entrepreneur cannot attract investors to his business. 8.
Large companies most often prefer to work with LLC. 9.
The name of the business must contain the name of the owner.
What is an LLC: advantages and disadvantages
A limited liability company is abbreviated as LLC. This is a legal entity formed by founders - individuals and legal entities. There may be one founder, it is not necessary to have several. The advantages of an LLC include the following:
1. Liability for debt obligations is related to the contribution that the founder made to the authorized capital. Therefore, the founders do not risk their own property.2. The participant can sell/transfer his/her share in the authorized capital.3. LLC is both sold and bought.4. In an LLC, the losses of previous years can be covered by the profit of the current year. This will reduce income tax.5. Contributions to the Pension Fund are related to the profit received during the reporting period.6. To represent the interests of an LLC, a power of attorney certified by a notary is not required. A power of attorney from the company will suffice.
There are a number of disadvantages to an LLC:
1. Registration of an LLC takes a longer time.2. There are restrictions on the amount of established capital, it must be at least 10 thousand rubles3. A seal and a current bank account are obligatory for an LLC.4. Profit must be distributed every quarter once. It turns out that it is not possible to use it immediately.5. For LLC accounting and reporting are mandatory.6. The activities of an LLC can be carried out not only on the territory of the Russian Federation, but also abroad. For this, branches and representative offices should be created. The necessary changes must be made in the founding documents.7. Lengthy liquidation process. The time frame can take up to 6 months. Moreover, the liquidation of an LLC is costly in itself. It will be necessary to submit an advertisement in a special edition, pay off debts to creditors, provide employees with severance pay, calculate the interim and liquidation balance.8. For an LLC, it is necessary to come up with a name.9. The patent system of taxation is not available.
What is the difference between sole proprietorship and LLC (table of differences)
There are many differences between an LLC and a sole proprietorship. They are shown in the table below.
IP
OOO
There is no potential for further development as such
There is potential for the future development of the company
If there are debts, the individual entrepreneur is responsible for them with his own property
Less property risk in the presence of debts. If there are debts, only the authorized capital of the founder is taken into account
One owner
There may be multiple owners
No equity in the business
Shares in the business will be distributed among partners in proportion to their participation in the authorized capital
No stamp or bank account required
A seal and a current account are a prerequisite for an LLC
Activities are carried out only in Russia
LLC can conduct its activities both in Russia and abroad
No authorized capital, charter
Authorized capital is required - at least 10 thousand rubles. A statute is also necessary
No establishment agreement required
Establishment agreement required
Fixed tax to the Pension Fund, regardless of whether there was a profit or not
Tax to the Pension Fund is calculated from existing profits
No need to keep tax records
Need to keep tax records
If there are administrative violations, the amount of the fine is not large
Large fine for administrative violations
No workers needed
Must have staff
When calculating personal income tax, losses of previous years are not taken into account
To reduce income tax, you can cover the losses of previous years with this year's profit
Restrictions in areas of activity
No restrictions in areas of activity
You can withdraw revenue without reporting at any time
You can not use the profits at any time at will
Sole Proprietor runs the business independently
An LLC can appoint a director
Closing speed
Long closure
No distribution of dividends
Distribution of dividends quarterly. There is also a 9% tax.
No opportunity to sell IP
You can sell a share
IP is a less solid organization
LLC implies greater solidity
No need to follow the order of conducting cash transactions. Can work with cash
LLC must adhere to the procedure for conducting cash transactions. That is, the proceeds in excess of the established cash limit must be transferred to the bank to the current account
No need to pay property tax, which will be applied in the conduct of business
Tax on property used in the conduct of business must be paid
Registration in a short time
Registration duration
Low registration cost
High cost of registration
No need to legalize equipment
The equipment involved in production must be legalized
Can't attract investors
Can attract investors
Fewer taxes, reduced tax rates
More taxes. Higher rates
IP registration takes place at the place of residence indicated in the passport
Registration takes place at the legal address
An individual entrepreneur can be an employer and employ staff. But he cannot hire himself, draw up a work book
LLC is an employer that hires staff. Moreover, the founders themselves can be employees in their own LLC
What is easier to open, what you need to register LLC and IP
It is much easier to open a sole proprietorship than an LLC. The fact is that opening an IP requires much fewer documents than opening an LLC. The timing also differs. The following documents are required for registration of IP:
passport: original and notarized copy; application for registration certified by a notary; payment of the state fee (receipt of this); certificate of registration with the tax authorities.
