What is better to open - IP or LLC?
Having a promising business idea in the future can become the foundation for starting and developing your own business and achieving financial independence. The main point is the choice of a specific form for the implementation of the business.
Definition of concepts
In practice, it has been proven that individual entrepreneurs and LLCs, among many positions of the organizational and legal form, are more convenient and popular.
Before choosing between these two forms of business, it is necessary to understand what they are and what features IP and LLC have.
LLC is a legal entity that carries out commercial activities. The constituent document of this organization is the charter. An LLC has 1 or more founders, each of which has its own share in the LLC. The number and composition of owners may change over time, but this will not affect the operation of the organization and profit.
The organization is liable with its own, and not the personal property of its founders, with the exception of certain cases. For example, if the founder committed fraud.
An individual entrepreneur is not formally considered a legal entity. IP - this is an individual who has received the right to engage in entrepreneurship, including hiring employees. The property and money that were invested in the business remain his property. The IP is responsible for its actions with all its property, even after the closure of the IP.
IP and LLC ̶ is different legal entities, which have dissimilar rights and obligations, and bear different legal (civil, tax, administrative and criminal) responsibilities.
In Russia business registration is quick and easy. A person can obtain the status of an individual entrepreneur in 3 working days by paying 800 rubles for the state. duty. To register an LLC (for three working days), the state is also paid. fee in the amount of 4000 rubles. With the help of free online services or the website of the Federal Tax Service, it becomes possible to quickly prepare documents for opening these forms of business.
Table of differences
IP and LLC, when it comes to primary registration, almost do not differ from each other. Their difference lies in doing business. These organizational and legal forms have both positive and negative sides, after analyzing which, through visual tables, we can draw the appropriate conclusion.
More important
To understand what are the main differences between IP and LLC, you can see the following table.
| IP | OOO |
| Free disposal of personal income (replenishment or withdrawal of money from the current account, etc.). No additional tax is paid upon receipt of profit. | Dividends are taxed (13%) on personal profits. That is, in order to receive income, the owner of the LLC should pay 13% additional tax. |
| He is liable for his obligations with all his property, even when the individual entrepreneur is removed from state registration. | The founders of the company are not liable with their personal property for its obligations, which are subject to termination, in terms of debts. Directors and owners are liable for their illegal actions. |
| Not required to have an accountant. | All companies have an obligation to keep accounting records, regardless of the form of taxation. |
| If an individual entrepreneur does not have his own employees, then he does not submit quarterly reports for them to the IFTS, PFR, FSS. | LLC quarterly submits ERSV and 4-FSS, 2-NDFL, 6-NDFL. |
| IP is issued at the place of residence indicated in his passport data. It can work anywhere on the territory of the Russian Federation. Registration of branches is not required to work in other cities of the country. | Must be registered in other cities. Registration of companies is carried out according to legal. main office address. To carry out work in other cities, registration of branches, representative offices, separate divisions is required. In the case of registering a branch, it loses the right to the simplified tax system, but when registering a division and a representative office, it does not. |
| Things are more complicated with investments and credit. Legally difficult is the description of the plan and commitments. Since it does not keep accounting, the process of tracking the financial situation is complicated. Banks do not provide loans and mortgages, or require a surety bond. IP cannot be pledged in a bank as collateral. | Investments and loans are more accessible. The company is more preferable for investors. It is possible to establish additional obligations in the charter. The LLC and its property can become a pledge for the bank. |
Minor Differences
Below is a table of less important differences between sole proprietorship and LLC.
