Disadvantages of a Limited Liability Company. A brief analysis of the pros and cons of SP and LLC. Taxes and profit

The article outlines the main advantages and disadvantages of such forms of doing business as individual entrepreneurs and LLCs, which is better to open.

 

Thinking about starting a business, any entrepreneur asks the question: which form of business registration should be preferred - the status of an individual entrepreneur or the form of an LLC? Both options have their own characteristics, pluses and minuses. Let's analyze the main ones.

Pros and cons of sole proprietorship

Advantages

• There are no requirements for the size of the authorized capital.
• Fewer reports required to be submitted to various regulatory authorities compared to a legal entity.
• The amount of fines for the same legislative violations for individual entrepreneurs, as a rule, is significantly lower than for organizations.
• There is an opportunity to apply one of the most loyal and convenient tax regimes - the patent system.
• There are benefits on insurance premiums: for individual entrepreneurs, the amounts of contributions are fixed, and not tied to the level of income, as in organizations, and tariffs for employees have also been reduced.
• Simplified registration procedure: fewer documents are required, the state duty is lower than that of a legal entity.

disadvantages

• Responsible for obligations with all his property (including those that do not participate in the activities of the individual entrepreneur).
• Limitation of the possibility of conducting a number of activities (for example, banking, alcohol retail, etc.)
• The legislative framework for individual entrepreneurs has not been sufficiently developed: some rules apply only to legal entities, while entrepreneurs have to go to court on these issues (for example, on the application of a number of VAT benefits).
• It is problematic to significantly expand the business: there are problems with lending, counterparties, it is more difficult to attract third-party investments, it is impossible to open representative offices.

Pros and Cons of a Limited Liability Company

Advantages

• It is easier to obtain large amounts of bank loans, open lines of credit, and also have access to some forms of financing that are not available to individual entrepreneurs due to banking security requirements.
• It is easier to interact with counterparties: more trust, easier to get a deferment / installment plan, offer your own terms of debt repayment.
• Significantly higher than that of individual entrepreneurs, the chances of gaining fame in the market (creating a brand).
• Wide opportunities for business expansion: involvement of private investors, potential expansion of the business to a joint-stock company, access to the stock exchange and the global market.

disadvantages

• The registration procedure is complicated: a larger package of documents is required, a higher state duty than that of an individual entrepreneur.
• It is necessary to maintain a full-fledged accounting, as well as tax accounting.
• It is required to prepare a lot of reports for regulatory authorities.

Learn more with examples

Limited Liability Company or LLC- This is one of the most popular and frequently encountered organizational and legal forms in which entrepreneurs dress their business. Unlike another popular legal shell - an individual entrepreneur - LLC is a legal entity, which in itself implies the presence of an authorized capital, constituent documents that regulate many important aspects of future business activities.

Unlike the same individual entrepreneur, in which only one person organizes a business and makes important decisions, an LLC can have from one to fifty founders (individuals and / or legal entities), with different proportions of participation in the authorized capital. In addition, the very registration of an LLC, if it has more than 5 founders, can be a long process. So, for example, the initial approval of the Charter of the Company by its founders may take from several days to several weeks.

Such a long period is not always convenient. In addition to the duration, the registration of an LLC costs the founders much more than the registration of an individual entrepreneur. Only the amount of the state fee payable for registration actions in respect of an LLC will be 2,000 rubles. Plus, be sure to open a current account and pay the authorized capital, order a seal and copies of constituent documents, certify with a notary an application for opening a Society, the cost of which directly depends on the number of founders and copies of constituent documents, as well as signature cards.

For a limited liability company, the amount of penalties is much higher than for an individual entrepreneur, but the founders of an LLC are not liable for the debts of the Company, property owned by them, unlike the same individual entrepreneur. They correspond to the size of the share in the authorized capital of the Company, which is owned by a particular participant.

For an LLC, the authorized capital is a prerequisite for registering a company, the minimum amount of which today is 10,000 rubles, which can be paid both in money and in property. If the founders decide to contribute property, then in this case there are a number of nuances.

The activities of a limited liability company are not limited to limited liability companies not territorially, moreover, the Company can form branches, representative offices and its separate subdivisions in any subject of the Russian Federation, as well as outside it.

The LLC has a wide range of licenses or special permits of any kind obtained, subject to license conditions and requirements. And there is no limit to the number of employees of an LLC. There is a real possibility, again subject to compliance with the requirements established by regulatory enactments, to attract foreign labor. And this significantly distinguishes a limited liability company from an individual entrepreneur.

