Features of individual entrepreneur status
Unfortunately, the level of legal literacy, despite the abundance of lawyers, in our country is often not at a very high level. As a result, even quite promising business ideas turn out to be unrealized for the simple reason that a person was not able to fully understand all the nuances that the status of an individual entrepreneur brings with it.
First of all, we note that the legal status of an individual entrepreneur has a dual nature, therefore, the norms of legislation applicable to individuals, as well as to business entities, are simultaneously applied to him. This duality is caused by the fact that a citizen who has expressed a desire to carry out entrepreneurial activities receives such a right, but at the same time he does not create a new business entity and, to a certain extent, receives a more extensive list of civil rights.
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Features of the activity
The most essential right when acquiring the status of an individual entrepreneur is the ability of a citizen to carry out any entrepreneurial activity not prohibited by law, which allows him to make a profit.
At the same time, he is assigned a number of responsibilities, the fulfillment of which is provided for by the legal status of an individual entrepreneur. For example, for the payment of mandatory tax payments, fees and contributions to extra-budgetary funds. At the same time, in many legal relations, an individual entrepreneur acts on the basis of legal norms for individuals. For example, if he uses vehicles that are registered in his name for commercial purposes, then he pays transport tax as an individual, in the manner established for this category of taxpayers.
There is also no distinction in relation to other property of a citizen-entrepreneur. For example, in the event of his bankruptcy, everything that belongs to the entrepreneur is included in the bankruptcy estate, regardless of the purposes for which this or that property was used.
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Who is an IP?
The main goal of commercial activity is the regular receipt of income, regardless of the chosen area (sale of goods, provision of services, performance of work or income from the use of assets).
An individual entrepreneur is
a duly registered individual who runs his own business for the purpose of making a profit without forming a legal entity.
The law clarifies who can receive this status:
- capable citizens of the Russian Federation over 18 years of age;
- citizens under the specified age, in the case of: legal marriage, consent of parents or persons replacing them (guardians, trustees) to conduct business, court decision that a minor citizen is legally competent;
- non-residents of the Russian Federation and persons without citizenship. For this category of citizens there is a condition of permanent (temporary) residence on the territory of the Russian Federation.
There are also exceptions to this list - employees of state and municipal institutions.
Features of judicial protection of the rights and interests of individual entrepreneurs
Another feature of the status of an individual entrepreneur lies in the options for judicial protection of his interests. Thus, protection of the rights of individual entrepreneurs as a business entity is carried out in Arbitration Courts. And disputes arising from the civil legal relations of an entrepreneur as a citizen are subject to consideration in courts of general jurisdiction. Therefore, it is extremely important in the future of legal proceedings to determine on what basis the individual entrepreneur acts in a given situation, or more precisely, in the capacity of whom - a citizen or an entrepreneur. Depending on this, a further scheme for protecting rights and interests is built.
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On what basis does the IP operate?
Now let’s figure out on what basis the IP operates. When registering an individual as an individual entrepreneur with the tax authority, an individual entrepreneur certificate is issued. To purchase such a certificate, a citizen must write a special application, provide a passport and pre-pay the required fee. Registration of individual entrepreneurs takes place at the place of residence of the individual. faces. In the Unified State Register, each entrepreneur has his own registration number (OGRNIP). The tax authority assigns an individual tax number to the individual entrepreneur. If an individual entrepreneur decides to engage in a licensed type of activity, then in order to carry out such activity it will be necessary to purchase a license.
An individual entrepreneur acting on the basis of a certificate formalizes each transaction with the other party in an agreement. It is in the interests of an individual entrepreneur to enter into an agreement in accordance with the law, which will make it possible to protect his interests in court.
It is prohibited by law to conclude a cooperation agreement between two individual entrepreneurs.
Features of the civil legal status of individual entrepreneurs
Let us note that at the moment there is no legal act that would regulate in detail the civil legal status of an individual entrepreneur. Meanwhile, attempts to prepare such a bill have been made repeatedly, both at the legislative level and in the form of initiatives from various public organizations.
In a number of regions, local legislative acts have been adopted at the local level that emphasize the special position of citizens with individual entrepreneur status.
First of all, these regulatory documents are related to measures to support small businesses. However, the adoption of a unified law at the federal level, which would legislate the specifics of the legal status of individual entrepreneurs, would significantly make life easier for both the entrepreneurs themselves, their counterparties, and government agencies.
