Sole Proprietorship 1

What is the Definition of Sole Proprietorship?


Sole proprietors – An entrepreneur who alone run a business and is the sole owner. People who go into business on their own without a partner are considered sole proprietors. A sole proprietorship business is known as a sole proprietorship or sole proprietorship . It does not matter whether the individual entrepreneur works completely alone and without employees or whether he already employs employees at the beginning of self-employment. These employees are usually not involved, they are considered employees.

Who is a sole proprietorship?

A sole proprietorship is someone who is the sole owner of a business and runs the business alone. He must not have any joint responsibility or silent partners. In the legal form, a sole proprietorship represents the opposite of a company. If more than one entrepreneur is involved in a company, actively as a managing director or passively as a financier and thus a silent partner, the company is no longer a sole proprietorship. In this case, it is a partnership under civil law (BGB) or a trading company under the Commercial Code (HGB) – depending on whether the company is entered in the commercial register or not.

It is not always clear from the outside whether it is a sole proprietorship or a company. A sole proprietorship does not need to have large financial reserves to start a business. A sole proprietorship can be a registered merchant according to the Commercial Code. In this case, he must properly keep records in order to include his commercial transactions and his financial position according to the principles of proper bookkeeping to document. He is then also obliged to draw up a balance sheet. In contrast to a one-person GmbH, a sole proprietorship does not set up a corporation for his activities. He does not always have to work as a registered businessman, but can also – if the type and scope of his activity do not require commercial business operations – work as a small business operator.

How are sole proprietorships liable?

Regardless of whether he works as a registered businessman or as a small business owner, the sole proprietorship is always personally and basically unrestrictedly liable with all his assets. Working as a sole proprietorship is therefore not always an advantage and certainly not without risk. The part of the private assets that the sole proprietor brings up for his company becomes business assets. It does not always have to be about money; business premises or a car can also be included in business assets. No capital contribution is required by law for sole proprietorships. If the entrepreneur cannot settle his debts with his business and private assets, he is ruined. Not only monetary values ​​from private assets are used to cover debts,

Sole proprietorship: management and representation

According to, the sole proprietorship is also the managing director in personal union, as he conducts the business under his name, for his own account and at his own risk. However, he can also have the business run by an employee. By granting power of attorney or power of attorney , he can authorize third parties to manage the business. Then, however, the sole proprietor loses some of his freedom with regard to business development. Managing the sole proprietorship is then associated with increased coordination effort.

Starting a sole proprietorship – how do I become a sole proprietorship?

No minimum capital is required to set up a sole proprietorship, it can also be set up completely without start-up capital. The reason is that the sole proprietorship is liable with all of his business and private assets. Only one registration fee is required for starting a sole proprietorship. If the sole proprietorship is a commercial enterprise, the sole proprietor has to register his activity with the business registration office. The sole proprietorship may have to obtain permits for his activity, for which costs may also be incurred. Such a permit can be, for example, a broker permit. After the sole trader has registered his activity with the trade office, he receives a trade license. This Business license is the basis for starting business operations. If a sole trader does not work as a registered businessman and not as a trader, he becomes a freelance worker. In this case, he does not have to make an entry at the trade office, but only inform the tax office of his activity.

The company – name of a sole proprietorship

How can a sole proprietorship operate? If a sole proprietorship is active as a registered businessman, he must be entered in the commercial register. He is an actual merchant. He is allowed to run a company that is entered in the commercial register as the name of the businessman. In contrast, a small business owner is not allowed to run a company. A small business owner can, however, voluntarily be entered in the commercial register in order to be active as a registered businessman; he is an optional businessman. Since he acquires the status of a merchant with entry in the commercial register, he is entitled to run a company. If a sole proprietorship wants to run a company, he should seek advice from the Chamber of Industry and Commerce. Because dangerous pitfalls lurk here. It could be that the desired company name is already used by another company or that it is trademarked .

If a sole proprietorship is active as a trader and does not allow himself to be entered in the commercial register, the surname and at least one first name in full is the name of the sole proprietorship. In addition, a description of the activity may be added, e.g. dry construction Manfred Schubert. A fantasy name is only permitted if it is entered in the commercial register. If a sole proprietorship is entered in the commercial register, as a registered merchant, he must have the addition eK in the company name. The background is obvious: business partners should be protected, “anonymous” business operations should be prevented. Due to the mandatory entry in the commercial register for fantasy names, the relationship between company and entrepreneur can always be established.

Sole Proprietorship 1