Starting your own business with a founding team is out of the question for you and you would rather make all your decisions on your own? Then starting a sole proprietorship might be just the thing for you!
Solo founders often choose a small business as their legal form or work as freelancers. There are a number of advantages to starting a sole proprietorship. Unfortunately, there is a catch: If you decide to start as a sole proprietor, you are liable with your private assets.
Nevertheless, the sole proprietorship is one of the most popular options for setting up a business. We will show you the differences between the legal forms and what you need to pay attention to when setting up a business.
What is a sole proprietorship?
A sole proprietorship is one of the simplest legal forms in which founders start a business or freelance activity without co-partners. This form offers uncomplicated start-up processes and complete freedom of decision.
Table of contents:
- Definition: What is a sole proprietorship?
- What types of sole proprietorships are there?
- Advantages and Disadvantages of Sole Proprietorships
- Who is suitable for setting up a sole proprietorship?
- How do you start a sole proprietorship?
- Accounting in a Sole Proprietorship
- tax issues
- Legal Issues in Sole Proprietorships
- The dissolution of a sole proprietorship
Definition: What is a sole proprietorship?
A sole proprietorship is a company that is founded by a single person. The company is therefore started without a management team. As a solo founder, vietnam email list however, you can still employ staff. You can make decisions without having to coordinate with a co-owner beforehand.
However, the term sole proprietorship is not defined by law. Therefore, in practice, you have the choice between different legal forms. In contrast to corporations, a sole proprietorship does not need to have a minimum capital in order to be able to operate the business.
In comparison, track the success of your email campaigns with kpis there are only a few registration formalities to be observed when setting up a company.
Reading tip: Do you want to become an entrepreneur ? In this article we will show you how to do it!
What types of sole proprietorships are there?
As a sole proprietor, colombia business directory you can choose between legal forms with unlimited liability, where you as the founder are personally liable. However, you can also choose company forms with limited liability, where you can avoid full liability.
legal forms with unlimited liability
These legal forms with limited liability are suitable for you as a solo founder:
- small business
- freelancers
- Registered Merchants eK
small business
A sole proprietorship that does not require a commercial operation for its commercial activity is considered a small business. These are exempt from the obligation to be entered in the commercial register and to keep double-entry bookkeeping with annual accounts and balance sheets. For them, a simple income statement is sufficient . The prerequisite is that the turnover is less than 800,000 euros and the profit does not exceed 80,000 euros on two consecutive balance sheet dates.
Reading tip: This is how you can register your small business .
freelancers
Freelancers include people who practice a so-called liberal profession or a catalogue profession. Section 18 Paragraph 1 of the Income Tax Act specifies which professions fall under this category. These include, for example, self-employed activities in the fields of science, art, writing or the self-employed work of doctors. The prerequisite for the recognition of a liberal profession is professional knowledge in the relevant field. As a freelancer, you are not subject to the obligation to keep accounts, regardless of your sales or profits, and therefore do not have to prepare double-entry bookkeeping with annual financial statements and a balance sheet. You can calculate your profits using a simple income and expenditure calculation. Another advantage is that freelancers do not have to pay trade tax.
Registered Merchants eK
In the German Commercial Code (HGB), people who operate a commercial business that requires commercial operations are referred to as merchants. If a merchant operates the commercial business as a natural person and sole proprietor, it is a sole proprietorship. As a sole trader, you are required to register in the commercial register and to keep accounts and financial statements in accordance with the principles of proper accounting.
legal forms with limited liability
If you want to avoid full liability in your sole proprietorship, corporations (AG) are available as business forms:
- Unternehmergesellschaft (UG)
- one-person GmbH
- one-person company
entrepreneurial society
The UG is a corporation that you can set up with just 1 euro of starting capital compared to a GmbH. This is why the UG is often referred to as a 1 euro GmbH or mini GmbH. If you decide to set up an entrepreneurial company, you must set aside 25% of your annual profit to save up the required starting capital of €25,000. In addition, your liability is limited to the share capital of your company. It is also important for you to know that with a UG you are subject to double-entry bookkeeping and corporation tax.
one-person GmbH
If you want to start a company on your own and limit your liability, then a one-person GmbH can be a good choice for you. However, please note that the minimum starting capital is €25,000. In addition, the same rules and formalities apply to a one-person GmbH as to a “normal” GmbH. This includes, among other things, that your liability is limited. To your investment and that you, as the managing director, have a duty of care. Furthermore, with a one-person GmbH you are running a commercial business and must take care of preparing a balance sheet, profit and loss statement and, when setting up the company, an opening balance sheet. In addition, you must pay corporation tax.
one-person company
Due to the numerous formalities that come with founding a one-person corporation, this legal form is not particularly relevant for solo founders like you. However, we would like to at least briefly introduce you to this form of company here.
The one-person corporation, often also called a small corporation, is only an option for you if you are starting a large and extensive company. The reason for this is obvious: to start a small corporation, you need €50,000 in start-up capital. However, as part of the one-person corporation, you have the option of taking your company public. At the same time, however, you need a supervisory board with at least 3 people for your small corporation, which means additional work for you.