For now, it is necessary to be guided by many regulatory documents that contain provisions regarding the status and characteristics of the work of individual entrepreneurs. To reveal in detail all the nuances of the position of a citizen registered as an individual entrepreneur, it makes sense to consider all the strengths and weaknesses of such a situation. By the way, it is precisely this kind of analysis that best allows us to identify the peculiarities of the legal status of an individual entrepreneur.
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Legal status of individual entrepreneurs in the Russian Federation
This article examines the problem of the legal status of Russian individual entrepreneurs in modern society. The author concludes that the main legal problem is that in Russia there is no single approach in legislation to determine the legal status of an individual entrepreneur; as a result, contradictions occur between the economic status and its civil legal status.
Key words : legal status, individual entrepreneur, entrepreneurial activity, individual entrepreneurship, entrepreneur.
This article deals with the problem of the legal status of Russian individual entrepreneurs in modern society. The author concludes that the main legal problem is that in Russia there is no single approach in the legislation to determine the legal status of an individual entrepreneur, as a result of this there are contradictions between the economic status and its civil status.
Key words : legal status, individual entrepreneur, entrepreneurial activity, individual enterprise, entrepreneur.
At the moment in the Russian Federation, individual entrepreneurship is the most popular way of doing business. In our country, today there are 3,221,706 individual entrepreneurs (hereinafter referred to as individual entrepreneurs), according to the unified register, as of January 10, 2020, that is, more than half of all registered medium and small businesses (53.3%), the total number of which is 6,039 216 [3]. These figures tell us that the legal status of individual entrepreneurs has been and remains a very pressing issue, and its problems require further solutions.
The development of individual entrepreneurship occurred in the early 90s. twentieth century, however, its development continues actively to this day. Along with changes in entrepreneurship, the modern regulatory framework responsible for this area also changes. The most interesting thing is that the legal status of individual entrepreneurs in Russia is a fairly common issue and is constantly being researched, but still it is still impossible to identify a single solution to this problem, largely due to the imperfections of Russian legislation [10, p. 66].
This is the first problem of the legal status of individual entrepreneurs - the lack of a clear definition of the legal status of individual entrepreneurs in Russian legislation. There are separate norms that allow regulating the activities of private entrepreneurs; these norms are enshrined in the Russian Constitution. In Art. Article 34 speaks of the recognition of the right of a citizen of the Russian Federation “to freely use his abilities and property for entrepreneurial and other economic activities not prohibited by law” [4].
According to Art. 23 of the Civil Code (hereinafter referred to as the Civil Code of the Russian Federation), a citizen can “engage in entrepreneurial activities without forming a legal entity” [1]. In paragraph 3 of Art. 23 there is a provision according to which business activities are regulated by the same rules as legal entities. But if we look at the Tax Code (hereinafter referred to as the Tax Code of the Russian Federation), it will be clearly clear that in economic terms, the activities of individual entrepreneurs and legal entities are regulated completely differently, and they also bear different responsibilities for it [7].
The definition of an individual entrepreneur as a concept in the Tax Code of the Russian Federation is as follows: “Individual entrepreneurs are individuals registered in the prescribed manner and carrying out entrepreneurial activities without forming a legal entity, the head of peasant (farm) farms” (Article 11 of the Tax Code of the Russian Federation). The activities of such entrepreneurs are regulated by federal laws, to a greater extent by the Federal Law “On State Registration of Legal Entities and Individual Entrepreneurs” dated 08.08.2011 No. 129-FZ (as amended on 31.12.2017) [9], including confirming that The legislative approach regulating the scope of activity of private entrepreneurs and legal entities has a multi-sectoral nature. It follows that “individual entrepreneurs, in accordance with current legislation, do not have independent legal personality. The legislator equates individual entrepreneurs in status either to individuals or to legal entities that are commercial organizations. It seems that this situation is due to the duality of the legal status of an individual entrepreneur: as a citizen (individual) and as a subject of entrepreneurial activity” [2, p.29].
In our opinion, this problem is the most significant, since new problems arise from it. Such as, for example, licensing of certain types of activities and the prohibitions imposed on them for private entrepreneurs: an individual entrepreneur cannot engage in activities related to insurance, alcoholic beverages, various types of weapons, etc. [6, p.52]. Due to the lack of uniform legislative norms in the field of trade, it becomes very difficult for individual entrepreneurs to participate in trade relations.
