Withdrawing money
All money earned by the individual entrepreneur is his personal money. He can transfer them to his card at any time or withdraw them from the bank.
Money earned by the LLC belongs to the LLC. To receive them, you need to pay dividends no more than once a quarter. Personal income tax of 13% is withheld from dividends.
The director of an LLC needs to be paid a salary every month. Salaries are additionally subject to insurance contributions of about 30 % and personal income tax of 13 %.
Accounting
Individual entrepreneurs do not need to keep accounting records. For all LLCs, accounting is required, and most likely, it cannot be done without the help of an accountant.
Additional reporting
If an entrepreneur does not have employees, then he only submits a declaration under the simplified tax system once a year.
From the very beginning, an LLC has a hired employee - a director, so the LLC additionally submits monthly, quarterly and annual reports to the Pension Fund of the Russian Federation, the Social Insurance Fund and the tax authorities.
Termination of IP activities
To terminate activities as an individual entrepreneur, you need to pay a state fee and submit an application. In just a week, the individual entrepreneur will be excluded from the register.
Liquidation of an LLC is more complicated and takes from 3 to 6 months. To do this, you need to create a liquidation commission, notify creditors of the liquidation, lay off workers, pay them severance pay, submit interim and liquidation balance sheets.
A few more advantages of IP
- The money in the individual entrepreneur’s account is insured by the state in the amount of 1.4 million rubles. ( if the bank loses its license). There are no such guarantees for LLCs.
- An individual entrepreneur can switch to a patent taxation system.
- Individual entrepreneurs are not required to prepare cash documents ( cash book, incoming and outgoing cash orders).
- An individual entrepreneur can operate in any region, regardless of the place of registration.
Disadvantages of IP
Insurance premiums
The main disadvantage of IP is insurance premiums, which must be paid even in the absence of activity. The fixed amount of contributions in 2019 is RUB 36,238. But if the individual entrepreneur does not hired workers, he can completely reduce the tax under the simplified tax system on paid insurance premiums.
Own business always begins with registration. And then the question arises for a novice entrepreneur: which form to prefer in order to avoid unnecessary expenses and risks?
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Selecting a registration form
The choice of ownership form is one of the most important factors in organizing the business of the future enterprise. The possibility of attracting financial resources, the possibility of conducting various forms activities, responsibility for the results of these activities.
Before deciding to choose a form of ownership, you should analyze the following aspects and determine which of them suits you best:
- willingness to assume partial or full property and moral responsibility for conducting business activities;
- willingness to make responsible decisions independently or a preference for working with a team;
- determine the area of business activity in which personal interests belong, social connections, professional skills;
- availability of property or financial resources to start activities;
- the desire to limit oneself to investing property funds or the willingness to personally participate in entrepreneurial activities;
- visibility of your estimated income and accounting forms.
Today in the Russian Federation the most common forms of ownership are individual entrepreneur - individual entrepreneur and LLC - limited liability company.
Advantages and disadvantages of individual entrepreneurs
To carry out activities, choosing such a form of ownership as an individual entrepreneur is very convenient from the point of view of organizing accounting and minimizing taxation.
The form is ideal for small organizations. To register with the tax office, you need to provide a minimum number of documents, and you do not need to contribute money to replenish the authorized fund.
You can open an individual entrepreneur at a low cost with no additional procedures after registration. Profits can be disposed of at your own discretion, but only after taxes have been paid and other obligatory payments have been made. However, if the financial limit is exceeded, the excess will have to be deposited into a bank account.
The advantages of IP include:
- low penalties,
- support from government agencies,
- loyalty of law enforcement agencies and courts.
The advantage of an individual entrepreneur over an LLC is the possibility of using simplified accounting, and a complete refusal to use a cash register.
If problems arise, an entrepreneur can easily close his business.
