Which legal form to choose: an LLC or a sole proprietorship
Choosing between a sole proprietorship (IP) and a limited liability company (OOO) is one of the first steps on the way to starting a business. Both options have their advantages and drawbacks, which can seriously affect how the company develops. It is important to understand the differences between these forms in order to choose the one that best matches your plans and expectations.
Sole proprietorship (IP)
A sole proprietor (IP) is an individual registered to carry out business activity without setting up a legal entity. Registering as a sole proprietor allows you to do business in any region of Russia.
But a sole proprietorship comes with certain restrictions.
There are activities a sole proprietor cannot take up. In particular, this form will not suit anyone who wants to engage in clearing activity, insurance in their own name, private security services, the production and sale of strong alcohol, weapons or ammunition, or to open a pawnshop or manage assets on the securities market.
In short, a sole proprietor cannot carry out activity that requires a licence, except for passenger transport, educational activity and private detective work.
Although a sole proprietorship can be opened without partners, this form allows you to hire staff. At the same time all the profit, property and technology belong to the entrepreneur alone.
If you have decided to run the business with a partner or a group of people, a sole proprietorship will not suit you.
Advantages of a sole proprietorship:
Drawbacks of a sole proprietorship:
How to register a sole proprietorship on the state services portal
But a sole proprietorship comes with certain restrictions.
There are activities a sole proprietor cannot take up. In particular, this form will not suit anyone who wants to engage in clearing activity, insurance in their own name, private security services, the production and sale of strong alcohol, weapons or ammunition, or to open a pawnshop or manage assets on the securities market.
In short, a sole proprietor cannot carry out activity that requires a licence, except for passenger transport, educational activity and private detective work.
Although a sole proprietorship can be opened without partners, this form allows you to hire staff. At the same time all the profit, property and technology belong to the entrepreneur alone.
If you have decided to run the business with a partner or a group of people, a sole proprietorship will not suit you.
Advantages of a sole proprietorship:
- The registration process is fast and simple. You can register within a day through the tax service's app.
- A small package of documents for registration.
- The profit is the personal property of the entrepreneur.
- You can choose from several simplified tax regimes. An individual may be a sole proprietor and self-employed at the same time.
Drawbacks of a sole proprietorship:
- You run the business alone and answer for all obligations with your own property (flat, car, funds in the bank account).
- A restricted range of activities.
- You cannot split or sell your business.
- Banks and investors are sceptical about this form and trust private entrepreneurs less.
How to register a sole proprietorship on the state services portal
- Fill in the application online. Open the state services portal and find the section for registering a sole proprietorship.
- Enter the code of your main activity from the national classifier of economic activities. It states the field you are going to work in.
- Sign the application with an electronic signature. You will need a qualified electronic signature. It saves you the state fee and speeds up the registration.
- Wait for the extract from the state register. Three working days after the application is sent, an extract confirming the registration arrives in your account.
Limited liability company (OOO)
A limited liability company (OOO) is a collective form of ownership: a business entity founded by one or several individuals and/or legal entities, with its charter capital divided into shares.
Unlike a sole proprietorship, an LLC is set up as a legal entity. It is a fairly common alternative for small and medium businesses.
Advantages of an LLC:
Drawbacks of an LLC:
You can read more about the two forms here.
Unlike a sole proprietorship, an LLC is set up as a legal entity. It is a fairly common alternative for small and medium businesses.
Advantages of an LLC:
- The form is convenient both for the participants and for investors, so it is more attractive for investment.
- If an investor wants to join the participants, it is enough to transfer part of the share in the charter capital to them.
- Participants can both join an LLC and leave it at any time, at their own wish.
- It suits a wide range of activities.
- Profit tax can be reduced by writing off losses from previous years against current periods.
Drawbacks of an LLC:
- Registration and liquidation require a long list of documents; the registration procedure takes time and preparation.
- Complex accounting has to be kept, and a professional is usually needed.
- A large volume of reporting that must be filed with different supervisory authorities.
- Fines are much higher than for a sole proprietorship.
- Registration with the pension, medical and social insurance funds and with the statistics service is required.
