Which is better: individual entrepreneur or LLC - comparison of two forms of entrepreneurial activity in 5 categories.

IN Russian Federation, and in other countries, before starting a career as a businessman, you must officially register your business.

When it comes to the need to undergo this procedure for the first time, the question arises: Which is better - individual entrepreneur or LLC?

After all, the number of documents that will have to be collected for registration, tax deductions, accounting and many other related issues depends on this.

To make a choice, let’s compare LLC and OP in 5 main categories.

Registration of individual entrepreneurs and LLCs

Before examining all the subtleties in detail, let’s consider a general list of differences between an LLC and an individual entrepreneur.

Where is the best place to register LLC and individual entrepreneur?

In addition to the differences in the points listed above, there are differences even in the place where documents are submitted.

Place of registration of individual entrepreneur

Occurs exclusively at the place of registration of the entrepreneur.

You can find out the necessary data on the website of the Federal Tax Service: https://service.nalog.ru/addrno.do

If you are unable to come in person, you can submit documents remotely: https://www.nalog.ru/rn77/service/gosreg_eldocs

But it will be possible to make the corresponding deductions at the place of actual residence.

Place of registration of LLC

Regarding the place of registration of an LLC, other rules apply, which can also be found on the website tax office: https://www.nalog.ru/rn77/yul/interest/reg_yl/register

There are three ways to solve the address problem:

Renting premises.

For this purpose, the best location is in the city center or in places with good transport links, so that it is more convenient for clients to get to and find the office.

You can, of course, buy office space. But, as practice shows, beginning businessmen cannot afford such luxury.

Ask specialized companies for help.

This method of obtaining a legal address will be much cheaper than buying or renting one.

But the choice of an intermediary company must be approached with all responsibility, because sometimes the addresses they sell are on the blacklist of the Federal Tax Service.

In this case, it will not work, as the application will be rejected.

It is best to seek help from trusted companies, such as business incubators.

Use your home address.

The law does not prohibit doing this, but this step will “bind” you to your place of registration.

That is, Ryazan should be indicated in all documents as the place of registration, but work cannot be carried out in Moscow.

What is better: individual entrepreneur or LLC: comparing “areas of responsibility”

Among the facts why an LLC is better than an individual entrepreneur, first of all, they call the lack of liability for own property.

What does this mean?

An individual entrepreneur, if suddenly a business goes bankrupt, is responsible for the existing real estate, car, dacha, that is, for all acquired personal property.

That is, by becoming an individual entrepreneur, you designate all your own property as the material capital of the company;

But the LLC is responsible only with the funds of the enterprise that were initially invested in the business.

This financial reserve is called Authorized Capital.

Its size may vary, but not less than 10 thousand rubles.

But not everything is as simple as it seems at first glance.

When registering an LLC, the owners automatically undertake not only legal responsibility, but also physical.

When it comes to this issue, they often imply only legal liability - indicated by law and indicated above.

But if for some reason the LLC failed to repay the loan to the bank or owed money to partners, and the authorized capital did not allow it to cover the debt, then the payment obligations fall on the founders of the company.

So you shouldn’t expect that you can “accrue” millions in debt, calmly declare yourself bankrupt and go on indefinite leave.

Are there exceptions to the rule?

Even with huge debts, according to the legislation of the Russian Federation, there is a list of possessions that are not subject to seizure from individual entrepreneurs.

For example, this could be a single apartment or land area.
You can view all options on the website http://ogpkrf.ru/st446

Which is better, LLC or individual entrepreneur: comparing taxation and deductions

The tax payment system is one of the key aspects of doing business, so novice entrepreneurs are interested in the question of which form of deductions is most profitable, and whether there is a difference in tax deductions for LLCs and individual entrepreneurs.

Who pays and how much?

Regardless of how much profit the individual entrepreneur receives, the founder must make annual contributions to the Russian Pension Fund.

For 2017, this amount is 27,900 rubles.

Such a set payment is considered a disadvantage of individual entrepreneurship compared to an LLC (because the latter can “stand idle” without any deductions, for free).

But if you consider that this is a one-time amount for the year, then this is a small minus.

But the individual entrepreneur can safely spend all the funds he earns at his own discretion, without making additional deductions.

An LLC does not have such a privilege - all movements of money are displayed in accounting reports, and from each profit 13% is sent to the state treasury.

5 tax systems in the Russian Federation

All 5 existing species taxation are equally “workable” for both individual entrepreneurs and LLCs (except for PSN).

This list includes:

As you understand, when choosing which is better - an LLC or an individual entrepreneur, the tax system matters only when you need a patent option for deductions.

