In this article, we discuss which type of business to choose: sole trader or LLC.
As a sole trader, you can conduct business without establishing a company.
Limited Liability Company (LLC) is the most common form of company in Ukraine. LLC can be established by one or more individuals or legal entities.
When to choose a sole trader?
Individual entrepreneurs choose a sole trader when they want to conduct their business, perform work or provide services independently.
Foreigners can be registered as sole traders if they stay in Ukraine legally. The legality of a foreigner's stay in Ukraine can be confirmed, for example, by a permanent or temporary residence permit on the basis of marriage with a Ukrainian or employment in Ukraine, a housing lease agreement, etc.
Advantages of a sole trader
- Minimum package of documents for registration: passport, identification code, proof of legal residence.
- Possibility to choose a simplified taxation system: 5% rate (during martial law — 2%) if the income is up to US$200,000; if more — 18% and military tax 1.5%.
- Possibility to receive profit to a personal bank account after it is credited from a counterparty to a business account.
- Simple accounting (as usual, sole traders submit financial reports and pay taxes without the assistance of a professional accountant).
Disadvantages of a sole trader
- Liability for obligations related to business activities with all personal property.
- Not suitable for joint business and collective decision-making.
Starting from April 1, 2023, foreigners will be able remotely to obtain the status of an electronic resident (e-resident) and open a sole trader, bank account, pay taxes on a simplified system (5%), report to the tax authorities while abroad. An e-resident can be an entrepreneur in any export industry. For example, e-residency may be interesting for representatives of the IT sphere or persons living in countries with unstable economic systems.
When to choose LLC?
LLC can be chosen if a) you need to limit the liability of a member(s); b) if you plan to conduct joint business, own shares of the company and make decisions together.
Advantages of LLC
- You can do business independently as well as jointly with other individuals and/or legal entities on mutually agreed terms.
- To register LLC, it is not necessary to be present in Ukraine — registration is possible through a representative under a power of attorney.
- After registration on behalf of LLC, it is possible to apply for a work permit for a foreigner (e.g., to employ a foreigner as a director of LLC), which is the basis for obtaining a temporary residence permit in Ukraine.
- There is no minimum amount of authorized capital. It is possible to form the authorized capital within six months after the registration of LLC.
- LLC is liable for obligations with all its property. The founders are not liable for LLC obligations.
- LLC can open branches and representative offices.
- It is possible to change LLC owners and its organizational and legal forms for a few days.
Disadvantages of LLC
- To register LLC, you need to prepare a larger package of documents: constituent documents (articles of association, decisions on foundation, on appointment of director, etc.), information about the founders and ultimate beneficial owners, etc.
- During registration, it is also necessary to provide information about the Ukrainian director of LLC and its legal address in Ukraine (if you don`t have ones, you can use a nominal director and nominal address for additional fees). After registration, the Ukrainian director can be replaced by a foreigner residing in Ukraine, having obtained a work permit for him/her in Ukraine.
- Reporting for LLCs is more complicated than for sole traders — usually, you need to involve a professional accountant.
- The possibility of getting a profit only after distributing dividends among LLC members.
- LLC with foreign founders can choose only the general taxation system (18% rate and 1.5% military duty).
What documents are required for sole trader registration?
- Registration statement.
- Notarized power of attorney if a representative registers a sole trader.
- Passport with notarized translation into Ukrainian;
- Identification code (if you don`t have it, it can be obtained in 2 days);
- Temporary residence permit in Ukraine, housing lease agreement, residence registration, etc.
What documents are required for LLC registration?
- Registration statement.
- Notarized power of attorney if a representative registers LLC.
- Notarized and signed by the founder or representative by power of attorney charter, decision on the establishment of the company and on appointment of the director.
- If the founder is a natural person, a copy of his passport and identification code is required; if a legal entity — a copy of the charter. Foreign companies additionally submit an extract from the foreign register on the registration of this company.
- The notarized ownership structure of the company and a copy of the passports of the ultimate beneficial owners.
All documents issued abroad must be apostilled or legalized.
How to open a sole trader?
You can also apply for registration independently or through a representative under a power of attorney to the state registrar or notary.
How to open LLC?
Documents for LLC registration are submitted to the state registrar or notary. The state registrar accepts documents free of charge at the registration centres at the company's location. A notary registers an LLC for additional fees, but the advantage is that he will immediately check whether all the documents are submitted and whether they are properly executed.