You can read more about the two forms here.
Which activity code to state?
One of the first tasks when registering a business is choosing the activity code. This code defines the company's field of activity and affects taxation, insurance terms and eligibility for state support. Choosing the wrong code can lead to fines, problems with counterparties and even the blocking of transactions by the bank.
What is the activity classifier?
It is the national classifier of types of economic activity. It lists the codes a business has to state at registration. These codes define what the company does and serve as the basis for dealing with the tax authorities, the statistics service, banks and counterparties.
What do the activity codes affect?
Choosing the right codes helps optimise taxation and insurance contributions. A few examples:
What happens if the code is chosen wrongly
Choosing the wrong activity code can lead to various problems:
Which codes to choose for a WARPOINT VR arena?
Main activity code
77.21 Rental and leasing of recreational and sports goods
Additional activity codes
93.21 Activities of amusement parks and theme parks
93.29.9 Other amusement and recreation activities not included in other groupings
63.99.11 Provision of computer information services over the telephone
62.09 Other activities related to the use of computers and information technology
93.12 Activities of sports clubs
47.25.2 Retail sale of non-alcoholic drinks in specialised stores
47.99.2 Retail sale through vending machines
47.99.2 Retail sale through vending machines
47.29.39 Retail sale of other food products in specialised stores not included in other groupings
47.19. Other retail sale in non-specialised stores
What is the activity classifier?
It is the national classifier of types of economic activity. It lists the codes a business has to state at registration. These codes define what the company does and serve as the basis for dealing with the tax authorities, the statistics service, banks and counterparties.
What do the activity codes affect?
Choosing the right codes helps optimise taxation and insurance contributions. A few examples:
- The simplified tax rate. In some regions a reduced rate applies to companies working in certain industries. If your business falls under the reliefs set by regional laws, the tax burden can be cut significantly.
- The rate of accident insurance contributions. Depending on the activity, different contributions may apply. Office work and production work, for example, carry different levels of risk.
- State support. Some activities can qualify for extra reliefs or subsidies from the state.
What happens if the code is chosen wrongly
Choosing the wrong activity code can lead to various problems:
- Fines. If the tax office finds that the company's actual activity does not match the stated codes, the head of the company or the sole proprietor can be fined between 5,000 and $120.
- Problems with counterparties. If your codes do not match the activity stated in the contract, a counterparty may refuse the deal.
- Blocking of transactions by the bank. The bank may suspect illegal activity and temporarily block your account for a check.
Which codes to choose for a WARPOINT VR arena?
Main activity code
77.21 Rental and leasing of recreational and sports goods
Additional activity codes
93.21 Activities of amusement parks and theme parks
93.29.9 Other amusement and recreation activities not included in other groupings
63.99.11 Provision of computer information services over the telephone
62.09 Other activities related to the use of computers and information technology
93.12 Activities of sports clubs
47.25.2 Retail sale of non-alcoholic drinks in specialised stores
47.99.2 Retail sale through vending machines
47.99.2 Retail sale through vending machines
47.29.39 Retail sale of other food products in specialised stores not included in other groupings
47.19. Other retail sale in non-specialised stores
A suitable tax regime for your business
Choosing a suitable tax regime is an important step towards running a business successfully. It determines not only the amount of tax you will pay but also the overall complexity of accounting and reporting. One of the popular options for small and medium businesses is the simplified tax system. In this article we look in detail at what it is, the main conditions for applying it and when it is the best choice for your business.
What is the simplified tax system?
The simplified tax system is one of the tax regimes; it implies a special order of paying taxes and is aimed at small and medium businesses.
Conditions for applying the simplified system:
Which taxes the simplified system exempts you from
Under the simplified system, taxpayers are exempt from the taxes paid under the general tax system:
What is the simplified tax system?
The simplified tax system is one of the tax regimes; it implies a special order of paying taxes and is aimed at small and medium businesses.
Conditions for applying the simplified system:
- Number of employees: up to 130 people.
- Income: up to $2M.
- Residual value of assets: up to $2M.