The weak point of an LLC is the need to register a new director and new members of the Company with the tax authority when selling it, which also requires the collection and submission of a package of documents for amending the Unified State Register of Legal Entities, which in itself implies the loss of additional money and time. As for the taxation system of a Limited Liability Company, it, like an individual entrepreneur, can choose both a general and a simplified regime. In addition to liquidation, an LLC can be reorganized into any other organizational and legal form, for example, into an OJSC or a CJSC.

Another nuance in the activities of an LLC is the number of members of the Company. If the number of LLC participants has reached fifteen, then it is necessary to form additional management bodies.

So, based on the above, we can distinguish explicit advantages and disadvantages of LLC.

Advantages of a Limited Liability Company

• Fairly low level of founders' liability for the Company's debts, limited by the share of each of them.

• The absence of any restrictions regarding the number of employees and the territory of the Company's activities.

• Extensive opportunities for regulating the activities of LLC.

• Possibility to choose any name of the Company, incl. foreign.

• Existence of a wide choice in licensing and various permissions.

• If desired, the Company can be sold as a ready-made business.

• A more loyal attitude on the part of banks and commercial structures, as well as obtaining any loans and overdrafts.

• Simplicity in the management of the Company and the ability to control management.

Disadvantages of LLC

• Relatively high cost of setting up and longer period of registration of a Limited Liability Company.

• Obligation to notify the tax authority when selling the Company.

• Higher, in comparison with individual entrepreneurs, the level of penalties imposed on LLCs and the amount of fees.

• There is a limit on the number of founders of the Company - no more than 50.

• Certain difficulties may arise during the liquidation and reorganization of an LLC.

• Tighter government control.

• The presence of a statutory obligation to pay the cost of the share when a participant leaves the LLC.

Increasingly, legal entities are registered as a limited liability company. And this is no accident. Opening an LLC has a lot of advantages. However, it also has its downsides. First about the pros.

Firstly, members of an LLC are not liable for debt obligations with their property, but only with a share invested by a member of the company.

Secondly, the creation of a limited liability company is ideal for a certain number of people who decide to open their own business. Their profit will correspond to the amount contributed by each depositor.

Thirdly, each participant has the right to terminate the joint activity. He is paid a portion of the profits to which he is entitled.

Fourthly, a limited liability company is a separate organization, its participants have the right to dispose of it at their discretion. Including, an LLC can be sold as a business.

Fifth, at first, while the limited liability company does not make a profit, the costs associated with the activities of the enterprise can not be covered immediately.

Sixth, unlike an individual entrepreneur, an LLC is entitled to certain types of licenses. The next plus of the LLC is that the management of the enterprise can be carried out by a hired person, for whom it is not necessary to issue a power of attorney. If such a need arises in the case of an individual entrepreneur, the power of attorney must be certified by a notary. Finally, the founder of an LLC has the right to determine the name of his enterprise. The harmonious name of the enterprise will undoubtedly have a beneficial effect on the activities of the enterprise, for example, be one of the factors in attracting customers.
Now for the cons. The society must have its own premises - an office. The office address is indicated when opening an LLC.

An entrepreneur can open an IP by registration. Opening an LLC is not easy. To do this, you need to collect a package of documents. Opening an IP is easier. Cancellation of an LLC is also not an easy process. To open a limited liability company, it is necessary to have an authorized capital, the amount of which at the moment must be at least 10,000 rubles. Perhaps the size of the authorized capital will progress. The company is obliged to order a round seal, as stated in the Federal Law of the Russian Federation. It also provides for the maintenance of a settlement account for settlements with suppliers and contractors. LLC is a small business that has to keep accounting records. If penalties are imposed on the LLC, they will exceed the amount of fines provided for individual entrepreneurs. Machines, equipment and other property of an LLC participant used in the course of the organization's activities can be donated, rented or contributed to the authorized capital. In any case, it must be taxed.
So, opening an LLC is a very problematic process, requiring a certain amount of money. Opening an IP is much easier. However, if the company expands and things go uphill, it is recommended to create an LLC. Many entrepreneurs who opened individual entrepreneurs later established an LLC.

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.

and OOO?

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.

This 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 that can act as a firm, company or corporation. All members of this company are responsible for the authorized capital.

Sole proprietorship 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 and cons in detail.

Pros and cons of sole proprietorship 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.

Registration
	A large package of documents and a current account is required	The procedure is less expensive and short-term
Taxation (minimum payout)
	6% of profit
Types of reporting
	Tax, statistical, accounting	Only tax
The need for bookkeeping
Profit use
	According to the procedure for 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	The entrepreneur risks all the property that will go to pay debts
Activities (restrictions by types)
	No restrictions, the main thing is to get a license	Some activities are closed to individual entrepreneurs
Expandability
	Present	Not provided

Registration and liquidation

The pros and cons of an LLC and an individual entrepreneur 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. state duty and several weeks of waiting.

