Comparison of IP and LLC: taxes, reporting, fines

2024 Author: Howard Calhoun | [email protected]. Last modified: 2024-01-17 18:37

The sphere of entrepreneurship is understood as an independent activity that is carried out taking into account risk and is aimed at making a profit when using property. Activities are registered in the prescribed manner. Not always from the very beginning the business owner can decide on the organizational form of the future company. The owner is forced to compare IP and LLC. In order to make the right decision, it is necessary to compare both of these forms, to identify the pros and cons of each of them. As part of this article, we compare individual entrepreneurs and LLCs according to various criteria.

A very important point is the choice between an LLC and an individual entrepreneur, since the list of documents provided, tax reporting forms and the amount of fines depends on this.

In the framework of this article, we will answer the question of what is the difference between an individual entrepreneur and an LLC. The advantages and disadvantages of these forms will be discussed in detail.

IP: general idea

IP should be understood as a form of doing business in which management is carried out solely.

In turn, individual entrepreneurship is an initiative activity of citizens, which is aimed atreceiving income based on the property of the citizens themselves and carried out on behalf of the individual at his risk and property responsibility.

The current legislation allows you to engage in entrepreneurship in the status of an individual entrepreneur, which can be:

• citizens of the Russian Federation who have reached the age of majority;
• foreigners who temporarily or permanently reside in our state.

It should be noted that both state and municipal employees cannot act as individual entrepreneurs.

Individual entrepreneurship has many economic advantages and disadvantages compared to other economic and legal business models currently being implemented. First of all, one should note such a feature of their activities as flexibility and mobility in narrow market segments. Consider the main differences between IP and LLC, the pros and cons of each of the forms.

IP Benefits

Among the main benefits are:

• Easy registration on your own without involving third-party specialists and paying them fees.
• You do not need to form and enter the Criminal Code.
• No need to carry out strict cash accounting, all procedures are quite simplified.
• It is not necessary to hire and pay an accountant. Alternatively, outsourcing can be used.
• Lower tax burden, no additional taxes.
• Tax audits less frequent.
• Ability to apply the patent system.
• All the money I madeIP, you can easily withdraw from the account for your needs.
• All decisions regarding the activities of the IP can be made independently.
• The liquidation procedure is simple and fast: the state duty is paid and an application is filled out.

It turns out that the Russian legislator does not impose any requirements on the property status of an individual entrepreneur. As a consequence of this, we consider the natural reaction of market participants - the widespread practice of completely excluding individual entrepreneurs from the circle of possible counterparties of most large national commercial organizations and almost all foreign ones, as well as the increased requirements for other participants in economic activity compared to commercial organizations to ensure their obligations. This also explains the reluctance to provide large loans and other de facto restrictions.

IP: disadvantages

However, IP has certain disadvantages:

• Financial responsibility is very high, since in case of bankruptcy, the individual entrepreneur himself is liable for debts to the budget and creditors with his property.
• The contribution for mandatory social insurance payments is stable and is set at a single amount for the whole year. Required to pay, regardless of whetherwhether business is being done or not.
• Cannot add co-founders and investors for expansion.
• For large investors, an unattractive form of OPF that does not inspire confidence.
• Cannot be reissued or sold.
• When applying the OSNO, the need to pay personal income tax of 13% also remains, losses from previous periods are not taken into account.

OOO: general idea

A limited liability company (LLC) is a commercial company that can be established by one or more persons (unless the rules state otherwise). It is created for every legally permitted purpose, most often for commercial purposes, but also for charitable purposes.

The main steps in forming an LLC include:

• conclusion of the contract;
• shareholder contribution to equity;
• appointment of board;
• creation of a supervisory board or audit commission;
• registry entry.

Share capital must be contributed to the company by the founders prior to its registration. It can be formed at the expense of cash, as well as non-cash contributions.

LLC is organized by an individual, a legal entity. However, this company cannot be established by another LLC company.

Shareholders are not liable for the obligations of the company with their personal assets. They have equal rights and obligations, unless otherwise provided by law or charter.

Obligations of founders:

• obligation to contribute to the Criminal Code;
• commitmentcompensate for the missing value of the contribution in kind;
• commitment to make additional payments on shares.

OOO Benefits

Among the main advantages of an LLC are:

• personal liability of the founders is low;
• not only finances and money can be invested in the UK, but also OS objects, material values;
• can be reissued or sold;
• is attractive to investors;
• there is no upper limit in the Criminal Code;
• opportunity to cooperate with foreign partners as investors;
• it is possible to attract new founders at any stage;
• managing director may be the CEO, who is not necessarily the founder;
• no taxes paid on losses;
• it is possible to cover the losses of previous years with current profit;
• profit can be distributed arbitrarily.

OOO: disadvantages

Among the significant disadvantages of LLC are:

• mandatory bookkeeping with the involvement of an accountant;
• registration process is quite complicated and consists of several stages;
• there can be no more than 50 founders;
• cash discipline is very strict;
• the document management system is strictly regulated;
• fines are very high;
• all employees are responsible within their position;
• it is not possible to freely withdraw income from circulation;
• procedureclosing and liquidation is complex and consists of several stages.