In other cases, the choice of taxation type occurs after the fact.

A nice bonus for readers - comparative characteristics main 4 systems:

What is better to open - an individual entrepreneur or an LLC - for certain types of production?

Individual entrepreneurship, unlike an LLC, does not have the right to open a business in the following areas:

• alcohol industry;
• business in the banking sector;
• pawnshops;
• production of medicines;
• investment funds.

An individual entrepreneur does not give the right to obtain licenses. Therefore, sometimes the choice of what is better to open - an individual entrepreneur or an LLC - does not have to be made, because... The state does not provide such an opportunity at all.

What is better to open - an LLC or an individual entrepreneur - to withdraw money?

The purpose of starting a business is to earn money. But before the money is in hand, it must (obviously) be taken out of business.

In this case, an individual entrepreneur has a significant advantage over an LLC.

As an individual entrepreneur, as already mentioned, the money earned is in free use, and you can easily withdraw it from a safe or from a bank account.

But with LLC the situation is a little more complicated. All the money that the company earns, even if there is only one owner in the state, is the property of the enterprise.

How do the founders of an LLC withdraw money?

The output can occur in the following way:

• employee salaries;
• through dividends;
• negotiated loans;
• agreements with third-party entrepreneurs;
• agreements with other companies.

Dividend payments- the only correct system for distributing funds earned by the company among its founders.

Dividends are paid to each founder after all contributions tax service and deducting various fees, that is, this is the company’s net income.

Distribution of earnings of a Limited Liability Company can be made quarterly, semi-annually, or at the end of the year.

The cycle of payments at each enterprise is individual, but most LLCs make them at the end of the year.

Maintaining accounting records for individual entrepreneurs and LLCs

Accounting for individual entrepreneurs

An individual enterprise has the right to keep reports in accordance with the following points:

• if you open a business as an individual entrepreneur, then the founder will have the opportunity to maintain a more simplified form of accounting than for an LLC;
• You don’t have to hire an employee such as an accountant;
• it is possible to use the patent system;
• equipment is not subject to reporting;
• does not require payment of property taxes;
• you can do without a cash register;
• has a fixed contribution to the Pension Fund;
• the debts of the past year are not covered by the profits of the coming year.

Bookkeeping according to LLC form

The LLC must maintain reports in accordance with the following points:

• opening a business under LLC registration means maintaining detailed accounting reports for the tax service;
• It is mandatory to have an accountant on staff;
• does not have access to the patent system;
• It is mandatory to have a cash register and full control over the money in it;
• equipment is registered in the authorized capital;
• it is necessary to pay property taxes;
• the debts of the previous year are covered by the income of the coming year.

What is the main difference between an individual entrepreneur and an LLC?

A representative of a consulting company helps you understand the nuances:

The article discussed in detail the issue What is better to open an individual entrepreneur or LLC?.

In fact, it makes no sense to compare these two forms of registration, because they are completely different.

Before starting a business activity, it is important to understand which organizational and legal form will be more profitable for the business. The scale of responsibility, a number of opportunities and responsibilities depend on the choice.

There is a common opinion that an individual entrepreneur is more suitable for starting a business, micro-business and self-employment, and an LLC for large-scale work and large financial turnover. But it is better to take into account all the conditions in which you will have to conduct your business.

Property liability

The individual entrepreneur is responsible for his financial obligations with all personal property, and liability for debts does not cease throughout his life, even after closure. If debts arise, claims will be made against almost all of the entrepreneur’s property. There is good news: there is a list of property that cannot be taken away from an individual entrepreneur for debts (for example, a single home or a plot of land). This list is given in paragraph 1 of Art. 446 Code of Civil Procedure of the Russian Federation.

LLC founders do not take such risks. They respond only with the amounts deposited in authorized capital- and its size most often is no more than 10,000 rubles. But not everything is so simple: if the LLC cannot pay off its debts on its own, then bankruptcy proceedings begin. During it, the founders’ guilt in bankruptcy can be established, and then financial obligations can pass to the founders and participants of the LLC.

Registration of individual entrepreneurs and LLCs

Individual entrepreneur is registered for one participant. When opening an individual entrepreneur, only four documents are submitted to the Federal Tax Service: an application for registration, a passport, an INN (if any) and a receipt for payment of the state duty. The state duty is 800 rubles. A stamp and a current account are optional for individual entrepreneurs (the cost of printing is from 500 rubles, opening a current account is 1000 rubles).

An LLC can be registered for one person, as well as for a group of up to 50 people. The package of documents for an LLC is significantly larger than that of an individual entrepreneur, the state duty is 4,000 rubles, it is necessary to contribute the authorized capital of at least 10,000 rubles in the first four months after opening. Bank account and stamp are required.

