- A sole proprietor is liable for debts with all their personal assets, an LLC with what was put into the company.
- On your own, small risks and turnover: usually a sole proprietorship. Partners, an investor, plans to grow: an LLC.
- An LLC can also pay the 5% single tax. The numbers have to be run before registration.
Decided to start a business and stuck between a sole proprietorship (FOP) and an LLC? Most people choose at random or “like everyone else”. And then they either overpay taxes or, if debts arise, answer for them with their own flat.
Let's work out in a few minutes what suits you.
What you're risking
The main difference, which few people think about at the start, is liability.
A sole proprietor is liable for debts with all their personal assets. Flat, car, money on the card. An LLC is liable with what was put into the company. If the business involves risk (large contracts, loans, penalties), this is the deciding point.
There's a nuance: in some cases the law allows a company's debts to be recovered from its owners or director, for example when they drive it into bankruptcy. But the general rule is as above.
Partners and scale
If you're on your own and turnover is small, a sole proprietorship is usually enough. It's simpler and cheaper.
But if you have a partner, an investor, or plan to grow and divide shares, you need an LLC. A partnership can't legally be set up in a sole proprietorship. You can't sell or give away a share in it; it simply doesn't exist. And that's a source of future conflicts: “we agreed 50/50” doesn't work when everything is in one person's name.
Taxes
A sole proprietor has a simplified system and minimal reporting. An LLC has more options, but the accounting is more complex.
Many people fear an LLC because of the 18% corporate profit tax. But an LLC can perfectly well be on the group 3 single tax: 5% of revenue, or 3% if you're a VAT payer. I wrote about this separately: an LLC can pay 5% too.
| Sole proprietor (FOP) | LLC | |
|---|---|---|
| Liability | With all personal assets | With what was put into the company |
| Partners and investors | No way to give a share | Shares in the authorised capital |
| Taxes | Single tax, groups 1–3 | Group 3 single tax or the general system |
| Accounting | Simpler | Needs an accountant |
| Who it suits | On your own, small risks | Partners, risks, plans to grow |
The sole proprietor ceiling
There's a moment when a sole proprietorship starts working against you, and few people notice it in time.
At first it all makes sense: low tax, simple reporting, more money coming in. Then the business grows and warning bells start ringing. Turnover is creeping up to the limit, and you're afraid of one order too many in December. A big client says it only works with VAT payers, and the deal falls through. A partner comes along, and there's no way to give them a share.
These limits build up gradually, and it's easy to blame the market. In fact you've simply hit the ceiling of your business form. Switching to an LLC isn't as scary as it seems. The key is to do it in time, before you lose a client or fall out with a partner over the unresolved question of shares.
Three sole proprietorships per family
To stay under the limit, a business is sometimes “split”: sole proprietorships for yourself, your wife and your mother. The tax office sees the shared premises, the same activity codes and the same clients, adds the turnover together and reassesses everything with a fine.
Splitting as such isn't prohibited. There's only one question: is there real, separate activity behind each sole proprietorship, or is it the same business in relatives' names.
The short formula
On your own, small risks, modest turnover: a sole proprietorship. Partners, risks, plans to scale: an LLC.
But the line is finer than it looks, and a mistake at the start costs money later. So I advise not guessing but running the numbers for your own business: what you'd pay under each option and what happens when the business grows.
Ready to start? Here's sole proprietor registration in Lviv and turnkey LLC registration.
Frequently asked questions
Can I have a sole proprietorship and an LLC at the same time?
Yes. What matters is that it doesn't look like a scheme where one and the same business is split across two forms purely for tax reasons.
How much does it cost to open an LLC?
State registration is free. Turnkey, with articles, activity codes and the tax system, it's from €150 with me.
Can I move from a sole proprietorship to an LLC without losing clients?
Yes, but contracts with clients will have to be re-signed with the company. It's better to plan the switch in advance, not in December when the limit is almost used up.
This article is general in nature and is not legal advice. Every situation has its own nuances.