Due to the fact that a very large number of citizens register themselves as individual entrepreneurs, and not legal entities, we can talk about the need to legally separate this entity, thereby isolating the regulation of its activities from other entities in legislative norms and acts.
Equating individual entrepreneurs with both individuals and organizations is erroneous, since the individual entrepreneur is an intermediate link between them. After all, the legal status of an individual entrepreneur is much broader than the status of an ordinary citizen, since he carries out his activities as an entrepreneur, and at the same time, defining an individual entrepreneur only as a commercial organization is also incorrect, since this does not allow him to fully develop [5].
To find a solution to the problems described above, it is necessary to strictly streamline the rules that regulate the legal status of private entrepreneurs, to adopt a Federal Law that takes into account all the necessary elements that reveal the legal status of individual entrepreneurs, for example, the right to carry out certain types of activities and the procedure for its acquisition [2, p.30].
Also, most authors believe that it is necessary to legislate the definition of individual entrepreneurship in the Civil Code [11, p. 132].
Drawing conclusions from the analysis of the problems of the legal status of individual entrepreneurs in the Russian Federation, the following can be obtained: the most global problem can be called the fact that today there is no general legislative definition of individual entrepreneurs and its legal status. All this is a catalyst for misunderstanding and existing contradictions between the economic status of an individual entrepreneur and its legal status. Moreover, it leads to other, equally serious problems, such as: the administrative and legal status of individual entrepreneurs who are engaged in trade, difficulties in the activities of individual entrepreneurs who have lost their status, and a drop in the rate of state support.
Literature:
1. Civil Code of the Russian Federation (part one) dated November 30, 1994 No. 51-FZ (as amended on December 29, 2017) // Collection of legislation of the Russian Federation. - 05.12.1994. - No. 32. - Art. 3301.
2. Erokhina T.V. General legal status of an individual entrepreneur as the basis of his administrative and legal status [Text] / T.V. Erokhina, Z.M. Kazarosyan // Bulletin of the Saratov State Socio-Economic University. — 2020. — No. 1 (60). — P. 28–30.
3. The number of individual entrepreneurs and legal entities, information about which is contained in the Unified Register of Small and Medium-Sized Enterprises as of 08/01/2016 [Electronic resource]. — Access mode: https://rmsp.nalog.ru/statistics.html (access date: March 26, 2018).
4. The Constitution of the Russian Federation (adopted by popular vote on December 12, 1993) (taking into account the amendments introduced by the Laws of the Russian Federation on amendments to the Constitution of the Russian Federation dated December 30, 2008 No. 6-FKZ, dated December 30, 2008 No. 7-FKZ, dated February 5, 2014 No. 2 -FKZ, dated July 21, 2014 No. 11-FKZ) // Collection of legislation of the Russian Federation. — 08/04/2014. - No. 31. - Art. 4398.
5. Kosimova N. I. The right of citizens to entrepreneurial activity // Lawyer. 1999. No. 10.
6. Mesropova S. What types of activities can an individual entrepreneur engage in? [Text] // Administrative law. - 2014. - No. 2. - P. 51–58.
7. Tax Code of the Russian Federation (Part One) dated July 31, 1998 No. 146-FZ (as amended on December 28, 2017) // Collection of Legislation of the Russian Federation. - No. 31. - 03.08.1998. — St. 3824.
8. Rubanovskaya E. A. Problems of the legal status of an individual entrepreneur [Text] / E. A. Rubanovskaya // Science, education, society: trends and development prospects: materials of the IV International. scientific-practical conf. (Cheboksary, February 26, 2017) / editorial board: O. N. Shirokov [et al.]. — Cheboksary: CNS “Interactive Plus”, 2020. — pp. 218–221. — ISBN 978–5-9909794–2-0.
9. Federal Law of 08.08.2001 N 129-FZ (as amended on 31.12.2017) “On state registration of legal entities and individual entrepreneurs” // Collection of legislation of the Russian Federation. — 08/13/2001. — No. 33 (Part I). — St. 3431.
10. Khodyrev V. A., Nepomnyashchaya N. G. Individual entrepreneur in Russia: individual or legal entity // Innovations in science. 2014. No. 34. pp. 66–77.
11. Chukreev A. A. On the problem of legal definition of entrepreneurial activity [Text] // Russian legal journal. — 2020. — No. 2. — P. 105–120.
Advantages of individual entrepreneur status
Note that all the advantages of registering a citizen as an individual entrepreneur can be divided into two groups:
- advantages compared to the ordinary position of a citizen;
- advantages of an individual entrepreneur compared to other organizational and legal forms of entrepreneurial activity.