The main negative point is full moral and property responsibility in case of conflict situations with all personal property. In addition, individual entrepreneur registration can only be done at the place of registration. Individual entrepreneur cannot register certain types of activities.
Video about the benefits of registering an individual entrepreneur
Opening an LLC
The LLC form of ownership is preferable for large enterprises. Responsibility for all obligations is distributed among all persons participating in the creation of this organization.
Registration does not take long and is quite simple. However, to obtain necessary documents You must contribute a certain amount of money for the authorized capital.
Behind financial activities The founders are responsible, the LLC is managed by the director. This form can be chosen by any enterprise, regardless of the type of activity.
Negative aspects are more complex circuit accounting, use of cash registers, high costs of paying taxes. Profits cannot be spent at your own discretion. It goes to pay salaries to employees and dividends to founders.
Withdrawal from the membership of an LLC can lead to a threat to the economic stability of the organization. Cease to exist in in this case It’s not easy, it’s only possible through bankruptcy proceedings.
For whom is business riskier?
The activities of individual entrepreneurs are associated with global risk. An individual entrepreneur, unlike a legal entity, is liable for the obligations assumed with all the property he owns. When conflict situation for debts they can take away your car, apartment, dacha, family jewelry.
An entrepreneur, unlike the owner of an LLC, does not have the opportunity to work incognito. The conclusion of the transaction occurs from own name, and on all documents related to business activities, you must indicate your full name.
Accounting and Accounting
By choosing the form of organizing business activities in the form of a legal entity or in the form of registration of an individual, you receive undoubted advantages and nuances of each of the separately selected methods of organizing business.
Pros and cons of IP
The most significant aspect of an individual entrepreneur’s activity in accounting is the degree of full responsibility of an individual.
There are pros and cons:
- in some cases IP in judicial procedure may challenge the amount of fines issued during accounting. The reason may be the poor financial condition of the entrepreneur’s family;
- The advantage of an individual entrepreneur over an LLC is that the main group of fines for an individual entrepreneur is 10 times lower than for an LLC. This applies to fines for administrative violations.
But, it should be remembered that an individual has all his debts secured by personal property. If the law is violated while doing business, with the risk of accruing huge amounts of fines, then after they are accrued, it is almost impossible to change anything.
Closing an individual entrepreneur does not mean writing off debts. Moreover, collection of tax from an individual through payment Money or through the seizure of personal property does not mean exemption from criminal liability.
For individual entrepreneurs, if taxes are not paid for 3 years in an amount exceeding 100,000 rubles, criminal liability arises.
An entrepreneur, when maintaining accounting records, is obliged to pay a fixed payment to the Pension Fund of Russia, regardless of whether activities were carried out or not.
When doing bookkeeping, an individual entrepreneur must make entries in the ledger of expenses and income. There are a huge number of nuances that accompany writing this book.
Pros and cons of LLC
Based on the results of its activities, the LLC is responsible for the contributions of the organization’s founders. This means that if an organization is unable to pay its debts, then liability for the company’s debts will extend to the extent of the founders’ shares.
This does not apply to cases of deliberate tax evasion. If intent to evade taxes is proven, the participants of the legal entity and its director will face criminal charges. Tax and administrative fines for a legal entity are significantly higher than for an individual.
For an LLC, criminal liability arises if taxes are not paid for a period of 3 years in an amount exceeding 500,000 rubles.
The forms for terminating the activities of an LLC differ from each other. All of them are aimed at making a record of liquidation in the Unified State Register legal entities. The main idea is the termination of debt and tax obligations in relation to the manager and founders.
The LLC does not have any mandatory contributions to Extrabudgetary Funds.
Guide nuances
The management of an individual entrepreneur, just like the management of a law firm, has its own characteristics. Both cases have their positive and negative sides.
Advantages of an entrepreneur
An individual entrepreneur is an ideal way of doing business with the aim of avoiding taxes and dividing on a territorial basis.
