Publication date: 05.06.2024
Registration of a sole proprietorship in Ukraine: the start of your business journey
In the world of Ukrainian entrepreneurship, there are two main ways to start your own business: register an LLC (Limited Liability Company) or become a Sole Proprietorship (Individual Entrepreneur). And although the LLC registration has its advantages, it is the FOP registration that is the most popular choice for beginners and small businesses.
According to the State Statistics Service, by the beginning of 2023, about 2 million sole proprietorships were registered in Ukraine, which is almost three times more than the number of active LLCs. Why such an advantage? Let's look at specific stories and examples.
Indeed, simplicity is the first and foremost advantage of FOP. If the registration of an LLC requires the preparation of a whole package of documents, the determination of the size of the authorized capital, the appointment of the director of the company, then the registration of the FOP requires a minimum of:
1. Passport and TIN
2. Selection of types of activities under KVED
3. Choice of taxation system
4. Submitting an application online or to the state registrar
Andriy's story illustrates how important it is to choose the right KVED when registering a business, even in the form of an FOP. KVED (Classifier of types of economic activity) determines what exactly you can do. If your activity does not correspond to the selected KVED, this may lead to problems with the tax office.
Fortunately, unlike an LLC, where a change in the KVED requires a meeting of participants and amendments to the charter, this procedure is much simpler in the FOP. Adding KVED, removing KVED or changing the main type of activity takes a few minutes online. This makes the FOP an extremely flexible form for those who are still looking for their business niche.
Another advantage of FOP is simplified accounting and reporting. In contrast to legal entities, which are required to keep full accounting records and submit dozens of reports, everything is much simpler in FOP. This is especially felt in groups 1 and 2 of the single tax.
But there is a flip side to the FOP medal. The main minus is the lack of limitation of liability. If in the case of an LLC, financial risks are limited to the size of the authorized capital (and the founder risks only this amount), then the FOP is responsible for debts with all its property. And if it is not so scary for a beginner with a small turnover, then for a larger business it is a significant risk.
Another important point is brand protection. A sole proprietorship can use a trademark, but TM registration for an individual has its own nuances. It is often easier and more reliable to register a trademark for a legal entity. This is another argument in favor of the transition from a sole proprietorship to an LLC at a certain stage.
And what if the business did not take off? Fortunately, closing a business in the form of an FOP is much easier than liquidating an LLC. If in the second case, the process can drag on for months (inventory, settlements with creditors, liquidation balance sheet), then the termination of the FOP activity is a matter of a few days.
In conclusion, we can say: registration of a sole proprietorship in Ukraine is a great way to start your business journey. Simplicity, speed, flexibility in changing directions (KVED) - all this makes FOP an ideal option for startups, freelancers, representatives of small businesses. But as your business grows, don't forget to analyze the situation. You may at some point need the benefits of LLC registration.
And remember, no matter what form you choose - FOP or LLC - the basis of a successful business is always professional work with documents. Whether it is the choice of KVED during registration, or a change of company address, or registration of a trademark - each document is a brick in the foundation of your success. So entrust their compilation and analysis to professionals.
