How to open an individual business and not end up in debt?

What does a Ukrainian risk today if they decide to register as a sole proprietor (FOP)? What should you monitor after registering? Is it worth opening a FOP if your employer suggests it — and what are the risks?

These questions are explained by Andriy Spektor, an experienced lawyer and expert in legal protection of business and investments, corporate insolvency, and financial recovery.

Registering as a FOP in 2025

For small entrepreneurs and self-employed individuals, registering as a FOP (Sole Proprietor) remains a relatively simple option with many advantages.

— "The registration process is quick and straightforward and can even be completed online," explains Andriy Spektor. “As of mid-June 2025, 2.17 million FOPs have been registered and are operating in Ukraine.”

— Among the benefits of FOP status are eligibility for a simplified tax system and relatively low costs of doing business and taxation. In addition, accounting and reporting are not overly complex, and with a bit of effort, an entrepreneur can handle them independently, adds the lawyer.

What You Should Know Before Registering a FOP

Before registering, you should study the available FOP groups and taxation rules. It’s important to understand that FOPs are liable for all business debts with all their personal assets — including personal property, real estate, and bank accounts.

Unlike LLCs, where liability is limited to the authorized capital, a FOP risks all their assets — business and personal alike.

— “A FOP effectively operates in dual status — as an entrepreneur and as a private individual at the same time,” says lawyer Andriy Spektor. “Therefore, in the case of insolvency, the court considers all the debts of the individual, regardless of their origin — whether it's consumer loans, tax debts, or supplier invoices.”

It’s crucial to understand that all personal property of a FOP can be used to satisfy debts.

This includes jointly-owned marital property — though with certain exceptions. For instance, the law protects a FOP's only residence from seizure, as well as essential personal items and pension savings.

If Your Employer Suggests Becoming a FOP

It’s a common practice for employers to offer their workers to register as a FOP — sometimes even promising to handle the registration and tax payments for them.

— “This is usually done to reduce the employer’s tax and social security burden,” says the expert, “since under a civil contract (which is how FOPs are typically hired), employers pay lower taxes than with formal employment contracts.”

You need to understand that in such a case, the employer is no longer responsible for providing social guarantees — like vacation or sick leave.

They may also stop complying with labor legislation altogether, since you’re no longer an employee but an independent contractor. Your income can legally vary depending on the volume and quality of your work and the contracts you sign.

Most importantly — you are now personally responsible for paying your taxes.

If you end your collaboration with the employer, it’s essential to avoid accumulating tax debts and to close the FOP in a timely manner.

Other Limitations

Beyond the risk of losing personal assets in case of debt or lawsuits, FOPs also face limitations in choosing business partners or types of activities — especially under the simplified tax system.

— “Moreover, under the 1st and 2nd groups of the unified tax system, a fixed social tax (SSC) must be paid monthly, regardless of income,” adds the expert. “That means you must pay a set amount even if you’re not working or are on vacation.”

According to 2025 data from Opendatabot, a quarter of all new FOPs registered in Ukraine are engaged in retail — 20,763 entrepreneurs. Another 7,129 chose IT and programming consulting, while 6,216 entered the wholesale trade.

Interestingly, for the first time in five years, a wave of FOP closures has been recorded.

In 2025, 37,967 more FOPs were closed than opened.

How Not to Become a Debtor

Here are some practical tips that can help entrepreneurs avoid becoming debtors if their business runs into financial trouble.

1. Understand the FOP groups and activity codes (KVEDs) and choose those appropriate to your business. Pay taxes and fees on time, and submit quarterly and annual reports to the tax authorities. Some activities may not be allowed under FOP status — especially under the simplified system — or may come with restrictions on who you can work with.
2. Be aware that tax authorities may recalculate taxes if they consider your activities more complex than declared (such as in real estate or similar sectors).
3. You should regularly monitor your financial health and act proactively. In today’s environment, it is crucial to evaluate your assets-to-liabilities ratio, liquidity, and solvency indicators. Acting early can save your business — and protect you from accusations of negligence.
4. Do not neglect formal contracts. Many FOPs, trying to save time and legal fees, provide services or deliver goods without signed agreements. Remember: a contract is your roadmap and your guarantee.
5. Engage professional advisors and proceed with caution. Crisis management is a complex task, so seek help from experts such as insolvency trustees, bankruptcy lawyers, and financial analysts.