Comparison chart

The table below shows the differences between sole proprietorship and LLC.

IP	OOO
Simple procedure for registration with three documents: passport, application and state duty (800 rubles)	Complicated registration procedure for the collection of documents and the amount of state duty
Business is indivisible, the ability to manage it independently	As part of the possibility of having several founders, each is responsible in the amount of the contribution to the Criminal Code
No need for CC, checking account and printing	Need UK (at least 10 tr.), seal, current account, Charter
Register and report at the place of residence	Register at any address in Russia
Not all types of activities can be engaged in (for example, an individual entrepreneur cannot participate in insurance, banking, tour operator activities)	No restrictions on types of management
No need to hire an accountant. It is NOT necessary to keep cash records, reporting is minimal	Need an accountant to keep records
Responsible with his property, even after liquidation	Responds only within the CC
Low amountsfines	High fines
Application of simplified tax schemes	Tougher taxation system, founders pay 13% of income
Low reputation	Reputation can be high
Ease of opening branches	Branch registration required
Withdrawing money has a simple scheme	Difficult to withdraw money
Cannot sell, buy	You can sell, buy
Application of the patent system	The patent system cannot be used
Difficulties in expanding business through investment	You can attract investors and investments
Documentation for all business activities is not required	Strict control and accounting of all economic activities
Easy closing procedure	Complicated liquidation procedure

From the above table it becomes clear that there is a big difference between the described organizational forms. Therefore, you need to carefully consider all the nuances before choosing a particular form of doing business.

Insurance payments for individual entrepreneurs: benefit or disadvantage?

It is assumed thatAn individual entrepreneur in this regard loses to an LLC, since it has an obligation to pay fixed insurance payments to the FIU. If an individual entrepreneur works without employees, then payments are made annually to the PFR in the amount of 29,354 rubles, in compulsory medical insurance - 6,884 rubles. If an individual entrepreneur has employees, then it is also necessary to pay insurance premiums for them in the amount of 30% of wages.

A significant disadvantage is the fact that these payments must be made in any form of activity, regardless of whether the enterprise operates or not, it is profitable or not.

A big plus is the fact that the amount of tax, for example, with UTII can be completely reduced by the amount of payments made, but only in a situation where the individual entrepreneur does not have employees for hire. If there are employees, the tax amount is reduced by no more than 50% of the calculated value.

Payments and taxes for employees

Let's consider the differences in the taxation of individual entrepreneurs and LLCs in relation to employees.

There is no difference in the payment of tax payments for employees of sole proprietorships and limited liability companies. All companies, regardless of the form of ownership, must transfer insurance payments to extra-budgetary funds (30% of the salary paid to the employee). It is also necessary to pay income tax (personal income tax) from employees in the amount of 13%.

This fact significantly increases the commercial burden, because small businesses bypass the official employment of employees, for example, through employment contracts with contractors.

Tax systems

Let's consider the differences between the taxation of IP and LLC. There are the following exemption systems for these forms:

• USN in different versions.
• UTII.
• ESKhN.
• Patent system for IP only.
• BAS.

Each of the listed systems has its advantages, features and disadvantages.

When considering the taxes of LLC and individual entrepreneurs in comparison, it can be noted that there are no significant differences between them. However, for individual entrepreneurs it is possible to apply the patent system, but for LLC it is excluded. The main rule for both LLCs and individual entrepreneurs is that immediately after registering a company, it is necessary to declare the chosen taxation system. Otherwise, we will apply BASIC.

The table below shows the characteristics of individual entrepreneurs and LLCs in comparison of taxation systems.

System	Object	For IP	For OOO
USN 6%	Income at a rate of 6%	Replacement of personal income tax, property tax and VAT. The number of employees is not more than 100 people, the income is less than 60 million rubles. per year	Replacement of VAT, income tax and property tax Accounting and KUDiR are required
USN 15%	Income minus expenses at the rate of 15%	Replacement of personal income tax, property tax and VAT You need to fill out KUDiR with confirmationoperations Number of employees no more than 100 people, income less than 60 million rubles. per year	Exemption from all types of taxes Accounting and KUDiR are required
UTII	Potential possible income by type of activity Bet 15%	Real income is not important. Expenses do not require confirmation. Replacement of personal income tax, VAT and other taxes	Exemption from all types of taxes Accounting must be kept
ECHN	Income minus expenses Bet 6 %	Vesti KUDiR. Replacement of personal income tax, VAT and other taxes	Exemption from all types of taxes
Patent	Potential annual income Bet 6 %	Number of employees up to 15 people, income not higher than 60 million rubles.	Not applicable

A study of the taxes of LLCs and individual entrepreneurs in comparison with each other revealed the fact that there are no significant differences.

Reporting of individual entrepreneurs and LLCs

Reporting of individual entrepreneurs and LLCs and a comparison of forms of activity among themselves allows us to highlight the following features:

• tax reporting (declarations and KUDiR) depend on the tax system, but not on the form of business;
• reporting on employees for individual entrepreneurs and LLCs is similar (in this case, if there are no employees in the individual entrepreneur, then no reporting is submitted at all).

