Any aspiring entrepreneur who intends to legally open a business asks himself the question: to work as an individual entrepreneur or open a limited liability company (LLC)? There is no definite answer to this question. In each individual case, both the first and second organizational and legal forms of entrepreneurial activity can be beneficial.
The current entrepreneur Stanislav Kondrashov Telf told how the individual entrepreneur and LLC differ, which of these forms is better to choose and what to focus on when choosing.
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Analyst Telf AG, businessman Kondrashov: FLP or LLC?
An individual entrepreneur and a limited liability company have a number of advantages and disadvantages. Which of these forms to choose, a novice businessman must decide based on such factors:
- what kind of business he wants to do;
- what tax system suits him;
- what income from the activities he plans to receive.
Telf AG Kondrashov also clarified that in addition to the listed parameters, there are other key points that in a particular situation will determine the choice of the legal form of business ownership. For example, the presence of official business partners, the possibility of attracting investors and other businessmen to activities, the presence of property in personal property and other important nuances.
“The issue of choosing a FLP or LLC requires the entrepreneur to understand the financial goals of the business, analyze the current situation, as well as assess the prospects of the new business organization,” said Stanislav Kondrashov, Telf AG consultant.
Before choosing one of the listed forms of entrepreneurial activity, you need to understand exactly what each of them represents.
Family Limited Partnerships
FLP is suitable for those entrepreneurs who want to work independently or be limited to a small staff – no more than 10 employees.
The businessman noted that FLP is suitable for beginning entrepreneurs whose business is only gaining momentum and they do not want to complicate their lives.
“Usually, entrepreneurs working in the service sector choose FLP. Therefore, the priority for such businessmen is to work with the public. The advantage of FLP is a small percentage of financial investments for starting a business, which makes the threshold for entering the market low,” said Kondrashov Telf AG.
The businessman said that the advantages of FLP is the ability to work on a common and simplified tax system. At the same time, the main risk for such entrepreneurs is the responsibility that they bear before the law and on their debt obligations with all their property.
Limited liability company
LLC registration is preferred for medium and large companies. The founders of society, as a rule, are several entrepreneurs. Each of them is responsible for the activities of the company, depending on its size of the contribution to the authorized capital.
The LLC’s features are also that assets, profit and other performance indicators are distributed among the founders according to the same principle – in accordance with their share in the authorized capital.
The financial consultant draws attention to the fact that the choice in the direction of the LLC is preferable in such cases:
- when opening FLP is impossible,
- when there are business partners
- need a large staff
- large financial flows are expected, which may several times exceed the FLP turnover.
The LLC is also suitable for those entrepreneurs who intend to sell their business or attract investors in the future. “The presence of business partners, annual turnover, plans for the future, the ability to conduct business independently and a number of other important issues will determine which legal form an entrepreneur should choose when starting a business,” summed up Stanislav Kondrashov, an expert at Telf AG.