Sole proprietor or LLP: what to choose when starting out in Almaty

You have decided to start a business in Almaty and are facing a choice: register a sole proprietor or set up an LLP. This decision affects your taxes, the level of personal liability, and your ability to bring in partners and investors. Many people mistakenly believe that a sole proprietor is simpler and cheaper, and that an LLP is only for large companies. In practice, it all depends on your activity, your plans and your willingness to risk personal property.

A mistake at the start can mean that a year later you have to close the sole proprietorship and open an LLP, or vice versa. Changing form takes time, money and attention to detail. On top of that, some types of activity are permitted only for legal entities, while certain tax regimes are available only to sole proprietors. Let us look at the key differences so you can make a considered decision.

Sole proprietor or LLP in Almaty: how the forms differ for a start

Choosing between a sole proprietor and an LLP in Almaty is not only about taxes. The form determines what you stand to lose, how you look to clients and partners, and whether you can scale. So at the start it is important to understand which criteria are critical for you.

A sole proprietor is registered to a natural person, an LLP is a legal entity with charter capital. A sole proprietor is liable for debts with personal property, while LLP participants risk only up to their contribution. Another difference: a sole proprietor has no shares, so investment through a share cannot be attracted, although the law allows joint entrepreneurship of spouses, family or a simple partnership, while an LLP allows shares to be distributed and participants to exit.

• Personal liability: for a sole proprietor — with all property, for an LLP — only with the contribution.
• Partners and investors: a sole proprietor has no shares, so an investor's entry and the sale of part of the business are arranged through an LLP.
• Scale and status: an LLP is easier to scale and looks more solid to large clients.
• Taxes and regimes: it is necessary to compare not only the rates, but also the permitted limits and types of activity.

Taxes and regimes when choosing a sole proprietor or an LLP in Kazakhstan

When choosing a sole proprietor or an LLP, taxes are determined not by the form, but by the regime and the type of activity. A sole proprietor may be on the generally established or a special regime, an LLP — on the generally established or a special regime for small business. Which tax regime to choose for a sole proprietor or an LLP is decided for the specific activity.

Check whether the activity falls under special regimes: for some they are unavailable, then only the generally established regime remains. Rates and limits depend on the regime and income, so compare a sole proprietor or an LLP on the simplified declaration and on the generally established regime using your own figures. It is impossible to change the regime or form retroactively.

What should be checked before submitting documents:

• Whether the type of activity fits a special regime
• Expected income and limits under the regime
• Whether the LLP form is needed for the business objectives
• How important simplicity of accounting and reporting is

Rates and limits depend on the chosen regime and income.

When an individual entrepreneur or LLP is not suitable due to the type of activity

The choice between an individual entrepreneur and an LLP is sometimes dictated not by tax benefits but by the type of activity itself. Certain areas are closed to individual entrepreneurship: licensed activities often require the status of a legal entity, and then an LLP becomes not a preference but a condition of work. Therefore, before registering, it is worth checking what exactly you plan to do.

The restrictions are set by laws on licensing and special permits, and they change periodically. For retail, catering and household services, an individual entrepreneur is suitable if there are no prohibitions for the specific area. Construction activity, however, may require a licence or permit, and here the form affects access to work. Check your OKED against the state register of permits and notifications.

• Construction: a licence or permit is often required
• Licensed areas: some licences are issued only to a legal entity
• Shop, catering, household services: an individual entrepreneur is possible if there are no restrictions
• Services in regulated sectors: first we check the requirements, then the form

Registration of an individual entrepreneur or LLP in Almaty: documents and timelines

Registration of an individual entrepreneur in Almaty takes place with the state revenue authorities on a notification basis, while an LLP is registered by the justice authorities — documents are submitted via eGov or a Public Service Centre. For an individual entrepreneur, an identity document and a notification of commencement of activity are sufficient. For an LLP, a decision or minutes of the founders' meeting, the charter, information on the founders and the legal address will be required. The charter capital of an LLP is formed by the founders.

Before submitting, check: the name of the LLP, the founders' details, the address, the types of activity. For an individual entrepreneur, prepare an identity document and the details for the notification of commencement of activity. Below is a summary of the documents and timelines.

The data is provided for the Almaty region; please confirm the exact timeframe when submitting.

Personal liability: what an individual entrepreneur or LLP risks

The most sensitive question at the start is what you actually risk. An individual entrepreneur is liable for obligations with all of their personal property, except for that which cannot be subject to enforcement by law. LLP participants are not liable for the company's debts and risk only their contribution to the charter capital, but there are exceptions to this rule: in the event of bankruptcy, subsidiary liability of the participants and the director is possible.

Because of this, the risks when choosing between an individual entrepreneur and an LLP are distributed differently. When granting a loan or credit, banks often require the personal guarantee of the director or an LLP participant, and then limited liability ceases to work. Typical mistakes at the start: mixing personal and business accounts, working without written contracts, and giving guarantees without assessing the consequences. Separate your money from the outset and put agreements in writing.

Partners and investors: when an individual entrepreneur or LLP hinders growth

For a partnership business, an individual entrepreneur or LLP is not a formality but a question of how you formalise your relationship with a co-founder. An individual entrepreneur has no charter capital and no shares: the law permits joint entrepreneurship, but it does not create shares in the business, so the contribution and rights of the second participant have to be secured by a separate contract. In practice, this ends in a dispute over who owns what, and proving anything is difficult.

When you plan to attract investment or eventually sell the business, the choice also shifts towards an LLP. Investors usually enter the capital through a share in an LLP rather than through an arrangement with an individual entrepreneur; an LLP allows new participants to be brought in and a share to be sold without stopping operations. Therefore, the question of an individual entrepreneur or LLP for attracting investment is decided in advance, not at the moment when the investor is already ready to come in. Selling a business in the form of an individual entrepreneur means selling property or re-registering the activity: there is simply no single asset in the form of a share here.

Mistakes at the start: what is most expensive to fix when choosing between an individual entrepreneur and an LLP

Mistakes when choosing between an individual entrepreneur and an LLP rarely cost much at the moment of registration — the bill comes later. The form is chosen "like the acquaintances have", without comparing it to the type of activity, future partners and who is liable for debts. The consequences of the wrong choice between an individual entrepreneur and an LLP show up when a major contract has been signed, a licence has been obtained, or a second participant has joined the business: some of these mistakes become irreversible after transactions are concluded.

This is fixed by changing the form, but switching from an individual entrepreneur to an LLP and from an LLP to an individual entrepreneur is not a reconfiguration but the closure of one form and the registration of another. Losses and tax history are not transferred automatically, and contracts, licences and accounts often have to be re-registered. The basic set of documents for changing the form of business is an application for registration of the new form, a document on the termination of the previous one, a resolution of the participants or the entrepreneur themselves, as well as notifications to counterparties, the bank and the licensing authority. Let us list what most often has to be re-registered:

• contracts with counterparties and the landlord
• licences, permits and notifications
• bank accounts and payment details
• the cash register, digital signature and access to services

Choose the form not by the size of the business today, but by whether you are ready to be liable with personal property and whether you plan to bring in partners. If yes — an LLP, if not and turnover is small — an individual entrepreneur.