At the same time, small organizations with no more than 100 employees and revenues of less than 400 million rubles a year have the right to apply accounting in a simplified form, and reporting will also be simplified.

Individual entrepreneurs and LLCs using cash in their work must comply with the rules of cash discipline (it should be noted that for individual entrepreneurs these rules are much easier than for LLCs).

The table shows a comparison of individual entrepreneurs and LLCs by reporting forms in accordance with the selected taxation system. The terms for different types of OPF are also indicated separately.

Tax regime	Reporting for IP	Reporting LLC	Term for IP	Term for OOO
LLC and IP on the simplified tax system: comparison of reporting forms	Declaration of the USN	Declaration of the USN	Until 30.04.	No later than March 31
UTII	UTII declaration	UTII declaration	Until the 20th day after the reporting month	Until the 20th day after the reporting month
ECHN	ECHN declaration	ECHN declaration	No later than March 31st	No later than March 31st
Patent system	Not served	Not applicable	-	-
BASIC	3-NDFL	Income tax return	No later than 30.04	No later than the 28th day after the reporting quarter, no later than March 28th for the year
4-personal income tax	Property tax return	No later than 5 days after the reporting month of receipt of income	No later than March 30
VAT declaration	VAT declaration	No later than the 25th day after the reporting quarter	No later than the 25th day after the reporting quarter

Responsibility of LLCs and individual entrepreneurs: comparison and pen alties

When registering an LLC, it should be understood that the responsibility of an LLC is much greater than that of an individual entrepreneur both in terms of volume and fines. For example, fines for LLCs and individual entrepreneurs in comparison with each other for improper use of the cash register differ tenfold. For individual entrepreneurs 3-4 thousand rubles, and for LLC - 30-40 thousand rubles

For administrative offenses LLC responsibility is much higher than that of individual entrepreneurs. In addition, responsibility can be assigned not only to the organization, but also to specific officials.

Criminal punishment for company managers is also more severe than for individual entrepreneurs. It implies a number of articles in the Criminal Code, which is dedicated specifically to organizations in the form of LLCs.

Tax liability of LLC and individual entrepreneur in comparison with each otherabout the same in terms of violations, but spills over in terms of the amount of payments.

Differences between OJSC, LLC and IP

If we take such forms as OJSC, LLC, IP, the difference lies, first of all, in the complexity of opening and closing procedures, the choice of activities and opportunities for future development. Individual entrepreneurs are chosen for small forms of individual business. LLC is used for an initiative group of founders who want equality in management and profit. OJSCs are established to provide companies with broad freedom of operation and large scale.

Is it possible to compare such forms as IP, LLC, CJSC? Their differences from each other are obvious, they were indicated above. Additionally, it is worth noting such an important point as limiting the number of founders in a CJSC.

Case Study: Providing Dental Services

Suppose an entrepreneur decides to open a dental office or clinic. Recently, this type of service is very popular among the population. For the organization of activities, of course, the purchase of equipment, the selection of personnel, and obtaining a license are important. But do not forget about such an important point as the registration of activities. At this stage, the question of which organizational form is better to choose for future dentistry is relevant.

To answer what is best suited in dentistry: individual entrepreneur or LLC, a comparison of the advantages and disadvantages of each form of activity will be the most appropriate. The key point is the fact that the participants of the LLC are not liable for the obligations of the company with their property, in contrast toIP. However, the advantage of IP is a simplified registration and accounting procedure. In the case of individual entrepreneurship, you can only work independently, and hire only junior medical staff. There are no such restrictions in an LLC. With an individual entrepreneur, each employee must have a license, and for an LLC - it is one for everyone, in addition, you do not have to pay insurance premiums for yourself. However, when registering an individual entrepreneur, it is possible to use PSN, and the procedure is much simpler and cheaper. Contributions are paid only for employees, if any.

Thus, the question of choosing the legal form in dentistry is quite relevant: individual entrepreneur or LLC? Comparison of forms showed that for a small company it is more profitable for an individual entrepreneur, and for a general clinic - LLC.

Conclusion

As a result, in order to correctly choose the legal form of the future company, you need to compare individual entrepreneurs and LLCs and take into account a number of factors:

• occupation;
• risk your money and property;
• estimated income;
• tax system;
• development opportunities and work with partners;
• difficulty registering and closing a company.

To understand what is more profitable to open - an individual entrepreneur or an LLC, it is necessary to formulate the goal of the future business. If a development and expansion plan is in place, then an LLC would be the best option. However, if there is little finance, then initially it is worth opening an IP.

It should be noted that the taxation systems for individual entrepreneurs and LLCs are the same (with the exception of PSN), however, differences are present in accounting and maintaining cash records, which LLCcarries out in strict accordance with the law.

Responsibility for violations in the case of an individual entrepreneur is minimal, however, for a situation with an LLC, the amount of fines increases several times.