Choosing an organizational and legal form: LLC or sole proprietorship

FOP

TOV

Identification

A sole proprietor is an individual entrepreneur, i.e. a person who has registered as an entrepreneur, realizes his or her ability to work by operating at his or her own risk for profit.

An LLC is a legal entity (organization, company, firm) founded by one or more persons and having a share capital that is divided into shares.

Responsibility

A sole proprietorship is liable to creditors, tax authorities, suppliers, and so on with all its assets.

The founder is liable to the extent of his share in the authorized capital. 

Registration

• A sole proprietor can register independently, without the involvement of lawyers, within a few days.

• No registration costs.

• No authorized capital is required.

• You can register online.

• You need to draw up a charter and minutes, and notarize them. It is better to contact a lawyer to draft the documents.

• Registration takes about a week.

• The authorized capital is required.

• You can register only through a registrar.

Perevagi

• You can keep accounting records on your own, without hiring an accountant.

• You do not need to open a bank account.

• You can withdraw cash from your bank account at any time and spend it on your own needs.

• You can close a sole proprietorship at any time.

• You can choose any free name for your own organization.

• You can sell the business or your own share.

• There are no restrictions on the types of activities.

Disadvantages

• A sole proprietor cannot choose any name for his business, he must use his own surname.

• There are restrictions on the types of activities.

• Businesses cannot be sold or donated.

• In the event of bankruptcy, a sole proprietor is liable with all his property.

• You need a qualified accountant to keep your books.

• Tax authorities are more closely monitoring the activities of LLCs than sole proprietorship.

• You cannot withdraw cash from your bank account at any time. You must confirm the purpose for which the money is being withdrawn.

• Before you can receive dividends, you must pay personal income tax and social security.

• It is difficult to liquidate an enterprise.

Taxation

• Can be a single tax payer (groups 1-4) or choose the general taxation system.

• EH of group 1 - 10% of the subsistence minimum as of January 1 of the current year, paid monthly, regardless of income

• Group 2 EH - 20% of the minimum wage as of January 1 of the current year, paid monthly, regardless of income

• Group 3 STS - 5% of income, non-VAT payer or 3% of income + VAT, paid quarterly.

• On the general system - 18% of personal income tax, 1.5% of social security tax and 22% of unified social contribution on net income

• Can be a single tax payer (only Group 3) or choose the general taxation system.

• Group 3 STS - 5% of income, non-VAT payer or 3% of income + VAT, paid quarterly.

• On the general system - 18% of personal income tax on net income

• Dividends are taxed at 5% personal income tax and 1.5% corporate income tax under the general taxation system.

• Dividends are taxed at 9% personal income tax and 1.5% single tax.