A company or an entrepreneur in Ukraine: what is better and when?

If you have decided to start a business in Ukraine, the first step is to choose an organizational and legal form.

To begin with, you will have to determine whether the business will exist as a company (legal entity) or whether it will exist in the form of private entrepreneurial activity (without creating a legal entity). To do this, you need to know what exactly are the differences between a legal entity and a sole proprietorship. The choice between establishing a limited liability company (LLC) and registering as a sole proprietor (SP) depends on your specific situation, business goals and needs. Each of these legal statuses has its own advantages and limitations. Here are some of the key differences between them:

A limited liability company (LLC) is an excellent choice for small and medium-sized businesses to conduct business activities with the aim of generating profits and then distributing them among the participants.

It is a legal entity that has a wide range of rights and clearly defined responsibilities.

All risks for the results of its activities are borne by the LLC, and the liability of the participants is limited only to what they have invested in the company. This legal form of legal entity is the best choice for companies and startups that plan to grow or have high business risks and potential liabilities.

Establishment and registration of an LLC

A company is established by a decision of its founders. The general meeting of shareholders is the supreme body of the company. Registration of a company in Ukraine is a fairly simple process and takes 2-3 days.

Founders (participants) of the business

A company can be founded by one person who becomes its sole shareholder. However, the number of company members is not limited. The shareholders exercise their rights and powers on the basis of a corporate agreement, which is gratuitous and is made in writing.

It is worth noting that a company's shareholder may be an individual or a legal entity, as well as foreign individuals or legal entities.

The founders of such a business are members of the LLC's supreme body: the general meeting.

Liability of the founders (participants)

The founders (participants) of an LLC are liable only for the amount of their investments in the business. That is, the participants are liable only to the extent of their investment in assets.

The founders are not liable for the company's obligations and do not bear the risk of losses associated with the company's activities, i.e., personal assets are protected from business liabilities.

Capital of the LLC

There is no requirement for the amount of capital in Ukrainian law. Usually, the company specifies the amount that it can earn in a year, plus or minus. Such capital can be formed in the form of funds or property within 6 months from the date of business registration. If there are several founders, the authorized capital is divided into shares that will be owned by the founders (participants) of the LLC.

Business taxation

In general, the taxation of an LLC and the preferential conditions will depend on the type of business activity, annual turnover, and the size of the business.

An individual entrepreneur (IE) is an excellent choice for most individuals who are engaged in low-risk business activities.

This form of business is usually chosen when you want to run a business on simplified taxation terms without establishing a legal entity.

In Ukraine, opening a sole proprietorship for non-residents is a fairly quick process, just like for Ukrainian citizens.

The registration of a sole proprietorship is carried out in accordance with the provisions of the Law of Ukraine "On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations" (No. 755-IV of 15.05.2003).

Registration of a sole proprietorship

Ukrainian legislation does not impose any restrictions on the registration of a foreigner as an entrepreneur.

Documents required for registration of a non-resident sole proprietorship: a) application; b) passport; c) translation of the passport into Ukrainian (notarized); d) taxpayer registration card.

Before registering as an entrepreneur, you need to decide on the type of taxation (general or simplified), as well as choose the types of economic activity by classifier (KVED). It is worth noting that there are certain restrictions on the types of activities for sole proprietorships under the simplified taxation system.

Capital of a sole proprietorship

When starting a sole proprietorship, Ukrainian law does not require a person to have a charter capital, since in this case the entrepreneur uses all his or her property in conducting business.

Taxation of a sole proprietorship

When it comes to taxation of a sole proprietorship, the taxation group and system will depend on the type of business you intend to conduct. In this case, the simplified taxation system (single tax) is one of the main advantages of registering a sole proprietorship.

Place of business activity

The activities of a sole proprietorship are accounted for at the place of registration, so there is no need for a separate legal address. Therefore, an office or any other premises is not required. An entrepreneur can operate even from his or her own home.

Entrepreneur's liability

The main risk in the activities of a sole proprietorship is liability for obligations related to business activities with all its property. In the event of debts to the state by contractors, there is a risk that the sole proprietorship's property will be seized or confiscated in court.

It is difficult to say for sure which form of business is better: LLC or sole proprietorship is difficult to say, because both the advantages and disadvantages of each form of registration are purely subjective to the entrepreneur.

The choice between an LLC and a sole proprietorship should take into account the current and future needs, financial condition and risks of the business, as well as tax and legal restrictions in Ukraine. A consultation with our specialist in accounting or law may be useful to determine the best option for each specific case.