Geography of business

Individual entrepreneur is registered at the place of residence. Suitable for permanent and temporary registration. An entrepreneur can conduct business throughout the country.

LLC registration is tied to the legal address of the head office. This means that the organization needs to purchase or rent non-residential premises. Often, LLC founders use the services of specialized companies and attach their office to a mass address, buy it from a business incubator, or register an office at the director’s place of residence. To work in other cities, you need to register new branches and representative offices.

Activity restrictions

An individual entrepreneur does not have the right to produce and trade alcohol (with the exception of beer), engage in insurance, open banks, pawn shops and investment funds. Cannot be a tour operator, produce or repair aircraft and military equipment, produce medicines, poisons, ammunition, pyrotechnics.

There are no restrictions for LLCs.

Withdrawal of funds

The individual entrepreneur withdraws his personal income from the business whenever he wants, for any purpose, and does not pay additional tax on it.

The founders of the LLC pay 13% on dividends. Dividends can be withdrawn once a quarter; this must be reflected in the accounting and protocols of the LLC.

Contributions to the Pension Fund and Compulsory Medical Insurance

The individual entrepreneur pays contributions towards a future pension to the Pension Fund and contributions to compulsory health insurance. This happens even if the individual entrepreneur does not conduct business (there are exceptions to this rule: conscription into the army, caring for a baby, and a number of other cases). In 2016, the amount of contributions is 23,153.33 rubles + 1% on income over 300 thousand rubles. An individual entrepreneur can deduct the amount of contributions from the calculated tax; this happens in almost all tax regimes.

The LLC does not pay fixed contributions, but transfers insurance contributions to the funds from the director’s salary (about 30% of the salary). Even with the minimum wage, the volume of contributions is almost the same as for an individual entrepreneur. If the director lives without a salary, but only withdraws money in the form of dividends, the Federal Tax Service may show special interest in such LLCs. An organization can reduce the calculated tax by only 50% of the insurance premiums paid.

Tax rates

On the simplified tax system, UTII and unified agricultural tax, tax rates for LLCs and individual entrepreneurs do not differ. IP on common system taxation pays 13% income tax. The patent system is also available to individual entrepreneurs. LLC under the general taxation system pays 20% income tax.

Taxes and payments for employees

Individual entrepreneurs and LLCs pay the same contributions for employees: they retain 13% income tax from employees’ salaries, they transfer insurance contributions to the Pension Fund, the Federal Compulsory Medical Insurance Fund and the Social Insurance Fund - about 30% of the amount issued to the employee.

Tax reporting

Tax reporting is completely determined by the taxation system and does not depend on the organizational and legal form. Individual entrepreneurs and LLCs with the same tax regimes have almost the same reporting. There is a difference in OSNO, where LLCs report on income tax, and individual entrepreneurs report on income tax, and these are different forms of reporting.

Employee reporting

Reporting for employees does not differ between individual entrepreneurs and LLCs. But if an individual entrepreneur has no employees and is not registered as an employer, then he may not submit reports at all, and the LLC is obliged to submit zeros.

Accounting statements

Individual entrepreneurs do not submit financial statements.

LLCs are required to submit accounting reports. But organizations with up to 100 employees and revenue of less than 400 million rubles per year can draw up financial statements in a simplified form.

Cash discipline

Individual entrepreneurs and LLCs that use cash in their activities must comply with the rules cash discipline. For individual entrepreneurs, these rules are much simpler than for LLCs.

Workers' rights

Employees of individual entrepreneurs and LLCs are equally protected by law; the obligations of employers are almost independent of the legal form. The difference lies in the details of registering as an employer:

• An individual entrepreneur is registered after hiring the first employee;
• The LLC is registered as an employer automatically from the very beginning, since it immediately has at least one employee - the general director.

Investments and loans

Individual entrepreneurs are less attractive to investors and lenders.

LLC investments and loans are more accessible. Additional obligations can be specified in the organization’s charter, as well as investors can be included among the co-founders. For banks, an LLC with its property often becomes a guarantee of loan repayment. After all, organizations are required to contribute equipment to the authorized capital, but individual entrepreneurs are not.

Liability and fines

The liability of an LLC is much broader than that of an individual entrepreneur. Fines for the same violations for LLCs are several times higher. In addition, officials of the organization may be held liable. Criminal liability for LLC managers is also much more serious than for individual entrepreneurs.

Closing procedure

Closing an individual entrepreneur is much easier and faster. To do this, you need to have no reporting debts (tax and employee) and pay a state fee of 160 rubles. Then a statement of termination of activity is written to the Federal Tax Service. An individual entrepreneur cannot be sold or re-registered to another person.

