Main points
- A sole proprietorship is suitable for small businesses and freelancers, registration takes a day or less and does not require authorized capital.
- An LLC is a legal entity, registration takes 3-5 days, requires a charter, a bank account, and full accounting.
How to choose between a sole proprietorship and an LLC / Photo Unsplash
At the beginning of any activity as an entrepreneur, a person thinks about how to run his own business. Thus, a person has to choose between a sole proprietorship and an LLC.
What is the difference between a sole proprietorship and an LLC?
This decision will only affect the legal form, taxation, and many other indicators, as discussed on the Insight Growth website.
A sole proprietorship (SPO) is a person who conducts business on his or her own behalf. In particular, the creation of a separate legal entity is not required.
Who is this form of enterprise recommended for? It is suitable for small businesses, freelancers, individual service providers, etc.
A limited liability company (LLC) is a legal entity created by one or even several founders. An LLC has a separate account, management structure, etc.
What should individuals who choose to become an individual entrepreneur know?
- Registration takes a day or less and is available online through Diya.
- Opening a sole proprietorship does not require authorized capital or opening a bank account. The costs are minimal or non-existent.
- Accounting is simplified, especially for the 2nd and 3rd groups of the single tax.
- An entrepreneur can submit reports independently – quarterly or annually.
At the same time, the requirements for an LLC are completely different:
- For registration, constituent documents must be prepared: charter, decisions of participants, in particular, the process takes 3-5 business days.
- In this case, a bank account, seal, and accountant are required.
- Costs – from 3,000 hryvnias (including notary services and consultations).
- Full accounting in accordance with Accounting Regulations (Standards) or International Financial Reporting Standards.
What else should you know about taxes and reporting for sole proprietors and LLCs?
The issue of taxes and reporting is very important for entrepreneurs. Therefore, you need to choose the right option according to your business.
Taxes for sole proprietors in Ukraine are currently as follows:
- Depending on the group: 2 – a fixed rate of up to 20% of the minimum wage + SSC, and group 3 – 5% of income or 3% + VAT.
- General system: 18% personal income tax + 1.5% military levy + 22% social security contribution.
At the same time, taxes for LLCs:
- on a single tax: 5% or 3% + VAT.
- General system: 18% income tax + 20% VAT (for volumes over one million hryvnias).
A sole proprietorship benefits from the simplicity and flexibility of tax rates, especially for small businesses with low turnover,
– the material says.
Raiffeisen Bank writes that each form of business has its advantages and disadvantages, so the choice should be based on specific needs.
Please note! In addition, you can always change the form of activity. Many companies in Ukraine began their journey as sole proprietorships and then “transformed” into LLCs.
What else should individual entrepreneurs in Ukraine know?
- Groups 3 and 2 of individual entrepreneurs differ in the established annual volume limit, as well as the number of employees. At the same time, the rates of the single tax and military levy are different for them, but the single social contribution is the same.
- At the same time, the best days to register an individual entrepreneur are the beginning of the month. For group 3 individual entrepreneurs, the issue is the payment of a single social contribution, and for other groups, there is an opportunity to check all the correct steps regarding registration.