The difference between a sole proprietorship and an individual entrepreneur

In Ukraine, entrepreneurial activity can be carried out in various forms, so it is important to understand the difference between a sole proprietorship and a private enterprise, and which of them is more appropriate in a particular case. Both options have their own advantages and disadvantages that should be taken into account when choosing. A detailed review of all the nuances will help you choose the best option for your business.

Individual entrepreneur: advantages and disadvantages

A sole proprietor is a person who has registered as an entrepreneur and runs a business on his or her own behalf. The advantages of this solution include the following:

1. Easy registration. You can apply through the application or the Diia online platform. The data will be processed within a few hours without the need for a personal visit or a large package of documents.
2. No bureaucracy. This is an important difference between sole proprietorships and private entrepreneurs: under the simplified system, reporting is not complicated, which eliminates the need to involve an accountant - you can handle all issues yourself.
3. Quick liquidation. If an entrepreneur decides to cease operations, the official liquidation will take a minimum of time.

For small and medium-sized businesses, this format is optimal - you need to take this into account when choosing a sole proprietorship or a sole proprietorship. There is no need to understand the complexities or involve third-party specialists: it is enough to focus on conducting the main activity in compliance with the current legislation.

Peculiarities of taxation

Depending on the specifics of the future activity, you need to choose a KVED in accordance with the national classifier, as well as determine the target audience of future customers: household consumers, individual entrepreneurs or sole proprietors. Based on this, a group will be selected, and, accordingly, the tax system. According to the latest changes:

• The first group is subject to a single tax of 10% of the established subsistence minimum, which is currently UAH 302.8 (3028*10%) per month;
• the second - 20% of the minimum wage (UAH 1420) per month;
• third - 3% (VAT payers) and 5% of the income received.

The unified social contribution is 22% of the minimum wage, and it reached UAH 1,760 as of April 2024. Payment remains voluntary not only during the martial law period, but also a year after it ends. However, the insurance period will not be accrued.

Disadvantages of registration

Another important point about the difference between a private enterprise and a sole proprietorship is that a private enterprise is a legal entity, while a sole proprietorship is an individual. Accordingly, the latter is liable for the debts and obligations of the business with his or her personal property, and it is from this property that all obligations will be collected, and accounts may be seized. This is one of the main disadvantages of this form of doing business.

Private enterprise: advantages and disadvantages

A sole proprietorship is a legal entity that is established to conduct business. Its important characteristics, which distinguish sole proprietorships and PEs from each other, are

• separate legal status - the business and its owner are two different legal entities;
• greater opportunities for growth - large companies and investors mostly prefer to work with legal entities;
• limited liability - the collection of obligations occurs only within the property of the company, and the personal property of its owner is not subject to collection to cover the company's debts, which is an important difference between a PE and a sole proprietorship.

A nice bonus: a private enterprise can choose any name that does not contradict the laws of Ukraine. But individual entrepreneurs do not have this option.

Disadvantages of PP

The status of a legal entity opens up certain prospects, but reporting becomes more complicated and control by the tax authorities becomes stricter. Therefore, there is a need to engage an accountant, which entails additional financial costs.

The difference between a sole proprietorship and a sole proprietorship is very significant, so it is important to immediately think about further development paths, and most importantly, to draw up a competent business plan to analyze all the subtleties and choose the optimal business format.