ADVANTAGES AND DISADVANTAGES OF LLC

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ADVANTAGES AND DISADVANTAGES OF LLC

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 We will continue to explore the organizational features of doing business and choose the best option for business. In this article we will consider the advantages and disadvantages of doing business by registering a legal entity, in particular LLC. This is due to the fact that the business owner (founder) at the start of its activities is asked the question: LLC or INDIVIDUAL ENTREPRENEUR?

  The advantages of choosing a limited liability company are the following:

The possibility of the existence of several (two or more) founders. In this case, the sole proprietorship can be registered by only one person. If your business involves the presence of significant start-up (authorized) capital or the specifics of the activity involves the purchase of expensive material and technical base, we advise you to open a register LLC. In this form, each of the founders will have an equal right to the company’s assets.

Limited liability. A limited liability company is liable for its obligations only within the authorized capital, in contrast to a sole proprietorship, which is liable within all its personal property. Even if the sole proprietorship is liquidated, the liability will be borne by the individual.

Potential for future growth. Ltd. has greater opportunities in tax optimization, management, finance. Practice shows that in the business environment, legal entities are more respected than natural persons-entrepreneurs. Therefore, LLC is easier to find a large client, partner or contractor.

Regarding the shortcomings, the following are:

The presence of at least one employee who must be paid wages and pay taxes accordingly. If the sole proprietor can work alone, the position of director is obligatorily provided in the LLC. Even if you are both a director and a founder in one person, when conducting business you need to charge a salary and pay taxes: personal income tax, military duty, SSC.

More complex accounting. If a sole proprietor can learn to keep records on their own, in the case of LLC you will have to seek the help of an accountant.

Withdrawal of profits in the form of dividends. Private individuals can withdraw income simply after paying taxes. LLC owners – only in the form of dividends, which are taxed additionally. That is, the company pays income tax and then the founder on dividends.

Complicated liquidation procedure. The procedure involves a number of complex actions6 registration of liquidation documents, inspection of regulatory authorities, submission of documents to the archive.

 For our clients, we advise you to use the following principle: novice entrepreneurs should register a sole proprietorship, as it is a simpler and more economical option for doing business. In the future, if the business will prosper and gain momentum – move to LLC.

 If you still have questions – contact the law firm “Prikhodko and Partners”, we will be happy to answer your questions and become your legal partner and advisor!

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