Among the obvious advantages:
- the head of the individual entrepreneur is responsible person to their employees. However, if claims arise on their part, the owner of an individual business becomes a real defendant in court;
- the entrepreneur is independently responsible for all business operations;
- An “individual” often does not have to be aware of a number of tax issues.
Management of a legal entity
The head of a legal entity is the sole executive body of a legal entity - a manager who manages its day-to-day activities and is at the same time accountable to the founders. He can be elected from among the members of the organization or be an employee.
The head of a legal entity has the right to act on behalf of the organization without a power of attorney. Or he has the right to instruct another person to perform specific actions.
If the founder is the director of the LLC
The founder is the individual or legal entity on whose initiative the organization was created.
If the founder and director of the LLC are the same person, then he can make sole decisions on the most important issues relating to his enterprise.
For example, he decides on amending the Charter, increasing or decreasing the authorized capital, or liquidating the organization.
Video about the problems of choosing a form of ownership
Comparison table between individual entrepreneurs and LLCs
| Form | Advantages | Flaws |
| Individual entrepreneur registration |
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| LLC registration |
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to obtain the necessary documents, you must deposit a certain amount of money for the authorized capital; |
| Bookkeeping and accounting for individual entrepreneurs |
|
|
| Bookkeeping and accounting for LLC |
|
|
| IP management |
|
|
| LLC management |
|
|
When choosing a form of ownership, you should follow the advice of competent businessmen. However, your own priorities should be the primary parameter.
The pros and cons of an individual entrepreneur can be identified when comparing it with enterprises of other organizational and legal forms. Individual entrepreneur - individual V singular which, at its own peril and risk and at its own expense, carries out activities to create, sell or resell goods for the purpose of making a profit. A citizen of the Russian Federation, a citizen of another state, or a stateless person who has the right to work in Russia and a residence permit can become one.
The first and main difference between an entrepreneur and other enterprises is that he is an individual and not a legal entity. This is both an advantage and a disadvantage of IP. Most often, such businessmen open small shops, kiosks, parking lots, car washes, small cafes, copy centers, watch repair shops, household appliances, studio, etc. They are considered representatives of small businesses.
The advantages of IP are:
- simplicity state registration;
- simplified taxation system;
- work as an entrepreneur is included in the length of service;
- the opportunity to attract workers under employment contracts, to have contractual relations with other businessmen, organizations and institutions;
- the opportunity to obtain loans from banks and cooperatives;
- the opportunity to use your personal property at work.
Disadvantages of IP:
- does not have the right to engage in certain types of activities;
- high property liability;
- if it is necessary to attract co-founders, it is necessary to transform into an LLC, OJSC, CJSC.
U individual entrepreneurship a lot more positive traits than negative ones.
In this case, IP cannot be recognized the best option for doing business.
Advantages and disadvantages of individual entrepreneurs during state registration
A person who wishes to become a businessman must submit the following documents to the tax authorities at the place of permanent or temporary registration:
- application for registration;
- a copy of a passport or other identity document (for non-citizens of the Russian Federation);
- receipt of payment of state duty;
- a copy of the birth certificate or other document containing information about the date and place of birth of the person;
- a copy of documents confirming a residence permit and work permit (not for citizens of the Russian Federation).
After receiving all the documents, the tax authority representative issues the person an acceptance receipt. Within 5 working days, the correctness and authenticity of the documents provided are verified, after which the state registration of the entrepreneur begins. If there is a refusal, a written notice of this is sent to the person.
Compared to registering a legal entity, the advantages of an individual entrepreneur are significant. There is no need for a charter or constituent documents, it is not necessary to have a seal, there is no requirement to open an account and deposit initial capital into it. After receiving a certificate of registration as an individual entrepreneur, you can start working.