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Advantages over ordinary citizens
In comparison with general civil rights, the civil legal status of an individual entrepreneur significantly expands the opportunities of a citizen. The most important thing is that he is given the right to conduct business activities.
A citizen who is not registered as an individual entrepreneur does not have the right to carry out any commercial operations aimed at regularly making a profit.
Otherwise, he may be held accountable, criminal or administrative.
In the field of taxation, an individual entrepreneur is exempt from paying personal income tax, which is mandatory for all citizens of the Russian Federation to pay on most types of income received.
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Advantages over legal entities
An individual entrepreneur has even more advantages compared to legal entities, which are also created to make a profit in the process of carrying out business activities.
For example, the costs of registering an individual entrepreneur are minimal; there is no need to prepare a lot of documents, pay the authorized capital, or search for a legal address. In the process of carrying out his activities, an entrepreneur can do without such mandatory attributes for legal entities as a current account and a seal.
Tax legislation provides for a greater number of tax regimes for individual entrepreneurs, and administrative legislation provides for a smaller amount of penalties. The organizational and legal form of an individual entrepreneur allows him to independently dispose of all income received in the process of carrying out entrepreneurial activities.
The regime for using property, which an individual entrepreneur can use both for commercial purposes and for his own needs, has also been significantly simplified. By the way, family members of an entrepreneur also have the right to dispose of property, including those used in business activities.
Meanwhile, commercial activity is not the only thing an individual entrepreneur can do. The legislation does not limit his right to work for hire, with the exception of certain positions, to be a founder of legal entities, a founder or participant in public organizations, and to enter into various legal relationships as an individual.
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Negative features of the legal status of an individual entrepreneur?
The disadvantages include the fact that an individual entrepreneur as a debtor may lose all his property, including personal property acquired during marriage. An exception may be property provided for in the marriage contract as the personal property of the other half (spouse). Also, property specified in Article 24 of the Civil Code of the Russian Federation and Article 446 of the Civil Code of the Russian Federation cannot be recovered.
Not all large businessmen want to deal with individual entrepreneurs. This may be due to its taxation system, since simplifiers are not VAT payers. But it is not profitable for all enterprises to overpay the VAT amount.
An individual entrepreneur cannot sell his business; he can only sell his property.
Disadvantages of individual entrepreneur status
At the same time, acquiring the status of an individual entrepreneur imposes certain obligations and restrictions on a citizen. We have already noted that from the moment of registration of an individual entrepreneur, a citizen is obliged to make payments established by law to extra-budgetary funds and pay taxes. In addition, he must regularly submit established reporting forms provided for business entities.
And when using hired personnel, the individual entrepreneur is obliged to perform the duties of a tax agent for the transfer of mandatory payments from the income of individuals.
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Limitations of individual entrepreneurs
There are also certain restrictions for persons with the status of individual entrepreneurs. For example, they cannot be accepted into state civil or other service. In addition, there are certain restrictions that directly relate to business activities, for example, a list of activities closed to individual entrepreneurs.
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Disadvantages compared to legal entities
We also note that situations of refusal of a transaction with an individual entrepreneur in favor of a legal entity are not uncommon, since for many managers and business owners, as well as ordinary citizens, the status of a legal entity is more attractive than that of an individual entrepreneur.
The reasons for this opinion are different and require a separate detailed discussion. However, the most significant drawback of the status of an individual entrepreneur, which most often leads to the rejection of such an organizational and legal form, is that the individual entrepreneur is liable for his obligations with all the property owned by him.
The Civil Code provides that an individual entrepreneur carries out his activities at his own risk.
As a result, business failures can lead to the loss of most of the property of the entrepreneur's family.
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What other disadvantages are there?
The property rights of individual entrepreneurs have one more nuance, which for some reason is rarely paid attention to in practice. The fact is that if an entrepreneur is married, then all his income received in the process of carrying out business activities, as well as property acquired for them, in the event of divorce, are subject to division between the spouses.
As a general rule, this division is carried out in equal shares, and property used for commercial purposes is also subject to division. Moreover, even if one of the spouses acquired the status of an entrepreneur before marriage, then all income received from entrepreneurial activity after marriage will be recognized as common property. The only exception is if a marriage contract is concluded between the spouses, which contains a provision on the division of income of the spouse who has the status of an individual entrepreneur.
