Individual entrepreneur and limited liability company are the most common forms of business ownership in Russia. But can an IP be a founder of an LLC? Is it legal? What consequences will this entail for an entrepreneur? And can there be any complaints from regulatory authorities? It is worthwhile to understand these issues before taking actions related to the design of a new organizational form.
Is it possible from the point of view of legislation?
The seventh article of Federal Law No. 14 on LLC states that a citizen or a legal entity may become the founder of such a company. And what about individual entrepreneurs? Do they have such a right? The law states that a resident of an organization cannot be a deputy, a military servant in any rank, an employee of a state institution, a company with one member, and a local government and state authority. Therefore, the answer to the question of order, can an individual entrepreneur be the founder of an LLC - yes, it can, but it will act as a private equity fund. A person, at his own request, can reserve both legal forms, while conducting a kind of “double business”, that is, activities from an entrepreneur and from a member of the company will have clear boundaries.
In the documents of the LLC, for example, in an extract from the register, the information on entrepreneurship will not be contained, only the data of the person as an individual will be reflected there.
Why might this be needed?
Is it possible for an individual entrepreneur to be a founder of an LLC? But why might this be needed? The reasons are varied. The most common - a person started a business as an entrepreneur, later the company expanded, “appetites increased” and it was necessary to attract investments, an impressive amount of loans from banks. Everyone knows that it is easier for a legal entity to do this.
The prestige of a limited liability company carries more weight than individual businessmen. It is easier for an organization to find a partner, participate in tenders and government orders, in addition, entrepreneurs are not allowed to engage in certain types of activities (alcohol production, insurance and others), conduct joint business, or simply appoint a director. If you want to conclude a financially large transaction, one person loses to the organization in the matter of approval by potential partners under the agreement.
True, in these cases, when the business is expanding, but the scope of activity does not change, it is better to close the IP. Firstly, it will be easier to conduct business and documentation, Secondly, there will be fewer questions from regulatory authorities.
Will this relieve you of responsibilities?
One cannot argue with the advantages of opening a legal entity when expanding a business. But will this free the entrepreneur from the costs? A member of the company is responsible only for its part of the authorized capital, while the individual entrepreneur bears full responsibility with all his property (of course, excluding the only living space). Since affairs will be conducted separately, in no case will not be released. These will be two completely different businesses, and a citizen will conduct business and respond to obligations differently. Therefore, can an individual entrepreneur be the founder of an LLC - yes, will an entrepreneur also respond with his personal savings - yes.
The founder decided to open an IP
What about whether the founder of an LLC can open an IP? Legal forms can be opened in any order; they do not exclude each other. In this case, the rights and obligations of a person will be the same as when registering in the reverse order, that is, they will be two different areas of activity. Only the bottom should be added: if a participant in a legal entity has registered entrepreneurship in order to withdraw money from the organization’s bank account unlimitedly, nothing will work. IP and its capabilities have nothing to do with LLC. These are two different businesses. That is, dividends will be paid in the standard manner: no more than once a quarter (and preferably once a year), and only when the company has profit and it does not suffer losses.
What are the risks?
Problems in the interaction of the two legal norms are possible; in such situations, the tax authorities use the concept of “interdependent persons”. In cases where transactions are made between the individual entrepreneur and LLC, the prices of which are much lower than market prices, fines will occur. For example, an organization supplies products from an entrepreneur and its price is clearly underestimated. However, when no economic relations are made, then no problems arise.
Can an individual entrepreneur be an LLC founder and director?
The issue is relevant and worries many entrepreneurs. Can an individual entrepreneur become a founder of an LLC - yes, but is there any chance of appointing him as a director? An entrepreneur may be the head of an organization, but there are a number of nuances from such interactions. Registration is possible in two ways: through an employment contract (as an employee) or through an agreement with an individual entrepreneur who provides management services.
From the point of view of tax authorities, the first way is the only one possible. This logic is easy to understand - the tax burden is greater. The organization will need to withhold the standard thirteen percent of personal income tax from its salary and pay thirty percent of the premium to the pension fund. Of course, the tax liabilities of an entrepreneur working under a contract for the provision of services will be many times lower, but a field audit from the IFTS is inevitable.
Conclusion: it is better not to try to transfer the management of the company to an individual entrepreneur, let alone entrust accounting to him, this will definitely be perceived as a tax scheme.
It is necessary to clarify, the very fact that a person in the status of individual entrepreneur manages the organization is possible. The option of such registration is excluded if it is also the founder. That is, if this is really a third-party businessman hired to work, no proceedings will follow, and his remuneration will fall into the accounting article “expenses”. The need to pay personal income tax and insurance premiums disappears, and the entrepreneur will pay his taxes himself.
This option is possible only in the following circumstances:
- This will not be the person who was previously listed in the company under an employment contract.
- Registration of an individual entrepreneur was completed much earlier than the deal.
- In businessman’s OKVED codes, the main type of activity is management.
- The content of the paid services contract is different with the provisions of the labor contract, is not tied to hourly pay, the organization does not create working conditions and a workplace for the manager, and there is no work schedule.
Taxes
Tax liabilities are strictly distinguished between the organization and the entrepreneur. This means that taxes on activities carried out by individual entrepreneurs will remain on the same system as before the opening of the company. Similarly, payments to the budget from LLC will be fully reproduced according to the selected taxation system, with all insurance contributions paid for individuals in their composition. There is no way to reduce the tax, and there can be no exceptions here.
Documentation Features
It is clear whether the individual entrepreneur can be the founder of an LLC, for this he will need to fill out and submit the P11001 form, which, incidentally, does not contain a point where you could indicate your status as a businessman; it is filled in on behalf of the citizen. In the state register, as mentioned earlier, a person will also act as an individual.
Is it possible to open an IP for the founder of an LLC - yes, for this it will be necessary to fill out form P21001, which again has nowhere to indicate the fact of incorporation in a business company.
In the future, it is desirable to ensure that activities carried out under two different legal forms do not come into contact with each other in any way, in particular, no transactions are concluded among themselves so that regulatory authorities do not suspect interdependence.
Can an individual entrepreneur be a founder of an LLC and a CEO in one person - only as an individual. That is, a citizen should be accepted for this position under a standard labor contract, he will be accrued wages corresponding to labor market standards, and with it the organization must deduct taxes on personal income, and also pay insurance premiums. Only in this case will it be possible to calmly combine two activities.
Tax reports and contributions will be submitted twice - from an individual entrepreneur and from a limited liability company, according to the chosen form of taxation, and in each of the declarations the information will be completely different, without any mention of the second business.
Conclusion
The legislation does not have any prohibitions on whether an IP can be a founder of an LLC. The main question is why a person needed to combine two forms of ownership. In the event that a citizen will simply do business as an entrepreneur, while receiving dividends from another business - no problems will arise. But if he tries to reduce the tax burden in this way or engage in any financial schemes, questions from regulatory authorities cannot be avoided.