Approximate terms that are necessary for registration of IP, 5 days. After the IP has been registered, within 7 days you must independently contact the tax authorities, register. It is also necessary to visit the Pension Fund and bring documents there. It will take more time and fuss to register an LLC. For this, it is not necessary to turn to the help of third-party organizations. You can collect all the necessary documents on your own. First, you should know that you need an authorized capital. True, it can be not only in the form of money, but securities are quite suitable for him or other property. But in this case, it is necessary to involve a third-party specialist - an appraiser. In addition, the consent of other founders is required. In addition to creating an authorized capital, it is necessary to pay a state duty for registration. Other documents are also required, which will contain the following information:
the legal address of the LLC; the number of founders and their passport data; the size of the authorized capital; the distribution of shares between the participants.
In addition, you need to know exactly what activities the LLC will conduct, decide on the taxation system, open a current account and order a seal. A lease agreement is also needed. The approximate time required for all this is about 30 days. Documents must be prepared carefully and responsibly, since if there are errors, both the Tax Inspectorate and the Pension Fund may not accept them. True, there are special services, thanks to which, for a certain amount, you can prepare all the necessary documents, in accordance with the regulations. In order to register an LLC, you need more documents than for an individual entrepreneur:
application with the applicant's signature on state registration of a legal entity. persons (form No. З11001); protocol/agreement on the decision to create a legal entity. persons; constituent package of documents; payment of state duty (receipt). Its cost is higher than with IP - about 4 thousand rubles.
As for taxes, an individual entrepreneur is more profitable in this regard than an LLC. With an individual entrepreneur, there is no restriction on income, as well as the cost of fixed assets under the simplified tax system. For OOO USN, it is available if the income of the enterprise per year amounted to no more than 60,000,000. At the same time, the number of employees is also important, it should not exceed one hundred people. Also, the residual value of fixed assets cannot be less than 100,000,000. True, it should be understood that the numbers may change from time to time. For the functioning of an individual entrepreneur, it is not necessary to hire employees. In such a situation, the IP will have to pay tax on income received from its activities, as well as contributions to the Pension Fund and FFOMS. Employees are required for an LLC. Therefore, it will be necessary to pay not only tax on the profits received, but also insurance premiums to the Funds. Their amount is calculated based on the accrued wages of employees. An LLC will need to pay at least 34% of such insurance premiums. There is a difference between an LLC and an individual entrepreneur in the number of declarations that must be submitted to the relevant authorities. For example, an individual entrepreneur must submit a declaration for personal income tax once a year. An LLC, on the other hand, must submit an income tax return once a quarter. Individual entrepreneurs must pay to the Pension Fund 18 6111, FOMS - 3650. These taxes are mandatory. True, they can be paid either immediately or divided into quarters. If the income of an individual entrepreneur is more than 300 thousand, then the entrepreneur must pay 1% of the total profit, including 300 thousand rubles. In addition, there is a need to pay a tax on the income of an individual in the amount of 13%. As for the LLC, the amount of income tax that must be paid is 20%. The founders must pay 13% tax on their profits.
Does the type of activity matter when choosing an individual entrepreneur or LLC
It has, since there are a number of restrictions. If you plan to create a large business, then it is best to register an LLC. Many individual entrepreneurs, planning to reach a new level of their activities and expanding their scale, liquidate their individual entrepreneurs in order to create an LLC. Thanks to the LLC and its full-fledged personnel policy, it is possible to attract the necessary specialists, which will affect the entire activity of the company as a whole. what to choose: LLC or individual entrepreneur, you should know about the restrictions on types of business. So, individual entrepreneurs cannot engage in the production / sale of alcoholic beverages, operate pawnshops, tour operators, engage in insurance and banking activities. The production of medicines, weapons, aircraft and pyrotechnics is also prohibited. If you plan to open a business related to these areas, you will have to register an LLC. So which is better: an individual entrepreneur or an LLC? Everyone should decide this on their own, taking into account the advantages and disadvantages of these forms of business, their features. It is also necessary to take into account what volumes are expected in the future business, the type of its activity and other factors. Only after weighing the pros and cons of one and the other forms of business, it is worth making a final decision: what to open an LLC or an individual entrepreneur in order not to take unnecessary actions.
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