In addition, an individual entrepreneur does not have the right, without the consent of the spouse, to dispose of real estate that was acquired during marriage, including if this real estate is used exclusively for the purpose of carrying out business activities.
Thus, the legal capacity of an individual entrepreneur is a kind of “expansion” of the rights of an ordinary citizen. This status ensures the right of an individual entrepreneur to greater opportunities in economic activity, but at the same time obliges him to comply with certain requirements not only in the process of entrepreneurial activity, but also in everyday life.
For example, there are often situations when an entrepreneur who has the habit of spending part of the profits from a business on his own needs does the same with targeted funds received as part of supporting a small business or obtaining a loan. And if in the first case there are no restrictions on the use of profits, then in the second situation, this may lead to negative consequences in the future.
In many countries where the legislation provides for a legal status similar to individual entrepreneurs, applicants for such status undergo psychological testing, which makes it possible to determine a person’s ability to run his own business. In Russia, the conditions for acquiring the status of an individual entrepreneur do not yet provide for such a mandatory procedure, which may be why people who lack entrepreneurial spirit often get into business. As a result, many good ideas remain unrealized, and a person becomes disappointed in his abilities.
And if the loss of the status of an individual entrepreneur is also accompanied by serious costs for repaying the debt, then tragedies are not uncommon. All this makes you think once again and firmly weigh your capabilities in realizing your plans.
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Positive sides
After documents confirming the status of an individual entrepreneur have been drawn up, the entrepreneur has special rights and obligations. The most important right is that an individual entrepreneur has the opportunity to carry out activities for the purpose of making a profit.
An individual entrepreneur with civil legal status is exempt from the obligation to make tax payments (they are calculated on the amount of income received by individuals). To register legal status, a number of necessary documents are collected, their number is minimal. The costs associated with the relevant registration are somewhat lower than for registration of other forms of law.
Individual entrepreneurs are subject to fines for violating provisions defined at the legislative level. However, their size is significantly less than the amount of fines that legal entities have to pay. When creating an individual entrepreneur, each business entity must open an account through which non-cash transactions will be carried out.
Legal entities have the opportunity to dispose of profits at their own discretion. Unlike individual entrepreneurs, persons registered as a limited liability company must wait until the moment of distribution of profits in order to benefit from the results of their activities.
The advantage of the status of an individual entrepreneur is that he has the right to use his property in a simplified manner. An individual acting as an entrepreneur and his family have the right to use all property without restrictions, even if it is involved in the implementation of commercial activities. This provision is valid until the loss of the status of an individual entrepreneur occurs.
Individual entrepreneurs have the opportunity to carry out combined activities related to entrepreneurship and other types of non-profit activities.
Rights and obligations of an individual entrepreneur as a citizen
These rights are inherent to individuals engaged in entrepreneurial activities due to the fact that, after registering as entrepreneurs, they do not lose the rights that they have as citizens of the Russian Federation. In addition to the rights and responsibilities classified under other types, these include the following.
Rights:
- the right to private property and use it at one’s own discretion,
- the right to use one’s abilities and property to carry out one’s business, including anywhere in the Russian Federation,
- the right to use medical, social and pension insurance systems.
The general civil responsibilities of an entrepreneur are as follows:
- comply with legal requirements,
- treat nature and the environment with care,
- perform military duty, despite being registered as an entrepreneur.
Rights and obligations of an individual entrepreneur as an employer
The activities of an entrepreneur can be carried out either with the involvement of hired labor or independently. But it’s no secret that using the work of others, you can earn much more than if you work alone. But the status of an employer imposes on an individual entrepreneur much more responsibilities than if he were engaged in activities alone.
Here are just a few basic rights granted to an individual entrepreneur by law as an employer:
- use the hired labor of other individuals, both on the basis of employment contracts and on the basis of civil law contracts,
- apply disciplinary measures and material sanctions to employees in case of improper performance of their labor duties,
- dismiss employees in cases provided for by labor legislation,
- demand compensation for damage caused by employees.
The main responsibilities of an individual entrepreneur in the field of labor relations include the following:
- keep personnel records of employees, as well as records of their working hours and other labor indicators,
- enter into collective bargaining with employees or their representatives if they initiate it,
- pay wages to employees in a timely manner and in full, and make other payments provided for by law to them,
- calculate and withhold income tax from employees’ wages, that is, act as a tax agent,
- comply with the requirements for military registration of military personnel.