The same is true with the liquidation of a company. To liquidate an individual entrepreneur, it is necessary to write an application to the appropriate authorities and provide a receipt for payment of the state duty (the amount will be about 200 rubles). 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 place an advertisement in a special journal, pay benefits to employees, fully pay off debts and submit liquidation and interim balance sheets to the authorities.

Taxes and profit

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 participants cannot bypass the cash desk 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 reports

All legal entities must keep accounting records. Without special knowledge, this cannot be dealt 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 departments.

What is the founder's risk?

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

Most LLCs or individual entrepreneurs are now beginning 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.

With an individual entrepreneur, this trick will not work. 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

Another pros and cons 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 lead and participate in equity policy, he needs to re-register his business in an LLC. A companion for an individual entrepreneur will not have equal rights with him, unless he is also 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.

Advantages 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.
• Such a legal entity can be bought or sold.
• Specialists 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 period of time.
• It is mandatory to keep accounting and tax reports.
• The authorized capital must be at least 10,000 rubles.
• You need to have a seal.
• It is difficult to withdraw profits "past the cash register".
• If violations were noticed in the activities of the enterprise, then the penalties 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.

Buying LLC

Often, limited liability companies are bought by those who value their own time and effort. The pros and cons of buying an LLC can be summarized as follows. Positive factors include the following:

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

The 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.
• Quite often there is a problem with employees. As practice shows, they may not be competent enough or not accept new guidelines and simply leave. And to find a good replacement for them, you have to spend a lot of time.
• 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, an organization with limited liability - only with the 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 there is a difference between these enterprises. 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.

This article will consider the form of activity of an organization in the form of a limited liability company (hereinafter referred to as LLC), which in modern economic conditions is the most in demand and has both many advantages and disadvantages.

Form of activity of the organization in the form of LLC

The first step and one of the most important factors in organizing your own business is the choice of the form of the enterprise. The most common of these today are:

• individual entrepreneurship;
• limited liability company;
• closed joint stock company.

This article will consider the form of activity of an organization in the form of a limited liability company (hereinafter referred to as LLC), which in modern economic conditions is the most in demand and has both many advantages and disadvantages.

In Russia, the main acts regulating the activities of LLCs are the Civil Code and the Federal Law "On Limited Liability Companies" N14-FZ of 02/08/98. The general concept of an LLC is an organizational and legal form of a business company that is created by one person or a group of persons (participants), has its own authorized capital of an unlimited size, within the limits of the contribution to which each participant is responsible. The main purpose of the LLC is to make a profit, with its further distribution among the participants.

Thus, the first obvious advantages are the ability to establish it by several participants at once - both individuals and legal entities, as well as the absence of restrictions on the size of the authorized capital. With regard to the latter, it is important to add that an additional advantage is the possibility of contributing to the authorized capital of an LLC as capital not only cash, but also various property, securities, and the contributors-participants are not personally liable for the actions of the organization, since it is legally limited only their shares in the authorized capital. The very procedure for the formation of the authorized capital and its size are determined, in fact, in the charter.

As for the number of participants, Russian legislation provides for a maximum allowable number of up to 50 people. At the same time, one and the same person can be a member of only one LLC, in which he is the only participant, which, of course, is one of the shortcomings of an LLC, since it excludes the possibility of creating a network of branches of such companies. But, on the other hand, the founding members can be both individuals (including foreign ones) and legal entities (which are not liquidated as legal entities after becoming a member of this LLC).

Step-by-step instructions for leaving a participant from an LLC in 2018:

The supreme governing body of an LLC is a general meeting of participants, at which each of them has the right to attend, take part in the discussion of all issues, and also vote, because, as a participant, everyone has a personal interest in the results of the company's work.

As for the size of the votes of each participant, there is a simple rule according to which the participant has a vote value proportional to the size of his contribution to the authorized capital, although this order can be reviewed and changed at the general meeting - for example, for the convenience of the voting procedure, each participant can simply be assigned one voice. The competence of the general meeting also includes the possibility of creating a supervisory board, or a board of directors, whose role may be in the performance of functions that are not defined in the legislation as the exclusive powers of the general fees.

The exclusive powers of an LLC in general terms extend to decisions on the goals and directions of the organization’s activities, changes in the charter and size of the authorized capital, distribution of profits, appointment of an audit, formation of executive bodies, as well as on major transactions and convening or holding a general meeting.

