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Blog post from July 6th, 2022

It's that easy to set up your sole proprietorship

Start a sole proprietorship

Finally be your own boss! As the founder of a sole proprietorship, you make all the decisions and determine the course of your business. Read now how you can set up your sole proprietorship in just a few steps.

Table of contents:

  1. Sole proprietorship: These forms exist
  2. Checklist: This is what founders need to consider
  3. Starting capital
  4. Company name
  5. Registration at the trade and tax office
  6. entry into the commercial register
  7. Taxes and accounting
  8. Accounting made easy with GetMyInvoices

 

The most important answers to starting a sole proprietorship:

Is start-up capital necessary to start a sole proprietorship?

No. Although no start-up capital is required to set up a sole proprietorship, it is advisable to have a financial cushion to cover the costs incurred (e.g. when registering a business and entering it in the commercial register).

What types of sole proprietorships are there?

There are different types of sole proprietorships. These include:

  • Small business
  • Registered merchants (e. K.)
  • freelancer

How do you register a sole proprietorship?

Traders, such as registered merchants or founders of small businesses, must register their activities with the responsible public order office. Freelancers simply inform their tax office and apply for a tax number there. All sole proprietors submit the “tax registration questionnaire” to the tax office within one month of starting their activities.

What costs are associated with starting a sole proprietorship?

The administrative costs for setting up a sole proprietorship vary greatly and depend, for example, on: B. depends on whether a business has to be registered. This usually requires a low to mid-double-digit amount. Entry in the commercial register is significantly more expensive, for which sole proprietors have to pay around 200 euros. Freelancers do not incur any costs for registering with the tax office.

 

The sole proprietorship is considered the simplest type of business Entry into self-employment and as a particularly popular form of founding. This is also reflected in the statistics: There were almost two million sole proprietors registered in Germany in 2020, making the sole proprietorship the most common legal form. The reasons for this are obvious: no start-up capital is necessary and there are only a few bureaucratic hurdles between you and the founding. But what types of sole proprietorships are there and which ones are best for you and your business?

Sole proprietorship: These forms exist

Before you register your self-employment, you should consider whether you provide commercial or freelance services.

Sole proprietors can provide commercial or freelance services.

The sole proprietorship as a business

Commercial services are provided in the following sectors, among others:

  • trade
  • Crafts
  • Industry
  • gastronomy

In addition, intermediary activities such as those of a broker are also commercial, although they cannot be classified in the economic sectors mentioned.

If you would like to provide commercial services, you can do so commercial merchant or as Small business owner Start your sole proprietorship.

Sole proprietor as a freelancer

If you offer services in the artistic, literary, scientific or educational fields that are not subject to trade regulations, you can provide them as a freelancer. This option is also available to you if you practice a so-called freelance profession. These include, among others:

  • Lawyers
  • Notaries
  • Designers
  • Journalists
  • Advisor
  • doctors
  • Architects
Notice
Since new professions are constantly emerging, the list of freelance professions is constantly changing. Ultimately, the responsible tax office decides on your status as a freelancer. In the infographic below you will find clues as to whether your sole proprietorship is commercial or non-commercial in nature.

Freelancers are usually lawyers, doctors and journalists. Merchants and craftsmen are classified as commercial professions.

As soon as you have clarified whether you are going to register a business or start as a freelancer, you can start concretely planning your start-up. And this is important because there is a lot to take into account.

Checklist: This is what founders need to consider

Setting up a sole proprietorship is generally considered uncomplicated. However, it is important that you obtain comprehensive information in advance.

Checklist for founders

Starting capital

First of all: There is no one correct legal form for setting up an agency. Each legal form has its advantages and disadvantages. Which one you choose affects, for example, issues of personal liability, internal organization, taxation and bureaucratic burdens. These four legal forms are particularly common for an agency:

one-man business

Unlike setting up a GmbH, for example, you do not need any start-up capital to start your own business as a sole proprietor. Although proof of existing financial resources is not necessary, it is worth having a financial buffer to cover costs for the following items:

  • Business registration
  • entry into the commercial register
  • IHK contribution
  • Tax advice
  • Office rent
  • Technical and digital equipment (e.g. computers, software licenses, homepage)

Company name

Would you like to give your business an individual name? Caution is advised here, as there are some regulations in this regard. Since a sole proprietorship is linked to you, the company name should include your first and last names. “Plumber Max Mustermann” or “Gastro-Service Marianne Mustermann” would be permissible names because outsiders can see who the business is owned by. The same applies to freelancers.

The legal situation is different for registered merchants: your company name can also be a fantasy term as long as it has distinctive character.

Tip
Are you unsure which legal requirements apply to your sole proprietorship? Then it's best to get information from a specialized lawyer.

Registration at the trade and tax office

When you start your business, you register your business with the responsible district or regulatory office. For this you need the following documents:

  • ID card
  • Completed application

In addition, additional documents are required for some start-up projects:

  • Proof of qualifications or approvals
  • Business license
  • Criminal record certificate
  • Extract from the central commercial register
  • concession

A fee is required for registration. The costs usually amount to a small to medium double-digit amount.

Notice
Business registration is not mandatory for all sole proprietorships: freelancers are exempt from this!

IHK membership

Membership in the Chamber of Commerce and Industry (IHK) is mandatory for almost all individual companies in Germany. Freelancers, farmers and craftsmen are excluded. The latter must register with the Chamber of Agriculture or Chamber of Crafts. There are also special chambers for some freelance professions.

entry into the commercial register

As a small business owner, you are usually free to decide whether you want to be registered in the commercial register by a notary. However, as a commercial merchant, this is a must. But be careful: Even if your annual turnover exceeds several hundred thousand euros, you may be considered a merchant and an entry in the commercial register may be mandatory. Freelancers are exempt from this regulation.

Taxes and accounting

As soon as you have registered your business, the data will be forwarded to the responsible tax office. This is accompanied by the obligation to register for tax purposes. This also applies to freelancers! You will then receive a tax number that you will need for your invoicing.

Important: Paying taxes correctly is of course crucial as a sole proprietor. If you need assistance with your tax return, it is best to contact one Tax consultant.

Accounting is closely linked to the topic of taxes. Merchants are obliged to keep double-entry books. For small businesses and Freelancers are recommended to use simple bookkeeping, even if they are not subject to accounting requirements. This will save you or your tax advisor a lot of time when preparing your tax return.

Accounting made easy with GetMyInvoices

With GetMyInvoices you can concentrate entirely on building your sole proprietorship and do the bookkeeping at the same time. Try GetMyIvoices now free of charge for 14 days!

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