An individual entrepreneur pays personal income tax, contributions to the pension fund and social insurance funds, VAT, and personal income tax for employees. Legal entities pay income tax, prepare balance sheets and profit and loss statements. Small businesses have the right to switch to a simplified taxation system (USNO). It replaces personal income tax, VAT, unified social tax, property tax and transport tax used for doing business with a single tax. Pension contributions are not included in the simplified tax system, but are always paid separately. Almost all individual entrepreneurs and small LLCs use the simplified tax system, and large companies do not have the right to switch to it.
Pros and cons of individual entrepreneurship when running a business
A legal entity uses only the property that is on the organization’s balance sheet when operating. An individual entrepreneur can use his personal property, for example, a car for transporting goods, to make a profit. On your own plot of land you can build a store, rent out an apartment or room.
He can choose LLC, JSC, cooperatives, and other individual entrepreneurs as partners. Has the full right to enter into contracts with them on his own behalf. A businessman can hire people to work, draw up and sign employment contracts with them. An entrepreneur is unlikely to be able to work alone. A store needs salespeople, a parking lot needs watchmen, and workshops need repair specialists.
To maintain accounting and personnel records, it is not necessary to have a permanent employee. You can engage one of the many companies that provide services for maintaining such records, and contact them as needed. It's even better to learn how to do it all yourself, it will be cheaper.
The pros and cons of individual entrepreneurs appear when obtaining loans from banks. On the one hand, it is easier for an entrepreneur to obtain a loan, since it is necessary to provide fewer documents than for a legal entity. On the other hand, the organization is able to receive a large amount cash compared to individual entrepreneurs.
Pros and cons of individual entrepreneurship from the point of view of financial responsibility
The capital of business companies is formed from the contributions of the founders, joint stock companies(sales of shares, cooperatives) from participant contributions. When legal entities operate, only the organization’s property is used, but not the personal property of its founders. In the event of financial insolvency, the obligations fall on the organization, but not on its owners. Creditors can only claim the property of the company, while the founders of the debtor will lose only the funds that they invested.
Recourse to the personal property of the manager or owner of a legal entity is possible only if the actions of these persons led to the bankruptcy of the organization.
The individual entrepreneur is liable for his obligations to creditors with all his property. If a businessman becomes financially insolvent, he may lose all his property, including those purchased before starting business. The financial liability of an individual entrepreneur is significant, so its creation is accompanied by risks.
Other advantages and disadvantages of individual entrepreneurs
An individual entrepreneur cannot engage in certain types of activities. These include:
- production and sale of alcohol;
- employment of Russian citizens abroad;
- creation, sale, resale of weapons, explosives, ammunition;
- activities related to aircraft manufacturing and space industry;
- pharmaceuticals;
- private security;
- management of investment and non-state pension funds in the Russian Federation.
Sometimes an entrepreneur needs additional capital to expand. He plans to attract another founder. In this case, it is necessary to close the individual entrepreneur, and instead, an LLC or JSC is created. An individual entrepreneur is one individual, and any legal entity is at least two founders. The individual entrepreneur loses the ability to make decisions independently, but at the same time receives additional features for development.
When it comes to the difference between an LLC and an individual entrepreneur, the pros and cons of these two organizational and legal forms are the first to catch your eye. We present to your attention a conversation withElena Maksimenko, tax consultant, author of a number of publications on the topics of registration and taxation of individual entrepreneurs. The conversation in the article is about the pros and cons of individual entrepreneurs as an organizational and legal form in comparison with LLCs and the problems of individual entrepreneurs in initial period business formation.
— Elena, you’ve been in the know for quite a long time, and you probably know everything pros and cons of IP . Could you tell our users about the pitfalls of individual entrepreneurs, as well as the prospects that open up for individual entrepreneurs?
To answer this question, I, first of all, want to identify the most important, radical, fundamental difference that determines all further development of the business. An individual entrepreneur is an individual whom the state has allowed to earn money independently, without the need to get a job in any organization.
