When starting a business, do entrepreneurs hesitate to choose between being an individual business owner, a sole proprietorship, or a one-person limited liability company? What are the similarities and differences among these three different forms of law? Exclusive Easy Finance and Taxation explains the core differences in just 3 minutes, helping you master the essential finance and taxation survival guide - save money and be compliant!

Overview of the Three Main Forms

       Individual business operator: A natural person engaged in industrial and commercial operations without legal person status

       Sole proprietorship: Invested by a single natural person, the property belongs to the investor personally

       One-person limited liability company: A limited liability company with only one natural person shareholder or corporate shareholder

What are the differences between the second and third forms of the subject?

The comparison of the three main forms is shown in the following figure:

What are the differences in terms of tax costs?

       Value-added tax

There is no essential difference among the three forms, and all are subject to the policies for small-scale taxpayers or general taxpayers.

       Income tax

Individual business operators: The excess cumulative tax rate (business income) ranges from 5% to 35%. Before December 31, 2027, they can enjoy a 50% reduction policy.

Sole proprietorship enterprises: A progressive tax rate of 5% to 35% (for business income), and no halving policy is enjoyed.

One-person limited liability company: Enjoy the preferential income tax policies for small and micro-sized enterprises.

       Tax incentives

All three can enjoy the value-added tax preferential policies for small-scale taxpayers.

What suggestions are there for choosing among the three main forms?

1. Situations suitable for choosing an individual business owner

Small-scale and low-risk businesses (such as community stores and online stores)

During the initial trial stage, the business scale was relatively small

I hope the procedures are simple and the cost is low

 No financing or brand operation is required

Simple management, family-style operation

2. Situations suitable for choosing a sole proprietorship:

A certain brand image is needed but the scale is not large

Service-oriented and consulting businesses (such as design studios)

I hope the tax burden is relatively low but more formal than that of an individual business

There might be a need for small-scale expansion

The management is relatively simple and there is an independent team

3. Situations suitable for choosing a one-person limited liability company:

High business risks (such as in trade and production)

Plan to raise funds or introduce investors in the future

It is necessary to establish a formal corporate image

The business scale is large or the development prospects are good

I hope to separate my personal property from the enterprise

The management is relatively standardized

Risk Warning!

       Unlimited liability risk: Sole proprietors and individual investors are required to bear unlimited liability with their personal assets

       Tax compliance risk: One-person companies need to guard against tax risks caused by the confusion of public and private accounts

       Development limitation risk: The sole proprietorship form may restrict business development and financing opportunities

       Conversion cost risk: There will be additional costs when converting from an individual business owner to a company in the later stage

What operation suggestions do you have?

Assess the degree of business risk and the expected scale

Consider future development plans and financing needs

Consult professional financial and tax advisors for customized solutions

After the business stabilizes, the main form can be considered for optimization

       Entrepreneurs should choose the most suitable form of business entity based on their own business characteristics, risk tolerance and development plans. If you have any further questions, please feel free to consult our professional advisors at any time.