Pros and cons of LLC and IP

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

Even if the time of hyperinflation comes in the country, ambitious people will not disappear from this. And even in the harshest market conditions, they will come up with ways to create, maintain and register their own business. And for sure in the future, just like now, there will be a problem with such a difficult question, which is better - an LLC or an individual entrepreneur, the pros and cons of organizations.

What is IP and LLC?

In the world of big business, there are many organizations whose main specificity is entrepreneurial activity. But before turning into a large corporation, entrepreneurs start small - registering an individual entrepreneur or LLC.

An individual entrepreneur, or an individual entrepreneur, is an entity that is registered as a participant in entrepreneurial activity, while not forming a legal entity, but having all its powers.

LLC is a legal entity, a limited liability company. It can act as a firm, company or corporation. All members of this company are responsible for the authorized capital.

IP and LLC have their own advantages and disadvantages. They are mainly related to obligations and the level of responsibility, but before deciding where to start, it is worth familiarizing yourself with the pros andcons.

Pros and cons of IP and LLC

The table evaluates individual entrepreneurs and LLCs according to the following criteria: registration procedure, taxation, reporting, accounting, use of profits, risks of the founder, restriction of activities and the possibility of expansion.

	OOO	IP
Register	-	+
	Requires a large package of documents and a current account	The procedure is less expensive and short-term
Taxation (minimum payout)	+	+
	6% of profits	From 6%
Types of reporting	-	+
	Tax, statistical, accounting	Tax only
Need for bookkeeping	-	+
	is	no
Use profits	-	+
	According to the order of conducting cash transactions	Free
Debt obligations (material risks of the founder)	+	-
	The entrepreneur risks only the authorized capital, the amount of which is 10,000 rubles	Entrepreneur risks all the property that will go to pay debts
Activities (type restrictions)	+	-
	No restrictions, the main thing is to get a license	Some activities are closed to IP
Expandable	+	-
	Present	Not available

These are the main differences. Let's take a look at the more subtle nuances. The pros and cons of LLCs and sole proprietorships have always attracted a lot of public attention, so it makes sense to consider them in more detail.

Registration and liquidation

Pros and cons of LLC and IP can be seen already at the time of registration. The cost of the state duty for a limited liability company will be about 4,000 rubles. With all this, you need to have a solid package of documents, create a bank account and wait a few months. Registration of IP is much faster, easier and cheaper. Minimum documents, 800 rubles. stamp duty and several weeks of waiting.

The situation is exactly the same with the liquidation of the enterprise. To liquidate an individual entrepreneur, you must write an application to the appropriate authorities and provide a receipt for payment of the state duty (the amount will be about 200rub.). A few weeks later, a notice will come that the individual entrepreneur has been excluded from the Unified Register. With organizations, things are more complicated, sometimes the liquidation process can drag on for several months. One statement is not enough here. It is necessary to advertise in a special journal, pay benefits to employees, fully pay off debts and provide liquidation and interim balance sheets to the authorities.

Taxes and profits

In general, the income tax is the same, the pros and cons of an LLC and an individual entrepreneur begin with making a profit. The entrepreneur can freely dispose of all the proceeds. Save, invest or spend as you see fit.

LLC members cannot bypass the cash register and collect the proceeds. In fact, all the profit that the organization receives is spent on the internal needs of the enterprise, and payments are certified by protocols. Some entrepreneurs also add individual entrepreneurs to the LLC in order to be able to withdraw funds.

Accounting and reporting

All legal entities must keep accounting records. Without special knowledge, this cannot be de alt with. If a person wants to independently manage his own accounting, he should register an individual entrepreneur, since its participants are exempted from the obligation to maintain financial statements. In an LLC, all documentation must be correctly drawn up. This applies not only to the accounting report, but also to the tax authorities.

What is the founder's risk?

Due to the unstable economic situation, enterprises cannot always stay afloat, sometimes theylose the ability to conduct entrepreneurial activities and are forcibly disbanded.

Most LLCs or individual entrepreneurs are now starting to develop thanks to loans or private investments. In the case when the company forcibly suspends its activities, the founder is obliged to pay all existing debts. The pros and cons of LLC and IP are hidden here in material risks. The LLC risks only property that belongs to the firm. Often these are goods, equipment or furniture. Moreover, the LLC has an authorized capital that covers almost all debts.

This trick won't work with a sole trader. According to the documentation, his property is not divided into “things for business” and “things for life”, therefore, if something unforeseen happens, the last shirt can be removed from an individual entrepreneur.

Evolution

More pluses and minuses between an LLC and an individual entrepreneur are hidden in such a concept as development. LLC has the opportunity to expand. Hire more people, try yourself in a new market segment. The only condition is to legally regulate everything. In this regard, individual entrepreneurs are somewhat constrained. In some activities, only legal entities can participate. For example, an individual entrepreneur cannot obtain a license to sell alcohol. If an individual entrepreneur has found a person who wants to conduct a joint business and participate in equity policy, he needs to re-register his business as an LLC. The Sole Proprietor Companion will not haveequal rights with him, if he is also not registered as an individual entrepreneur.

Opening LLC

Starting your own business is always a risk, especially opening an LLC. The pros and cons of this procedure are as follows.

Pros of registering an LLC:

• Responsibility for obligations does not go beyond the authorized capital.
• A member of an LLC can leave the company if he sells or transfers his share to someone.
• A similar legal entity can be bought or sold.
• Experts can conduct flexible tax planning, which will increase profits.
• The interests of the LLC are represented by both the director and a person authorized by him.

Disadvantages of registering an LLC:

• The registration and liquidation procedure takes a long time.
• It is mandatory to keep accounting and tax reports.
• The authorized capital must be at least RUB 10,000
• Must have seal.
• It is difficult to withdraw profits "past the cash register".
• If violations were noticed in the activities of the enterprise, then the pen alties will be higher than for individual entrepreneurs.

However, despite the frightening disadvantages, an increasing number of individual entrepreneurs are moving into LLCs. Someone opens organizations on their own, someone is looking for reliable partners, and someone acquires limited liability companies.

Buy LLC

Often, limited liability companies are bought by those who value their own time and effort. What are the pros and cons of buying an LLC?in the following way. It is customary to attribute the following points to positive factors:

• It will not take time to register a company.
• LLC is already well known in the market, which will help win over buyers.
• There are employees, production has been established, which means that profit can be received from the first month.
• No need to spend extra effort preparing the company for work, as everything you need is there.

Priorities for acquiring an LLC are obvious, but there are also negative points:

• If the company has shown itself from the worst side, you will have to spend a lot of time, money and effort to regain a good reputation.
• It's a fairly common problem with employees. As practice shows, they may not be competent enough or not accept new guidelines and simply leave. And it will take a lot of time to find a good replacement for them.
• There may be a problem with the equipment, which will result in new investments.

Key differences

It doesn't matter if it is an LLC or an individual entrepreneur, the pros and cons will always accompany any type of entrepreneurial activity. A private entrepreneur is liable with his personal property for debt obligations, a limited liability organization - only with its authorized capital. This is the main difference between an LLC and a sole proprietorship. Pros and cons can be found in registration and liquidation procedures, taxation, profit withdrawal or record keeping. Every entrepreneur must understand that between thesebusinesses make a difference. LLC and IP? You can look for pros and cons for a long time, and most importantly - find them. But, stepping on the path of business, an entrepreneur must first decide on his own goals and capabilities, and only then choose who to become - an LLC or an individual entrepreneur.