What is better to open when creating a business: individual entrepreneur or LLC to provide services?

Starting your own business is considered a serious business that requires deliberate decision making. One of the questions that beginners ask in this business is what is better to open when creating a business: an individual entrepreneur or an LLC to provide services?

The main choice businessmen make is between these two forms of business. After all, other forms are either too complicated (OJSC), or are not yet widespread everywhere (partnerships).

Therefore, entrepreneurs choose 1 of 2 options: Individual entrepreneurship or Limited Liability Company. The result of further business conduct directly depends on this choice.

What is better to open when providing services: individual entrepreneur or LLC?

When opening a small business, many citizens of the Russian Federation are wondering what is better to do - to open an LLC or individual entrepreneur, what are the advantages and disadvantages of such forms of ownership.

IP advantages

The main advantages of this form of ownership are as follows:

• the presence of a small number of reports. The reporting of an individual entrepreneur is less than that of a Limited Liability Company;
• you can write off all the fees that the businessman pays for himself. If a businessman works alone, then the financial authorities of the Russian Federation pay his personal contributions.

• the patent tax system (PSN) can be applied. Only an individual entrepreneur can use the PSN;
• an entrepreneur uses a reduced rate of personal income tax (Personal Income Tax) in the General Tax System.

Under the general tax system, an entrepreneur pays personal income tax at a rate of 13%, and a limited liability company - 20%;

• the amount of penalties for an individual entrepreneur is much less than for such a Company;
• low registration cost. The amount of the state duty for registration is 800 rubles;
• package of documents for registration. The list of business papers for registration includes a small number of documents that do not need to be notarized.

In addition, an individual entrepreneur can independently dispose of the income received - to use the proceeds for personal needs.
However, in an LLC, the organization's income can only be spent on justified purposes. In this case, a businessman, being the founder of this organization, can receive dividends.

The head of the organization can pay himself dividends 1 time per quarter - upon receipt of net profit according to the information from the accounting records. An entrepreneur pays 13% of personal income tax from dividends.

This form of ownership has several disadvantages:

• image loss. Although an individual entrepreneur has all the rights of a legal entity, enterprises try not to sign contracts with him.

It is believed that it is safer to cooperate with an LLC. After all, a limited liability company is created when doing large business;

• property risks. A businessman can legally lose all his property. For example, if he becomes bankrupt, then bailiffs can confiscate his car, garage building, TV, etc.

Doing business in most cases involves great risks. When bailiffs come to a businessman, he laments that he did not create a Limited Liability Company in a timely manner.

LLC advantages

A limited liability company has such advantages as:

• image. Currently, various companies prefer to conclude transactions not with an individual entrepreneur, but with such an organization;
• material risk and loss of authorized capital. At the same time, a businessman in some situations, in addition to such capital, may lose his own property.

However, the size of the share capital of the Limited Liability Company is 10,000 rubles, and this organization has no property. In this case, a businessman can lose in bankruptcy only funds from the authorized capital;

• there are many founders. When creating such a Society, a partnership agreement is signed by several people. They have a certain share in the business and have equal rights in it. At the same time, none of the partners can deceive the other, which ensures the protection of the legal rights of each of the members of the organization.

An individual entrepreneur also has such legal protection, but his partners do not have all the rights.

Disadvantages of a limited liability company

Such an organization has such disadvantages as:

• a large number of reports. There are more reports of such Societies than those of individual entrepreneurs.

In most cases, when opening a limited liability company, an entrepreneur is forced to hire an economist-accountant, because the director physically does not have time to keep all the accounting records. At the same time, the organization incurs many additional costs;

• registration cost. The size of the state fee for registration is 4000 rubles;
• number of documents. The package of business papers for the registration of such a Company is significantly larger than that of an individual entrepreneur. The registration application must be notarized, which leads to additional costs;
• the amount of the contributed capital set upon registration. When registering a limited liability company, it is necessary to contribute 10,000 rubles to the authorized capital of the organization;
• the amount of fines. A limited liability company has more penalties than an individual entrepreneur. Moreover, penalties are imposed on the head of the organization.

Different consequences

Any business, regardless of what form of ownership it has, is closed over time. And not always because of bankruptcy, but for example, when opening a new business. To do this, it is necessary to close the Individual Entrepreneurship or to engage in the liquidation of a Limited Liability Company.

These procedures are essentially the same, however, the liquidation of a Limited Liability Company is longer than the closure of an individual entrepreneur. However, the presence of debts from individual entrepreneurs increases the term for closing the organization.

The emergence of debt and the beginning of the bankruptcy procedure, leads to the fact that when paying off debts to creditors, a limited liability company and an individual entrepreneur expose their property.

However, in this case, the entrepreneur loses not only the property of the enterprise, but also his own - a microwave oven, TV and other luxury items.

It is because of this factor that many newcomers to doing business are wondering how to close individual entrepreneurship and create a limited liability company. It is better to solve this problem in a short time.

As an individual entrepreneur, a businessman can create a limited liability company. In the future, a businessman may close his status.

Also, the business is divided into several types of activities:

• provision of services. If a businessman decides to provide services, then he immediately needs to register an individual entrepreneur;
• conducting trade. If a novice entrepreneur wants to engage in retail trade in a store, then it is better for him to open an Individual Entrepreneurship.

However, if, in addition to working in a store, a businessman will supply goods to various organizations, take part in auctions, then it is better to open a Limited Liability Company.

Individual entrepreneurship is the start of a small business. At the same time, a businessman is considered an individual, but has all the functions of a legal entity.

If a businessman wants to provide services to individuals, then it is better for him to become an individual entrepreneur, and he can easily do business. In particular, in order to engage in the sale of alcoholic beverages, during registration, you can specify only the address of the permanent registration of a businessman.

However, the managers of the LLC need to indicate the real legal address. In addition, the Limited Liability Company must have its own seal.

A businessman can close or open an individual entrepreneur for 5 days. And for an LLC, this procedure takes many months.

Restrictions on certain types of activities

Individual entrepreneurs are not allowed to engage in such activities:

• production and sale of alcoholic beverages (with the exception of beer drinks);
• provide banking services;
• work as a tour operator;
• manufacturing of medicines, etc.

At the same time, by registering a Limited Liability Company, a businessman can conduct any business.

As a result, a businessman can choose both an LLC and an individual entrepreneur.

It is not possible to say unequivocally which of these 2 forms of ownership is better to choose when providing services.

Each businessman makes a choice of the most acceptable option for himself, in which all the specifics of doing business will be better reflected.

It is better for a beginner in business to independently choose one of the above 2 forms of ownership, because in the future he will need to make not the easiest and most responsible decisions.

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