An individual enterprise is one of the simplest systems for conducting private business. Everyone can register as an individual entrepreneur today, and a huge number of positive aspects of this particular form of business forces more and more people to join it. In our article, we will try to give a clear definition of this type of entrepreneurial activity, as well as talk about the main types and advantages over other forms of business.
Definition and essence
So, an individual enterprise is a small company, the owner of which can also be its employee (for example, holds the post of director or accountant). One of the most important features of this form of business is that only one person can be the owner of an enterprise. Of course, it can be combined in cooperatives with other companies, however, all management work rests only on one person. Also, the owner of the company is solely responsible for all emerging production circumstances.
How is an individual private enterprise different from a joint stock company? A similar question is most often asked by novice entrepreneurs. We answer: a joint-stock company is a private company or a group of enterprises whose authorized capital is divided into a certain number of shares acquired by investors. Say what you like, but outsiders and their money will be drawn into such a business, and in a private enterprise all the income goes only to the owner, because he built his own business, without any investment.
The advantages of individual enterprises
Small firms owned by one person and not the circle of founders have several advantages over large joint-stock companies. The list below shows only the main advantages that a beginner entrepreneur should pay attention to:
- The concentration of all profits around one person - the owner of the enterprise.
- The ability to make decisions that do not depend on the opinions of other business participants.
- Simplified business operations through participation in business.
- Independence of the owner of the enterprise from other firms or individuals.
Thus, individual enterprises are ideal for people who have only recently decided to start doing business. After all, the owner is responsible for his actions only in front of himself and makes a profit equivalent to the invested forces.
Disadvantages of individual enterprises
In addition to the advantages described above, small individual enterprises also have a number of significant disadvantages that can scare away a person who has decided to organize a private business. In the list below you will find the main nuances that an entrepreneur should pay attention to:
- The business owner bears property responsibility, including personal.
- Sole commitment to decision making can be disastrous.
- The lack of investment in the enterprise complicates the process of its development.
That is, you should correctly weigh all the advantages and disadvantages before deciding to invest your money in a private enterprise. Perhaps it will be much more profitable to become part of a limited liability company or to organize a joint-stock company issuing securities.
Partnerships of individual enterprises
Now you know that an individual private enterprise differs from joint-stock and state enterprises in that all profit is concentrated around one person. However, this does not mean at all that in such a business there is no place for various forms of association. One of the most common cooperatives is a partnership, the types of which are described slightly below:
- Full partnerships. An organization of this kind is based on the principles of solidarity and full responsibility. The participants in this form of business are responsible to each other not only with the property of the enterprise, but also with their personal property.
- Limited liability partnership. The difference from the previous type is that there is less responsibility to the participants in the cooperative. In the event of bankruptcy, the participant loses only his business.
- Mixed partnerships. This form of business includes not only business participants, but also third-party investors, for whom the person who accepts the investment is responsible.
As you can see, with the help of a partnership you can significantly expand your opportunities for business development, however, along with this, a certain responsibility arises for other participants. That is, an individual enterprise, to some extent, already ceases to be completely individual, and the owner risks losing not only his business, but also personal property.
Legal status of individual business
An individual enterprise is a form of business that is based on the personal responsibility of the entrepreneur. However, this does not mean at all that the businessman has unlimited rights and freedoms. As in any other form of business, an entrepreneur is responsible to the state. In case of violation of the established rules, the property of the company and even the personal property of its owner may be confiscated in favor of the state.
Most often, such offenses are associated with improper organization of wage labor. Therefore, if you decide to organize production and hire several workers for this, you must comply with all the rules of the labor code, otherwise the state may fine you and deprive you of the right to do business.
Can an entrepreneur be an employee?
The enterprise of an individual entrepreneur may need several employees who have to pay wages, which cannot be less than the cost of living. However, for small businesses, even 10 thousand rubles can be a huge amount that you do not want to part with. That is why many people ask the question: "Can an individual entrepreneur be an employee of his business at the same time?"