From the foregoing, we can conclude that the advantages of an LLC arise from the legislator's vision of this form of ownership as such, in which capital is pooled, which gives each of the contributors a property interest and their rights to its implementation, protection by voting and participation in meetings. At the same time, the management of deposits (capital) can be carried out by a specialist not from among the participants, appointed by the general meeting or the board of directors to manage the company. In this situation, there are both advantages and disadvantages of an LLC, because in order to protect their interest, the law also gives the participants the right to leave the organization without the consent of other participants, and the value of their contributions to the authorized capital should be returned. That is, at any time, investors can leave the LLC, taking their share, which can lead to the liquidation of the entire business.

Another concomitant drawback of an LLC is related to the participant’s own ability to withdraw from the company - in Russian law, a participant has the right to leave it and return his share by alienating his share to the LLC itself, if this is provided for by the charter. On the one hand, this is an opportunity not to destroy the authorized capital by returning the participant’s share from it, but having a chance to simply buy it back, thus compensating the participant’s contribution financially, but leaving his invested asset in the authorized capital. On the other hand, this opens the way for deception of the withdrawing participant by other unscrupulous participants who remain in business - the share of such a withdrawing participant passes to the LLC from the moment the application for withdrawal is submitted, but its actual value is determined using the financial statements of the LLC for that reporting period. the period in which the application was submitted.

The maximum period provided for the payment of the cost of the share to the withdrawing participant may be provided for in the Charter of the LLC itself, and if the period is not established in the charter, then in accordance with Art. 23.6.1. Federal law, it is no more than three months from the date the company becomes obliged to make a payment (in other words, three months from the date of receipt of the participant's application for withdrawal or demand to redeem his share / part of the share).

Advantages and disadvantages of LLC

Briefly, all the advantages and disadvantages of LLC can be considered in the following table:

Advantages of a Limited Liability Company	Disadvantages of a Limited Liability Company
Form - a legal entity, which in itself causes more confidence in banking and other organizations	The risk of withdrawal from the LLC of a participant with a share of any size at any time
Lack of personal liability of participants	Legally limited number of LLC members
The possibility of creating an LLC by different persons, including legal and foreign ones, as well as by a group of persons	Information about LLC participants is public information for third parties
Methods of formation of the authorized capital (admissibility of the contribution of various assets, not only money)	Complicated liquidation process
Fast registration in general	Higher fines and other sanctions compared to sole proprietorship in general
Greater opportunities for participants when combining their capital compared to individual entrepreneurs	The need to register all changes in the composition of the LLC, its management structure or in the authorized capital
Opportunity to obtain various licenses for certain types of activities	Possibility of disagreement of opinions of participants when making decisions, which entails the risk of making incorrect management decisions
An LLC can be transformed into another form of organization without terminating its activities
The ability to control the composition of the organization by voting on the exclusion of other members

It is worth noting that the absence of personal financial liability of participants (the first and main advantage of an LLC over other forms of economic organizations) does not apply to cases of deliberate tax evasion - in the event of proven deliberate tax evasion, both the participants and the head of the LLC face criminal cases.

Another advantage of an LLC is the difficulty of recovering the share of any of the participants in order to return the funds credited to it. Even if one of the participants has got into serious debts, his share or part of the share in the LLC will only be affected when other possibilities for repaying the debt have been exhausted. That is, if the debtor has any other property, then the collection of the debt will be directed to this property in the first place and to the share in the company - in the last. Moreover, this is possible only by a court decision, after which the other participants in the company also have the right to pay a penalty from their own shares in the capital to creditors so that the share of the debtor-participant is not sold at public auction to a third party.

And what is important, the legislator in the acts regulating the activities of an LLC, separately considers the possibility of transactions by a company in which its members, who have the right to executive decisions, as well as having a significant number of votes (more than 20%), with persons in respect of whom these participants may be interested. In a situation where these participants or their relatives (spouses, parents, siblings or guardians) are themselves a party to the transaction, own a share in a legal entity that is a party to the transaction or hold certain positions in it, they are obliged to disclose their interest and bring it to the attention of the general meeting. After that, the meeting, by a majority of votes of non-interested participants, decides whether to approve such a transaction or not.

For LLCs, in which there is only one participant who independently performs all executive functions, this condition does not apply. It also does not apply if all participants in the company are persons interested in the transaction.

In other words, if an LLC was created by you and you are alone in it, or a company was created together with close people - make deals with those with whom you are comfortable for one reason or another. If you are a member of a company in which a member of the Board of Directors has an interest in conducting transactions with organizations “related” to him on terms that differ significantly from possible transactions with other organizations, as a member of the general meeting of participants, you, together with other disinterested participants, can simply not approve it in a vote.