Individual Entrepreneur or LLC in Georgia: Choosing the Structure You Will Not Regret
The first decision every founder makes in Georgia, and the one most often made backwards. Liability, tax treatment, banking, hiring, credibility, the legal framework behind each form, and the cost of changing your mind - compared honestly, with the cases where each one wins.
Almost every founder arriving in Georgia is told two things in the same breath: register an LLC, and there is a 1% tax. Both are true and they do not belong together. The 1% regime attaches to an Individual Entrepreneur with Small Business status, not to an LLC. Choosing between the two structures is the first real decision, and it is worth ten minutes now rather than a restructuring later.
1%
IE with Small Business status
Of turnover, conditions and cap applying
15%+5%
LLC on distribution
With reinvested profit untaxed until it leaves
Unlimited
IE personal liability
The non-tax difference that decides most cases
Two different legal creatures
The distinction begins in company law, not tax. Under the Law of Georgia on Entrepreneurs, an LLC (შპს) is a separate legal person: it owns its own assets, contracts in its own name, and its members' exposure is, in the ordinary case, limited to their contributions. An Individual Entrepreneur is not a separate person at all. It is a natural person who has registered to carry on business; the business and the human being are one and the same in law, which is why liability is unlimited and why a partner can never simply be added. The tax difference everyone quotes flows downstream of this structural fact.
A limited liability company is a legal person whose liability towards creditors is limited to its own assets, and whose members are, as a rule, not personally liable for the company's obligations; an individual entrepreneur carries on entrepreneurial activity as a natural person and is liable with their entire property.
The short version
| Individual Entrepreneur (IE) | LLC (შპს) | |
|---|---|---|
| Legal identity | You. The business is not separate from you | A separate legal person |
| Liability | Unlimited - personal assets are exposed | Limited to the contribution, in the ordinary case |
| Headline tax | 1% of turnover under Small Business status, within the cap | 15% on distributed profit, plus 5% dividend withholding |
| Owners | One person, always | One or many, individuals or companies |
| Hiring | Possible, but the structure strains | Built for it |
| Investor-readiness | Effectively none | Shares can be issued and transferred |
| Banking and enterprise clients | Sometimes questioned | The expected counterparty form |
Where the IE genuinely wins
For a solo consultant, designer, developer or translator invoicing foreign clients, the Individual Entrepreneur with Small Business status is often the cheapest correct answer in the region. Turnover within the statutory cap is taxed at 1%, the accounting burden is small, and registration is fast. If that is your business and it will stay that way, an LLC adds cost and ceremony you will not use.
Small Business status may be granted to a natural person registered as an Individual Entrepreneur whose annual turnover does not exceed the statutory threshold and whose activity does not fall within the list of excluded activities; taxable turnover is then taxed at the preferential rate.
The conditions attached to the 1%
The preferential rate is not automatic and not unconditional. As a rule it requires all of the following to hold, and losing any one of them changes the arithmetic:
- Registration as an Individual Entrepreneur, then a separate grant of Small Business status - the status is applied for, not conferred by registration.
- Annual turnover kept within the statutory cap; turnover above the cap is taxed differently, and sustained breach can cost the status.
- An activity that is not on the excluded list - regulated fields, currency operations, gambling and licensed activities fall outside the regime.
- Proper record-keeping and the periodic turnover declarations the regime requires, so the 1% is evidenced rather than assumed.
Where the IE fails, sometimes expensively
- Unlimited liability: a claim against the business is a claim against you, your savings and your property.
- The excluded-activity list: consultancy in certain regulated fields, currency operations, gambling, licensed activities and others fall outside the regime entirely.
- The turnover cap: exceeding it does not simply add tax, it changes your regime mid-year and the arithmetic is unkind.
- Partners: there is no way to add a co-founder to an IE. You would have to start again as an LLC.
- Enterprise clients and banks: a foreign procurement team asked to contract with a natural person often says no on policy, not on merit.
The developer who outgrew the structure in nine months
A developer registers as an IE with Small Business status, invoices EU clients, and pays 1%. In month seven a former colleague joins to share the work and the revenue. In month nine a corporate client asks for a supplier agreement with a limited company.
- 1There is no mechanism to admit a partner to an IE - the business is legally the founder personally.
- 2An LLC is registered, the client contracts are novated to it, and the banking is opened again from scratch.
- 3The IE continues in parallel for a period, or is deregistered, and both sets of filings must be kept clean during the overlap.
- 4The tax position changes from 1% of turnover to 15% on distributed profit, and the plan has to be re-modelled.
Nothing here was a disaster, but three months of administration and a second banking process were spent on a decision that cost nothing to make correctly at the start.
Illustrative. Restructuring is always possible; it is the timing and the client relationships that make it expensive.
How to choose in one pass
The IE who was sued personally for a project that went wrong
A contractor operating as an Individual Entrepreneur delivers a project that fails to meet spec. The client claims for losses well beyond the fee.
- 1An IE is not a separate legal person; the business and the individual are the same in law.
- 2The claim reaches personal assets - savings, property - without any corporate veil to argue about.
- 3An LLC would have limited exposure to the company's assets, absent personal guarantees or specific wrongdoing.
- 4The tax saving the IE route delivered over two years was a fraction of the amount now in dispute.
The choice between IE and LLC is a liability decision that happens to have tax consequences, not a tax decision with a liability footnote. Ask what a bad outcome costs before asking what a good year saves.
Illustrative. Whether a claim reaches personal assets depends on the facts and the applicable law.
- 1
Will anyone else ever own part of this? If yes, LLC.
- 2
Is the activity on the excluded list, licensed, or likely to become regulated? If yes, LLC.
- 3
Will turnover stay comfortably inside the Small Business cap for the next two years? If no, LLC.
- 4
Do your clients or your bank require a limited company? If yes, LLC.
- 5
Are you a solo service provider, under the cap, with acceptable liability exposure? Then IE, and revisit it annually.
The 1% figure sells the IE, and the liability line is what should decide it. If a single bad project could cost more than you can absorb personally, the limited company is not a luxury. General information, not legal or tax advice.
What Trustlex does
Our application asks which you want and adapts: choosing Individual Entrepreneur removes the shareholder and company-name steps, because the business is registered in your own name. If your answers point the other way - partners, regulated activity, turnover above the cap - we say so before you pay, not after.