Accordingly, all norms and regulations defined by law consider an individual entrepreneur only as an individual with inherent rights and obligations. But an LLC is a legal entity; it can function without its founders, that is, it has its own legal capacity. This is where the first stumbling block arises - about the responsibility of the future businessman.
Not very savvy legal issues citizens argue that registering an individual entrepreneur means, literally, the risk of “being left without pants” in the event of business failure, while by creating an LLC, you do not risk your own pants, and you can only lose the property of the company. Of course, the property risks of an individual entrepreneur are higher, there is no point in arguing with this, but it is also impossible to say that “I opened an LLC and sleep well.”
The founders of an LLC may be held vicariously liable if the company does not have enough of its own property to pay off its debts. If the founder’s guilt is proven in court, he will also bear property liability within the limits of the law.
— That is, from your words it follows that you can open both an individual entrepreneur and an LLC with the same degree of risk. Then let's focus on one form and consider only the pros and cons of opening an individual entrepreneur.
Advantages of individual entrepreneurs: advantages of entrepreneurial activity
Yes, let's go in order. In general, I recommend that budding entrepreneurs When creating an individual entrepreneur, enter the pros and cons in two opposite columns of the table, so that you can then sit down and calmly analyze your situation. So, what would I consider an absolute plus? Firstly, these are registration and liquidation procedures.
A minimum of documents is required - passport, etc. The state duty is very small, only 800 rubles, and authorized capital are also not needed. It is enough to submit an application to the tax office and pay the state fee for closing (160 rubles). Within 5 days the deregistration procedure will be completed.
Secondly, individual entrepreneurs do not keep accounting; an individual entrepreneur can maintain all his documentation independently and there is no need to attract an additional paid specialist.
Thirdly, all tax regimes are available to individual entrepreneurs, and it is possible to choose exactly the option that is most profitable in a certain region for a certain period of time. Plus, the personal income tax rate is lower than the income tax of an LLC (13% and 20%, respectively). Well, in case of violations, the fines for individual entrepreneurs are much less.
— Elena, in general, how much money do you need to open an individual entrepreneur? Are there any estimates regarding the starting amount in a business plan for an individual entrepreneur?
Everything is very individual. If an entrepreneur has carefully calculated the potential expenses, has not forgotten about taxes and insurance premiums, and has adequately assessed the possible profit, then he can start with 3-5 thousand rubles to pay the state duty, if necessary, to make the first payments to the insurance funds. A lot here depends on the type of activity, and the starting capital can vary hundreds of times.
Disadvantages of entrepreneurial activity: pitfalls of opening an individual entrepreneur
- Let's now move on to another column in our table. What can you say about the difficulties of individual entrepreneurs?
No matter how banal it may sound, but the most big problems for individual entrepreneurs arise from their own actions or inaction, from ignorance of the laws and unfounded hopes for “maybe”. Of course, our country has not created the most favorable conditions for the development of small businesses, there are conflicts in legislation, conflicts with local authorities, etc., but... I will give a few examples of what not to do.
- Entrepreneur A. opened an individual entrepreneur, did not conduct business, but did not close it either. I forgot about the mandatory payment of insurance contributions to the funds. As a result, over several years, a decent amount of debt and fines accumulated, which A. is obliged to pay to the state.
- Entrepreneur N. acquired a patent for home renovation, hired several teams of workers, but did not take into account that in the patent system the number of workers is limited to 15 people. The result is the loss of the patent.
- Entrepreneur E. was engaged in trading activities, including selling beer. Then he decided to acquire a mini-brewery and also sell his own variety, thereby flagrantly violating the law prohibiting the production of beer (any alcohol) by individual entrepreneurs.
Unfortunately, there are a lot of such cases, and entrepreneurs can only blame themselves.
