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

• 1. What is the difference between IP and LLC?
• • Conclusion
• 7. What to choose LLC or IP - video

1. What is the difference between IP and LLC?

The first and most significant difference of these two forms of ownership is that a Limited Liability Company is a legal entity, and an 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 a business, and also easily withdraw and spend profits at his own discretion.

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

• your legal address, which may, but does not have to, match the registered address of the founder;
• your checking account- is not a personal "purse" of the LLC owner;
• your personal deposit- the authorized capital (UK), formed by the participants in a clubbing. Nevertheless, the Criminal Code cannot be withdrawn and spent for personal needs by any of the co-owners of the Company.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 specific document - an order, an advance report, etc.

We note right away that it is impossible to categorically state that one of the two considered forms of business organization is an absolute good, while the other has a number of obvious disadvantages. Each of them has its 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 relations. The main thing you should pay attention to is the measure of responsibility for obligations to creditors. When choosing a form of ownership in each case, it is necessary to take care of 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 losses of the company only with the authorized capital (). No one will get into your pocket, no matter how much money is in your personal accounts.

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 amount of fines is an order of magnitude higher and is already measured in tens of thousands of rubles.

3. Procedure and conditions for registration

There are also differences in the order of registration. 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 the limitation in the number of companions: there cannot be more than 50 .

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

When registering an LLC, it is already necessary to pay 4,000 rubles, and it is also required to have an authorized capital of at least 10,000 rubles. (it can be thought of as the equivalent of enterprise equipment). Since the UK is paid exclusively to the current account, you will have to spend money on opening it. The amount may be different and depend on the tariffs: each bank offers its own account service cost 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 mandatory for registration as an employer immediately from the moment a legal entity is created, then for an individual entrepreneur a necessary condition is to hire the first employee.

IP or LLC?

4. Contributions, deductions and taxes

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

• Pension Fund,
• Social Security Fund,
• Mandatory health insurance fund.

An organization in the form of an LLC immediately becomes an employer, which means the mandatory payment of taxes both on the wages 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 required to register as an employer. It is enough for him to constantly pay insurance premiums for himself in the FIU.

In 2018, the amounts of fixed insurance payments are determined as follows: 26,545 rubles. for mandatory pension insurance and 5,840 rubles. for compulsory health insurance. In addition, a condition has been introduced: an individual entrepreneur is limited to paying 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 1% of income in excess of this amount to the PFR.

In the matter of applying the taxation system, both individual entrepreneurs and LLCs have the right to choose the one that will ensure the minimum tax burden. Among these "preferential" systems, the most popular are:

• USNO - simplified system of taxation;
• UTII - single tax on imputed income;
• ESHN - similar to the previous system, but created only for those who do business in the production or service of agriculture;
• patent system.

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

5. Disposal of funds

How to manage the proceeds from the results of their 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 are entitled to receive dividends only once a quarter after taxes.

The process of disposing of funds in the accounts of the enterprise is also significantly different. If an individual entrepreneur, after paying all taxes, is free to dispose of it 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 be used 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 possible legal withdrawal of funds from the accounts of the LLC directly to the founders is through the payment of dividends, the amount of which is indicated in the accounting statement.

Geography of activities

The difference between an individual entrepreneur and an LLC also lies in the localization of entrepreneurial activities.

Individual entrepreneurs are given the opportunity to do business 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 case, the entrepreneur is obliged to pay for and obtain a patent in the city/region where he plans to conduct his business.

In the event that an LLC wishes to develop new settlements and regions, it must register the opening of a branch without fail. At the same time, the system of taxation 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 procedure for terminating its activities for the founders of an LLC is indeed more time-consuming and lengthy. It consists of the following chain of steps:

• members of the Society adopt 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. P15001, 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 notice on the termination of the activities of the LLC in the newspaper " Bulletin of state registration". Creditors, if any, can find out about the procedure and deadlines for filing their claims in this message.
• state duty is paid in the amount of 800 rubles. The payment receipt 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.

Conclusion

Thus, having given a detailed explanation of how an LLC differs from an individual entrepreneur, we can draw conclusions. The determining factor in the decision to choose the form of business organization is the set of advantages that the businessman considers more significant in a particular case.