Novice and experienced entrepreneurs must decide between registering as an individual entrepreneur or as a legal entity. Each option has its pros and cons that can impact the business’s future development.
Registering as an individual entrepreneur is simple and cost-effective in terms of accounting. However, forming a legal entity can provide more opportunities for growth and investment. This article will evaluate the advantages and disadvantages of both options to help you decide what’s best for your business.
When Can I Register as an Individual Entrepreneur
Anyone can register for entrepreneurial activity, usually starting at age 18, although some may be able to do so earlier. We suggest consulting lawyers and state registration specialists for assistance.
Requirements for a Person who Wishes to Become an Individual Entrepreneur
There are certain requirements for an individual who wants to become an individual entrepreneur, except for legal capacity:
- There is no outstanding criminal record related to crimes against property and economic activity.
- No debt on executive documents regarding monetary or property penalties, tax collection, or mandatory payments exists.
- He is not the owner, shareholder, or head of a liquidated private company. Still, the liquidation process had not yet been completed (at the time of state registration).
- He is not the owner of the property (shareholder) or the head of the company in respect of which the bankruptcy case is being conducted (at the time of state registration).
- As of the date of state registration, he is not the owner of the property (participant) of the company or individual entrepreneur whose debt was declared uncollectible and written off. Less than three years have passed since he was excluded from the Unified State Register of Legal Entities and Individual Entrepreneurs.
- At the time of state registration, he was not an individual entrepreneur and had been declared bankrupt. Less than a year had passed since he was excluded from the Unified State Register of Legal Entities and Individual Entrepreneurs.
- Submitting an application for state registration is not restricted because a previous registration is recognized as invalid.
- There are no other restrictions on doing business.
Requirements for the Types of Entrepreneurial Activity of Individual Entrepreneurs
The government of Belarus has defined a list of activities that individual entrepreneurs can engage in. These types are taken from the national classifier of the Republic of Belarus OKRB 005-2011 “Types of economic activity.” The list has 87 types of activities. It includes programming, data processing, and providing space and time for online advertising (except online media).
The main type of activity of the individual entrepreneur must be indicated in the application for state registration.
If you are considering a specific activity, we highly recommend consulting with our state registration lawyer. They can assist you in navigating the updated list of permissible activities, which took effect on October 1, 2024, and excludes some long-standing activities for individual entrepreneurs.
Additionally, the Belarusian government has introduced a streamlined process for individual entrepreneurs to become legal entities (companies). This status enhances your credibility and fosters greater trust within the business community, especially when working with larger companies.
Features of Registration of Individual Entrepreneurs
In Belarus, registering as an individual entrepreneur is quick. The registration authority reviews your application within one working day. Within five days, they forward the documents to the tax inspectorate, Social Protection Fund, Belgosstrakh, and your bank (if a bank account was requested).
The state fee is 20 Belarusian rubles (about 6 euros). You’ll need to return to collect your accounting documents from the agencies and the bank.
An individual entrepreneur can issue a power of attorney to a lawyer representative so that he takes care of all issues of state registration, represents the interests of the individual entrepreneur in government agencies and receives the necessary documents from them.
After state registration, an individual entrepreneur can hire staff (no more than 3 people), including employees and contractors.
Features of the Transformation of an Individual Entrepreneur into a Legal Entity
Only those individual entrepreneurs whose activities are not included in the list of permitted types of activities can transfer to a legal entity in a simplified “seamless” manner. All individual entrepreneurs can take advantage of an excellent opportunity to strengthen their status in the business community.
Steps to Transfer an Individual Entrepreneur to a Legal Entity
The specific steps may vary for individual entrepreneurs who have or do not have employees engaged in licensed activities, participate in procurement and stock trading, and do not have websites. We offer a short step-by-step algorithm:
Step 1. Dismiss employees (if the individual entrepreneur has hired staff), offer them a transfer to a new company
Employees should be notified in writing about the upcoming dismissal no later than 30 days before the dismissal. Employees must be dismissed no later than 1 day before submitting documents for state registration of a legal entity. Upon dismissal, all necessary payments must be made to employees. No later than one month before the registration of a legal entity, entrepreneurship employees are offered to transfer to a new company.
Step 2. Submit reports and pay contributions to the Social Protection Fund
The individual entrepreneur transfers the personal accounting data of employees to the Social Protection Fund, pays contributions and submits reports.
Step 3. Determine the organizational and legal form of the future legal entity and coordinate its name with the registration authority
If you have difficulties choosing the form of your future company, please contact our lawyer for advice. To agree on the company name, you need to send an electronic request for approval to the registration authority. The agreed name is valid for one month. You need to register a company within this month; otherwise, you will have to get approval for a new name.
Step 4. Determine the location of the company
Bonus for individual entrepreneurs who “seamlessly” transfer to a legal entity: the company can be located in a housing that belongs to the individual entrepreneur entirely or with other owners. In the latter case, you need to ask for written consent from other owners.
Step 5. Make a written decision to establish a legal entity, develop a charter, and draft a transfer act
Our experienced lawyer will develop a solution for you. You only need to determine the size of the company’s authorized capital, name, and location. Our lawyer can also develop the charter for you.