The process of liquidating an LLC is more complicated. It is necessary to make a decision on liquidation and convene a liquidation commission headed by a chairman. Then the decision and application for liquidation are sent to the tax office. A notice of liquidation is published in the journal “Bulletin of State Registration”. Creditors are notified. An on-site inspection from the Federal Tax Service is possible. The interim liquidation balance sheet is submitted. A state duty of 800 rubles is paid. The final set of documents is submitted. The entire process takes at least four months. You can change the founders of the LLC or sell it, but for this the company must have a successful business history.

Now we see that you should choose between an individual entrepreneur or an LLC based on plans and conditions. Many entrepreneurs prefer not to make a choice and register individual entrepreneurs and LLCs at the same time in order to solve different business problems using suitable tools.

Kontur.Accounting is a comfortable online service for individual entrepreneurs and LLCs on the simplified tax system, OSNO and UTII. Get acquainted with the capabilities of the service for free for 30 days, keep records, calculate salaries, send reports and benefit from the support of our specialists.

Opening own business is considered a serious matter that requires thoughtful decisions. One of the questions that newcomers to this business ask is what is better to open when creating a business: an individual entrepreneur or an LLC to provide services?

Businessmen make the main choice between these 2 forms of entrepreneurial activity. After all, other forms are either too complex (OJSC) or are not yet common everywhere (partnerships).

Therefore, entrepreneurs choose 1 of 2 options: Individual entrepreneurship or Limited Liability Company. The result of further business 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 wonder what is better to do - open an LLC or individual entrepreneur, what advantages and disadvantages do such forms of ownership have.

Advantages of IP

The main advantages of this form of ownership are the following:

• availability 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 a businessman pays for himself. If a businessman works alone, then the financial authorities of the Russian Federation pay his personal contributions.

• you can apply the patent tax system (PTS). Only an individual entrepreneur can use PSN;
• the entrepreneur uses a reduced rate of personal income tax (personal income tax) on the General tax system.

In 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 cost of registration. The state registration fee is 800 rubles;
• package of documents upon 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 manage the income received - use the proceeds for personal needs.
However, in an LLC, the organization’s income can only be spent on justified purposes. In this case, the businessman, being the founder of this organization, can receive dividends.

The head of the organization can pay himself dividends once a quarter - upon receipt net profit according to accounting information. The entrepreneur pays 13% personal income tax on dividends.

This form of ownership has several disadvantages:

• image losses. 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 more reliable to cooperate with an LLC. After all, a Limited Liability Company is created when running a 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 the fact that he did not create a Limited Liability Company in a timely manner.

Advantages of LLC

A limited liability company has the following advantages:

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

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

• there are many founders. When creating such a Company, 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 member 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 the following disadvantages:

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

In most cases, when opening a Limited Liability Company, an entrepreneur is forced to hire an economist-accountant, because the director does not physically have time to keep all the reports. At the same time, the organization incurs many additional costs;

• registration cost. The state registration fee is 4,000 rubles;
• number of documents. The package of business papers upon registration of such a Company is significantly larger than that of an individual entrepreneur. The application for registration must be notarized, which leads to additional costs;
• the amount of share capital established upon registration. When registering a Limited Liability Company, you must contribute 10,000 rubles to the authorized capital of the organization;
• amount of fines. Penalties for a limited liability company are greater than for an individual entrepreneur. Moreover, penalties are also imposed on the head of the organization.

Different consequences

Any business, regardless of what form of ownership it has, closes 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 liquidate the 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 among individual entrepreneurs increases the period of closure of the organization.

The emergence of debt and the beginning of bankruptcy proceedings leads to the fact that when paying debts to creditors, the Limited Liability Company and the individual entrepreneur expose their property.

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

It is because of this factor that many newcomers to doing business are wondering how to close an individual business 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, the businessman may close his status.

The business is also divided into several types of activities:

• provision of services. If a businessman decides to provide services, then he must immediately 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 the store, the businessman will make deliveries of goods for various organizations, take part in tenders, it is better to open a Limited Liability Company.

Individual entrepreneurship is the start of a small business. In this case, a businessman is considered an individual, but has all the functions of a legal entity.

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

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

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

Restrictions on certain types of activities

Individual entrepreneurs do not have the right to engage in the following types of activities:

• production and sales alcoholic drinks(except for 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 either an LLC or 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, which will better reflect all the specifics of doing business.

It is better for a newcomer to business to independently choose one of the 2 forms of ownership listed above, because in the future he will need to make difficult and responsible decisions.

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