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

Starting your own business is considered a serious undertaking that requires thoughtful decisions to be made. One of the questions that beginners in 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 (JSC) or not yet common everywhere (partnerships).

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

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

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

IP benefits

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

• few reports. The reporting of an individual entrepreneur is less than that of a Limited Liability Company;
• you can write off all the contributions 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 (PST) can be applied. Only an individual entrepreneur can use the PSN;
• the entrepreneur uses a reduced personal income tax (Individual Income Tax) rate on the General Tax System.

On 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 amount of the state duty upon registration 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 dividends to himself once a quarter - upon receipt of net profit according to accounting information. From dividends, the entrepreneur pays 13% personal income tax.

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 more reliable to cooperate with an LLC. After all, a Limited Liability Company is created when conducting a large business;

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

Doing business in most cases is associated with high risks. When bailiffs come to a businessman, he laments 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 conclude transactions not with an individual entrepreneur, but with such an organization;
• significant 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 amount 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 only funds from the authorized capital in bankruptcy;

• 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.

The 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 maintained by such Societies than those of individual entrepreneurs.

In most cases, when opening a Limited Liability Company, an entrepreneur is forced to hire an accountant-economist, 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 amount of the state fee for registration is 4000 rubles;
• the number of documents. The package of business papers when registering such a Company is significantly larger than that of an individual entrepreneur. The application for registration should be notarized, which leads to additional costs;
• the amount of the share capital established during 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. Penalties for a limited liability company are greater than for an individual entrepreneur. Moreover, penalties are imposed on the head of the organization.

Miscellaneous consequences

Any business, regardless of what form of ownership it has, eventually closes. 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 engage in the liquidation of 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 IP. However, the presence of debts of individual entrepreneurs increases the period of closing the organization.

The emergence of debt and the beginning of bankruptcy proceedings lead to the fact that when paying 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, a TV set 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.

Being 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:

• service. If a businessman decides to provide services, then you immediately need 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.

Sole proprietorship 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 you can easily conduct business. In particular, in order to engage in the sale of alcoholic beverages, only the address of the permanent registration of a businessman can be indicated during registration.

However, LLC managers 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 IP within 5 days. And 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 sale of alcoholic beverages (with the exception of beer beverages);
• 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, which will better reflect all the specifics of doing business.

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

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