We answer: yes, maybe, but he will still be registered with the tax service as an individual entrepreneur. Although no one forbids to employ their own wife or son and pay relatives wages with deductions to the pension fund.
Forms of individual enterprises
Based on the information described in the previous section, we can talk about two forms of enterprises that are based on whether the owner is involved in labor activity or if he uses wage workers:
- individual private enterprise - the use of hired labor;
- individual labor activity - independent business management.
Each of these forms has its own characteristics and disadvantages, so you need to choose wisely. Do you have enough time and energy to do business when you have to work with your own hands or is it better to hire assistants?
Small Business Efficiency
If an individual private enterprise is mentioned in a conversation, then most likely it is a form of small business. Of course, compared with large joint-stock companies, such organizations do not have such a large capital, and the number of jobs is very often limited to one dozen. However, this does not mean that the effectiveness of small business is small.
Firstly, the state strongly supports such activities with various cash subsidies and grants, which are very useful for beginning businessmen. Secondly, the lack of large investments allows you to develop much faster than building a large company and starting to make a profit. And thirdly, quite often the success of an enterprise depends on the creative approach of the entrepreneur.
Registration of an individual enterprise
As mentioned earlier, the organization of an individual enterprise is a relatively simple process that does not require much effort. Anyone can become a business owner today. The preparation of all necessary documents takes about 10 days, and the cost of the state duty is from 800 to 1000 rubles (depending on the region).
The remaining investments depend on the complexity of the enterprise that is planned to be organized, but usually they do not exceed several million, or even make up a couple of tens of thousands of rubles. If you want to register as an individual entrepreneur, you should contact the tax service of your city for this. From the documents you need only a passport and a receipt for payment of state duty.
Factors for Creating a Successful Enterprise
Before starting a business in your city, you must first research a specific market segment in which the development of a particular enterprise is planned. It is also necessary to draw up a competent business plan, which would take into account all the necessary expenses and an approximate level of income.
Well, the face of an individual enterprise is high-quality service and good advertising, so you should think through these nuances in advance so that customers are satisfied after the first days of opening. PR business can be carried out at various venues: the Internet, television, radio, newspapers and so on. However, most experts recommend using flyers for budding entrepreneurs - a cheap and practical option.
The company is an independent market entity
Do not forget that the manufactured products will have to be sold somewhere. To do this, you can conclude contracts with wholesalers or engage in retail trade yourself. In both cases, another feature of individual enterprises is manifested - the ability to independently set prices for products. If you are not involved in the production of basic food products (bread, milk, eggs, meat), which should always remain publicly available, then no one forbids setting a price that will correspond to the quality of your products.
This statement is especially relevant for such forms of business that are based on professional creativity. You have the right to demand for the painted picture or sculpture the amount of money that you consider necessary, and the state does not limit your freedom of action in any way. Well, or you can stick to the prices of goods and services that your competitors dictate, so that your products are always in great demand.
Can I not pay taxes?
An individual enterprise is a form of business, and any business should be taxed, which makes up a percentage of the total profit. However, there are various options that allow you to not pay taxes for a certain period of time. For more information on tax holidays, contact your local law center.
As mentioned earlier, the state is moving towards small business owners, so getting such benefits will not be difficult, especially if your company falls into a certain category that your region needs to produce. For example, in the Southern Federal District, the state not only sponsors greenhouse business, but also exempts entrepreneurs from paying taxes for two years.
Video and conclusion
If you still have any questions about starting a business, we strongly recommend that you watch a short video that talks about the rules for registering individual entrepreneurship, which are also relevant in 2019. In it you will find step-by-step instructions, as well as a list of necessary documents that may be required for registration.
We hope that now you better understand how an individual private enterprise differs from a joint-stock company. The latter are focused on attracting outside investors who can also participate in the affairs of the company. An individual entrepreneur invests his own funds in the development of a business, however, he alone receives the proceeds completely.