Which taxes the simplified system exempts you from
Under the simplified system, taxpayers are exempt from the taxes paid under the general tax system:
- corporate profit tax, except for the tax paid on dividend income and certain types of debt obligations;
- corporate property tax; however, since 1 January 2015 companies on the simplified system have had to pay property tax on real estate whose tax base is determined as its cadastral value (clause 2 of article 346.11 of the Tax Code, clause 1 of article 2 and part 4 of article 7 of Federal Law No. 52-FZ of 2 April 2014);
- value added tax, except for VAT paid when importing goods through customs, as well as under a simple partnership agreement or a trust management agreement.
How to switch to the simplified tax system?
Option 1. Switching at the same time as registering the business
If you are only starting out, you can switch to the simplified system at the registration stage. To do that you file a notification of the switch together with the registration documents. If you did not file the notification straight away, you have another 30 days after registration to decide. This period lets you think over whether the simplified system suits you and choose the right tax regime.
What to do:
Option 2. Switching from another tax regime
If you are already in business and want to switch to the simplified system from another regime, this is only possible from the beginning of the next calendar year. The notification must be filed no later than 31 December of the current year. The requirement exists because the switch needs careful planning and coordination with the tax authorities.
What to do:
If you are only starting out, you can switch to the simplified system at the registration stage. To do that you file a notification of the switch together with the registration documents. If you did not file the notification straight away, you have another 30 days after registration to decide. This period lets you think over whether the simplified system suits you and choose the right tax regime.
What to do:
- Prepare the notification of the switch to the simplified system.
- File it together with the registration documents.
- If you missed that moment, you have another 30 days to file the notification (clause 2 of article 346.13 of the Tax Code).
Option 2. Switching from another tax regime
If you are already in business and want to switch to the simplified system from another regime, this is only possible from the beginning of the next calendar year. The notification must be filed no later than 31 December of the current year. The requirement exists because the switch needs careful planning and coordination with the tax authorities.
What to do:
- Assess how beneficial the switch to the simplified system is for your business.
- Prepare the notification of the switch to the simplified system.
- File the notification with the tax office before 31 December of the current year (clause 1 of article 346.13 of the Tax Code).
Key recommendations on registering the business
Legal form
Sole proprietorship (IP)
Tax regime
- The simplified tax system
- “Income minus expenses” at a rate of 15%
This regime is best for companies that plan active development and significant investment in the business, because it lets you account for expenses when calculating the tax and reduce the tax base.
Main activity code
77.21 Rental and leasing of recreational and sports goods
Additional activity codes
93.21 Activities of amusement parks and theme parks
93.29.9 Other amusement and recreation activities not included in other groupings
63.99.11 Provision of computer information services over the telephone
62.09 Other activities related to the use of computers and information technology
93.12 Activities of sports clubs
47.25.2 Retail sale of non-alcoholic drinks in specialised stores
56.10.21 Activities of catering establishments with takeaway service
47.99.2 Retail sale through vending machines
47.99.2 Retail sale through vending machines
47.29.39 Retail sale of other food products in specialised stores not included in other groupings
47.19. Other retail sale in non-specialised stores
Bank account
Recommended bank for opening a business account:
"Точка" (Official website: tochka.com, Licence No. 2241 (Kiwi Bank)
Online cash register and fiscal drive
- Brand: Evotor only.
- Model: “5 i” or newer.
- The fiscal drive must be rated for 36 months.
Card acquiring
- The venue must have card acquiring connected.
- Acquiring can be built into the cash register or stand alone.
- The acquiring bank can be any.
- The average acquiring fee is 2%.
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OUR CONTACTS
on opening a WARPOINT VR arena
YULIA MAYER
Head of development
Phone: 8 800 550 16 91
WA/Telegram: +7 (922) 033-88-99
E-mail: sale@warpoint.ru
Website: franchise.warpoint.ru
on opening a WARPOINT VR arena
YULIA MAYER
Head of development
Phone: 8 800 550 16 91
WA/Telegram: +7 (922) 033-88-99
E-mail: sale@warpoint.ru
Website: franchise.warpoint.ru