| IP | OOO |
| Undertakes to pay a certain amount to the Pension Fund of the Russian Federation. In 2018, fixed pension and medical total contributions are 32.385 rubles + 1% of the amount that exceeds income (over 300,000 rubles). The contribution is payable even if no income has been received. | Free idle time of LLC is possible. Many organizations do not pay the director's salary, especially if he is also a founder. In case of downtime, the director goes on vacation at his own expense. It can stand idle for many years and not pay taxes. |
| Settlement accounts are insured. The sum insured is up to 1.4 million rubles. The Deposit Insurance Agency can return this amount within 2 weeks in case of bankruptcy of a businessman or revocation of his license. The bank must be part of the ABS. | Settlement accounts are not insured in case of bank failure. The money can be returned through the general creditor queue. However, this is a complex and unlikely process. |
| Initial fees will not cost so much. When registering, there is no need to have a charter and authorized capital, as well as a seal and a current account. | There are large initial fees, as well as ̶ fees in the future. When registering, you must have a charter, authorized capital in the amount of 10,000 rubles, as well as ̶ stamps from the current account. |
| Many companies are afraid to work not with individual entrepreneurs, considering this cooperation not prestigious and not reliable. | Cooperation with LLC is more preferable and prestigious. |
| Can only engage in the production of beer and beer-containing products. Cannot engage in insurance, banking, etc. | No restrictions. |
| Sale or re-registration is not possible. | You can alienate or re-register an LLC. |
Less Important
| IP | OOO |
| Can choose the patent taxation system, which is an advantageous regime for small businesses. | There is a ban on the choice of this system of taxation. |
| The tax rate for OSNO is 13%. | The personal income tax rate for OSNO is 20%. Sometimes there is a reduction in the specified rate. |
| It is easier to work with cash than to maintain cash discipline. | Should not work in cash. |
| The registration procedure is quite simple. | Complicated registration process. |
| Business is registered for one person. | There can be several founders. |
| The maximum amount of administrative liability is 50,000 rubles. | The maximum amount of administrative liability is 1,000,000 rubles. |
| The liquidation process includes filing an application and paying the state. fees in the amount of 160 rubles. | Complicated liquidation process. The fee is 800 rubles. |
| Not required to record decisions. | Obliged to record decisions, otherwise a fine may be imposed. |
Common for IP and LLC
Despite the above dissimilarity, these forms of business also have common features, for example, the presence:
- Simplified taxation system (STS). Income and income expenses for individual entrepreneurs are 0-6% and 0-15%, and for LLCs ̶ 1-6% and 1-15%.
- Single tax on imputed income (7.5-15%)
For the general taxation system, an individual entrepreneur pays personal income tax in the amount of 13%, an LLC pays the same amount of income tax.
How to make a choice: pros and cons
To make a choice between an individual entrepreneur and an LLC, you can give a good example, in the form of a table, which will indicate the pros and cons of these forms of business.
| IP | OOO | OOO | IP |
| + | — | + | — |
| Simple registration procedure. | Complicated design process. | The founders are not responsible for personal property. | |
| Registration takes place at the place of residence. | Registration of companies is carried out according to legal. main office address. | You can engage in any type of business activity. | |
| No share capital required. | The authorized capital is required to be contributed. | LLC can be alienated and change owners. | IP is not for sale and is not re-registered. |
| Sole business owner. | There may be multiple founders. | If there are no employees, the company does not operate, or no income is received, then taxes and other payments are not paid. | They pay compulsory insurance premiums. If there are employees, other types of taxes are paid. |
| Possibility of free disposal of the received income. | Everything earned by the organization is its property. For this reason, profit can be received either as a salary or as a dividend. | In certain situations, the organization is the only form for cooperation. | Cooperation with individual entrepreneurs is not considered prestigious and reliable by many. |
| You can use all kinds of tax regime. | In addition to PSN, you can use all types of tax regime. | The founders are not responsible for the obligations of the organization. | Responsible for all his property. |
| It is not required to observe cash discipline. | Be sure to observe cash discipline. | You can engage in all types of commercial activities. | It is forbidden to engage in certain types of commercial activities. |
| IP is closed in a simpler and cheaper way. | The liquidation process is complex and expensive. | ||
| Opportunity to work anywhere in Russia. | To work in other regions, you need to issue separate divisions. |
What is better and more profitable
Choice of IP can be beneficial when there is an intention to run a small business.
If there is an intention to create a large business with the participation of several employees, as well as interact with other large organizations or government agencies, then the choice should be on an LLC.
The reason for this is a more trusting and preferable attitude towards companies, compared to individual entrepreneurs. Sometimes both options can be beneficial. For example, if a person wants to enter into business contracts with both an individual entrepreneur and a company.
If preference was given to LLC, then you should seriously consider the choice of potential partners, discussing with them the nuances of joint activities. Despite this, initially you can choose an individual entrepreneur, which is a simpler and more profitable form of business, since the risks of loss are low here.
A video that tells that it is better to open an individual entrepreneur or LLC.
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