Sole Proprietor vs LLC in Georgia: Which to Choose?

Choosing the right business structure is one of the most important decisions when starting a business in Georgia. The two most common options are Individual Entrepreneur (IE / ინდივიდუალური მეწარმე) and Limited Liability Company (LLC / შეზღუდული პასუხისმგებლობის საზოგადოება). This guide compares both structures to help you make the right choice.

Quick Comparison

Feature	Individual Entrepreneur (IE)	LLC (შპს)
Liability	Unlimited personal	Limited to investment
Registration Fee	Free	100 GEL
Min. Capital	None	None
Tax Options	1%, 3%, or 20%	15% Estonian model
Best For	Freelancers, small services	Growing businesses

Individual Entrepreneur (IE)

What is an IE?

An Individual Entrepreneur is a natural person registered to conduct business activities. It's the simplest business form in Georgia, similar to a sole proprietorship in other countries.

Advantages of IE

Free Registration: No state fees for registration. You can register at any Public Service Hall in minutes.

Simple Accounting: IEs with turnover under 500,000 GEL can use simplified cash-basis accounting.

Low Tax Options: Several favorable tax regimes are available:

• Micro Business Status (1%): For annual turnover up to 500,000 GEL. Pay only 1% of gross revenue.
• Small Business Status (3%): For turnover up to 500,000 GEL with more flexibility than micro status.
• Standard (20%): Income tax on net profit for larger operations.

Direct Profit Access: All business profits are yours immediately—no need for dividend distributions.

Disadvantages of IE

Unlimited Liability: This is the biggest drawback. You're personally liable for all business debts. If your business fails, creditors can pursue your personal assets—your home, car, savings.

Limited Growth Potential: It's harder to raise investment, take on partners, or sell the business.

Perception Issues: Some clients and partners prefer working with companies rather than individuals.

Limited Liability Company (LLC)

What is an LLC?

An LLC (შპს in Georgian) is a separate legal entity owned by one or more shareholders. It's the most popular business structure in Georgia for both local and foreign entrepreneurs.

Advantages of LLC

Limited Liability: Your personal assets are protected. If the company fails, you only lose what you invested in the company.

Estonian Tax Model: Pay 0% corporate tax on retained earnings. Tax is only due when you distribute profits as dividends (15%).

Professional Image: An LLC conveys credibility and professionalism to clients, partners, and banks.

Easy to Scale: You can add partners, bring in investors, or sell shares without dissolving the business.

Separation of Personal and Business: Clear distinction between your personal and business finances.

Disadvantages of LLC

More Complex Setup: Requires a charter, registration fee, and more documentation.

Formal Requirements: Must maintain proper accounting records, file monthly declarations, and prepare annual financial statements.

Double Taxation Potential: Profits are taxed when distributed (15%), then may be taxed again as personal income in your home country (for foreign owners).

Tax Comparison in Detail

Scenario 1: Freelancer earning 60,000 GEL/year

Structure	Tax Calculation	Tax Due
IE (Micro 1%)	60,000 × 1%	600 GEL
LLC (Full Distribution)	60,000 × 15/85	10,588 GEL
LLC (No Distribution)	Retained earnings	0 GEL

For freelancers who need all their income, IE with micro status is clearly more tax-efficient.

Scenario 2: Business earning 300,000 GEL/year (owner takes 100,000 GEL salary + dividends)

Structure	Tax Calculation	Approx. Tax
IE (Small 3%)	300,000 × 3%	9,000 GEL
LLC (Salary + Dividend mix)	Salary tax + dividend tax	~35,000 GEL

However, the LLC provides liability protection worth considering if you have significant business risks.

Which Should You Choose?

Choose IE (Individual Entrepreneur) if:

• You're a freelancer or consultant with low liability risk
• Your annual turnover is under 500,000 GEL
• You need immediate access to all your earnings
• You want minimal administrative burden
• You're just starting and testing a business idea

Choose LLC if:

• Your business has liability exposure (contracts, inventory, equipment)
• You plan to reinvest profits in growth
• You want to bring in partners or investors later
• You're working with corporate clients who prefer companies
• Your turnover exceeds 500,000 GEL
• You're building something to eventually sell

Can You Switch Later?

IE to LLC: Yes, you can register an LLC at any time. However, you cannot simply convert an IE into an LLC—you must close the IE and register a new LLC.

LLC to IE: Possible but rarely done. You would need to liquidate the LLC (which can take months) and register as an IE.

Our recommendation: If there's any doubt, start with an LLC. The cost difference is minimal, and you'll have protection and flexibility from day one.

Special Cases

Foreigners

Both IE and LLC are available to foreigners. However, LLCs are generally preferred because they don't require residency and offer better banking access.

IT Companies

IT companies should consider the Virtual Zone Person (VZP) status, which offers 0% corporate tax on foreign-sourced income. VZP status is only available to LLCs, not IEs.

Multiple Owners

If you have partners, an LLC is your only option. IEs are single-owner by definition.

Need Help Deciding?

The right structure depends on your specific situation—your industry, risk profile, growth plans, and personal circumstances. At Modern Consulting, we help entrepreneurs:

• Analyze the best structure for their situation
• Register their business (IE or LLC)
• Set up the optimal tax regime
• Maintain ongoing compliance