The objective disadvantages of individual entrepreneurs relate rather to the image component of the business and to opportunities in terms of expansion and development. Individual entrepreneurs are limited by type of activity; there is a patent taxation regime top bar by income. Take A loan for an individual entrepreneur is more difficult than for a legal entity. In addition, to date, injustice in relations between individual entrepreneurs and Pension Fund, when an individual entrepreneur who has paid contributions in good faith can only count on a minimum pension.
Generally speaking, the topic of the advantages and disadvantages of individual entrepreneurs is endless. We can discuss various situations for a long time, compare, analyze, but I repeat once again that the success of any entrepreneur does not depend on the organizational and legal form of the enterprise, but on a competent approach to business and knowledge of the regulatory framework.
Advantages and disadvantages of individual entrepreneurs updated: November 17, 2017 by: Everything for individual entrepreneurs
Every Russian citizen who is legally capable can exercise entrepreneurial activity. Moreover, such a right arises only after state registration and receipt of the appropriate status. The procedure for registration as a subject of economic relations is quite simple and will not require significant material or time costs from an individual. However, before deciding to register as an entrepreneur, each person should evaluate the pros and cons of an individual entrepreneur.
Creation of an individual entrepreneur
For all citizens who have decided to register as an individual entrepreneur, domestic legislative acts establish a uniform registration procedure, which consists of:
- filling out an application on form No. 21001;
- payment of 800 rubles state duty;
- Submitting a package of documents to the tax office.
The undeniable advantages of individual entrepreneurs compared to the creation of legal entities are:
- simplified registration procedure;
- lower state duty;
- smaller package of documents.
The registration of an entrepreneur is completed by entering data about him into the Unified State Register of Entrepreneurs and issuing a registration sheet to the newly formed individual entrepreneur in form No. 60009.
Pros and cons of an individual entrepreneur
As mentioned above, the main and undeniable advantage of an individual having the status of an entrepreneur is the ability to carry out economic activity.
Without appropriate registration, a citizen engaged in commerce violates the requirements of domestic rule-making acts. Responsibility for the described offense is provided for in Art. 14.1 of the Code of Administrative Offenses of the Russian Federation in the form of a fine from 500 to 2000 rubles.
The next advantage of an individual entrepreneur is the ability to hire employees.
Another advantage of an individual entrepreneur is that all funds become the property of the citizen. The entrepreneur has the right to dispose of the received amounts at his own discretion. To do this, he does not need to perform any special actions.
Also, individual entrepreneurs, unlike legal entities, are exempt from mandatory accounting. Every entrepreneur can have an accountant, but only if he considers his presence necessary.
An undeniable advantage of an individual entrepreneur is a lower degree of administrative liability for committing relevant offenses. According to the existing Code of Administrative Offenses of the Russian Federation, the possible penalty for legal entities is significantly higher.
In addition to all of the above, every entrepreneur can terminate his commercial activities at any time. To do this, it is enough to send an application to the tax office on form No. 26001. This circumstance refers to the unconditional advantages of individual entrepreneurs.
Concluding the description positive points, it should be noted that only an individual entrepreneur has the right to apply the patent taxation system.
It should be remembered that domestic regulations of rule-making acts also provide for some negative aspects in having the status of an individual entrepreneur.
The main disadvantage of registering as an entrepreneur is the need to pay annual fees. At the same time, even if commercial activity is not maintained at all and there is no income, contributions to the funds will have to be made.
In addition, unlike legal entities, a citizen is liable for the obligations of an individual entrepreneur personally and with all his property. Even the loss of entrepreneur status does not relieve an individual from obligations that arose during the relevant period.
It is important to consider that a whole list of activities is not available to individual entrepreneurs, namely:
- security;
- sale and production of alcohol.
No entrepreneur can reorganize, divide or sell his business, as well as hire a director.
In conclusion, it should be noted that the above list of positive and negative aspects is not exhaustive and directly depends on specific circumstances. Therefore, every person considering options for their activities should carefully study the pros and cons of opening an individual entrepreneur and make an informed decision based on their goals and objectives.
