Everything about the sole proprietorship

What is a sole proprietorship and who can start it?

A sole proprietorship is founded and run independently by an individual. This includes three options to become a sole trader: 

  • Merchants: Anyone who runs a trade is a merchant. Small businesses, agriculture and forestry companies as well as freelancers are excluded from this. Merchants are therefore not only obliged to register their business, but also to keep double-entry bookkeeping. 
  • Small business owners: Small businesses include anyone who achieves sales of less than 600.000 euros a year. In order to carry out this activity, you must first register with the trade office and the responsible tax office. In addition, membership in the professional association and in the IHK is required. You can obtain merchant status by making a voluntary entry in the commercial register. 
  • freelancer: This group includes everyone who works independently in the field of science, art or education. You do not have to register yourself in the commercial register or be a member of the IHK / HWK. All you need to do is go to the responsible tax office to issue the necessary registration forms. A further registration is only necessary for chamber professions, where admission and the qualification must first be proven. 

Another option is to set up a one-person company. However, the stock corporation can be equated with high founding expenses and ongoing obligations. Anyone who decides on this type of company should bring a lot of time and capital with them. 

The form of a sole proprietorship is suitable for people who want to carry out the planned activity quickly. The reason for this is that there is no need to make months of preparations. However, private assets should be considered as they contribute to liability in the event of insolvency. However, if you own little, you have little to lose.

Liability

As a sole trader, you have unlimited liability with your entire business, including your private assets. The lack of limitation of liability therefore proves to be particularly problematic for some. It is therefore important to consider the risks and use them to hedge the capital. Because in this context you cannot file for bankruptcy. 

CEO

As an individual you have full responsibility for all business transactions and always represent the company to the outside world on your own. But caution is advised, because the sole proprietor should not call himself a managing director, but a business owner. Incorrect use of the terms in this context has often led to warnings. Apart from this However, an employee can of course be called in at any time by authorization to take on some activities. However, the more employees there are, the higher the entrepreneurial risk. From a certain threshold, it is therefore advisable to change the legal form. The will then be gladly taken the or UG (limited liability). Among other things, because the two forms protect the company with a limitation of liability.

How high does the minimum capital have to be?

The nice thing about a sole proprietorship is that there is no minimum capital requirement.  

Is there anything to consider when choosing a name?

For small businesses and freelancers, the indication of first and last name in the company name is mandatory if the company is not entered in the commercial register. It can then be supplemented with an industry-specific designation. If your company is entered in the commercial register, you are not bound by any regulations and can also use fantasy names. You should then only use the abbreviation eK, e.Kfr. or e.Kfm. Add. 

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