We recommend creating a transfer agreement that details the obligations and assets being transferred from the individual entrepreneur to the legal entity. Complete this before removing the individual entrepreneur from the Unified State Register, and consult our lawyers for assistance.
Step 6. Notify the creditors of the individual entrepreneur of the transfer of his rights and obligations to a legal entity
We recommend sending such a notification to each creditor. You can consult with our lawyer regarding the preparation of such notifications.
Step 7. Submit documents for state registration of a legal entity
For state registration of a new company, you must submit to the registration authority or a notary in person, through a representative, or electronically:
- An application for state registration by the requirements for transferring from an individual entrepreneur to a legal entity.
- The charter is in two copies.
- Certificate of registration of an individual entrepreneur.
- The decision to create a company.
- A document confirming the consent of family members to the location of a legal entity in a residential building.
The transition from an individual entrepreneur to a legal entity occurs on the same day. The new company is given a certificate of state registration and a charter with a registration stamp. Within five working days, the legal entity is issued documents on registration with the necessary state registration.
Next, the registered legal entity must transfer to itself the obligations, cash register equipment, forms, and other assets that belonged to the individual entrepreneur. We recommend that you consult a lawyer on the issue of making a transfer.
Disadvantages of Transformation of an Individual Entrepreneur into a Legal Entity
Transforming into a legal entity offers more advantages than disadvantages, especially for business scaling. However, there are disadvantages for some categories of individual entrepreneurs:
1. You cannot transfer to a legal entity if the individual entrepreneur is included in the list of persons involved in extremist and terrorist activities.
2. Utility fees from legal entities registered in residential premises are charged at the maximum allowable rates.
3. A transfer act must be drawn up and transferred to the tax service. It may cause difficulties, particularly when transferring VAT amounts from an individual entrepreneur to a legal entity.
4. You must file a tax return and transfer information about the remaining traceable goods to the tax service.
5. Formalizing the termination of employment relations with employees who transfer to a legal entity or leave is necessary.
6. A company that grows from individual entrepreneurship must complete tasks to meet individual entrepreneurs’ obligations. This process takes resources away from business activities.
Advantages for Individual Entrepreneurs of Transformation into a Legal Entity
1. You do not need to immediately reissue all documents to the company (contracts, EDS, loans, and others). The documents can be reissued within one year (12 months) from the date of the new company’s state registration.
2. The transfer of property from an individual entrepreneur to a new company during the transition process does not apply to cases of sale of property. Accordingly, taxes on the sale of property do not need to be paid. It is transferred according to the transfer act.
3. The individual entrepreneur is not limited by the organizational and legal form of the company into which he transfers his entrepreneurship activities. He can create any company with one founder: a unitary enterprise, a limited liability company, a company with additional liability, or a joint-stock company. Regarding the choice of the organizational and legal form of the company during the transition from individual entrepreneurship, we recommend that you get advice from our experienced lawyer.
We also recommend that you get advice from our intellectual property lawyer on reissuing the rights to the entrepreneurship’s website (domain name) when transferring to a legal entity.
4. You can transfer ownership to a legal entity despite any legal disputes involving individual entrepreneurs, even if bailiffs have seized their funds or property. You can resolve these issues at any stage of the judicial process, including enforcement proceedings. We recommend contacting a lawyer, who will create a plan and represent you in court and with the Division for Compulsory Enforcement.
5. A legal entity created during the transition from individual entrepreneurship may be located (have a legal address) in a residential building.
6. Individual entrepreneurs do not need to go through the liquidation procedure and tax audits to transfer to a legal entity.
7. When a new company is brought to economic responsibility, the amount of fines is sometimes determined as for individual entrepreneurs (this is lower than for legal entities).
After registering with the state, a commercial organization needs to perform several actions to transfer various obligations to the individual entrepreneur. Lawyer can represent the interests of your new company before creditors and government authorities and draw up all the necessary documents.
8. A legal entity, like an individual entrepreneur, is not limited in the number of employees. It provides an opportunity for business development and scaling.
Conclusion
Registering as an individual entrepreneur or transferring your business to a legal entity is an important step. It requires careful analysis. The advantages of individual entrepreneurs include simplified tax processes, lack of accounting, and minimal costs for registration and business operations. However, the risks associated with personal liability for obligations can be significant.
On the other hand, a legal entity provides protection for personal assets and opens up more opportunities for attracting investments and cooperation with large partners. However, it requires more complex administration and increases the cost of maintaining a business. At the same time, a number of benefits have been established for a legal entity created upon transition from individual entrepreneurship.
The choice between an individual entrepreneur and a legal entity should be based on your business goals, the nature of your business, the level of financial risks, and growth prospects. Consulting with an experienced lawyer and accountant will help you make the best decision that suits your needs.
Contact us
If you have any questions or disputes regarding business organization in Belarus, we will be happy to help! Our long-term experience in divident payment will help you resolve any disputes in this area.
- +37529366-44-77 (WhatsApp, Viber, Telegram);
- info@ambylegal.by.
