How are sole proprietorships founded

Founding a sole proprietorship (trading company)


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Sole proprietorship is a single person who runs the business without a partner / partner. This person runs the company alone and bears the risk alone. In sole proprietorship there is a very close connection between the owner and the company. This is expressed, among other things, by the fact that the sole proprietorship is not only liable for the company's debts with all of his business assets, but also with his private assets.

Founding: In principle, a sole proprietorship arises from the start of activity without the need for a special foundation act or contract. However, please note the following requirements:

  • Business registration
  • Plant license
  • Possibly entry in the commercial register (when registering a trading company as a registered businessman / registered businessman (e.K.))

A minimum start-up capital is not required for sole proprietorships.


If the sole proprietor operates a trade, the business owner becomes a merchant by law. Commercial trade is any business enterprise that contains a commercially set up business. The sole proprietorship must be entered in the commercial register as an "actual merchant". He is also required to keep accounts, has to make a regular inventory and draw up a trade balance.

Business registration

If the sole proprietorship carries out a commercial activity, a business registration is required. According to the trade regulations (§ 14) there is an obligation to notify every time you start a self-employed activity. Certain admission requirements are required for some trades. In this case, the sole proprietorship must meet the requirements for obtaining the trade license (e.g. in the case of skilled trades).

commercial register

If the sole proprietorship runs a trade as a merchant, he is entered in the commercial register.


The company is the name under which the merchant operates his company and gives his signature (§ 17 HGB). The company must be individualized as a name, i.e. the company must consist of names and words. In addition, letter combinations are also permitted as a company.

The name of the company for sole proprietorships must contain: the designation "registered merchant" or "registered merchant" or a generally understandable abbreviation ("e.K.", "e.Kfm." Or "e.Kfr."). Otherwise, personal, material or imaginary names are permitted (Section 19 HGB).

social insurance

As a rule, a commercially active sole proprietor is not subject to any social security obligations.

Exceptions may arise for tradespeople who are registered in the trade register, as well as for tradespeople who do not employ employees subject to social insurance and who are permanently and essentially only working for one client.

If these criteria are met, there is usually a social security obligation (income tax, solidarity surcharge)

If there are any uncertainties, a status assessment procedure can be initiated with the German Pension Insurance Association.

In the case of unemployment insurance, compulsory insurance can be established upon application if self-employed activity of at least 15 hours per week is taken up or carried out.

The sole proprietorship has to apply for a tax number at the tax office within one month of starting work.

The sole proprietorship is subject to progressive income tax and the solidarity surcharge on his income. These taxes are levied through ongoing advance payments. A tax return must be submitted after the end of the financial year. On this basis, an income tax assessment is issued, which provides for either an additional payment or a credit.

The advance income tax payments (including the solidarity surcharge) are due on March 10th; 10.6 .; 10.9. and 10.12. ... due in the year. Until the income tax is determined for the first time on the basis of the tax return, the advance payment is calculated by the tax office according to the expected profits. In the next few years, the advance payments will be prescribed according to the actual winnings.

value added tax

The sole proprietorship is a "small business owner" in the sense of of the Value Added Tax Act (§ 19), if its relevant total turnover plus the applicable tax did not exceed € 22,000.00 in the respective assessment year of the previous calendar year and is not expected to exceed € 50,000.00 in the current calendar year (the assessment year). If these requirements are met, the individual entrepreneur, as a so-called small business owner, is not subject to any sales tax. In this case, however, he can also voluntarily opt for VAT.

If the small business regulation cannot be applied, all deliveries and other services that the entrepreneur carries out in the context of his company in return for payment are subject to sales tax. The normal tax rate is 19% of the earnings. The reduced tax rate of seven percent applies to the delivery of groceries and some other sales.

The objective of sales taxation of not causing a burden within the corporate chain is met by the input tax deduction. The entrepreneur can deduct the sales tax that he himself has paid to other companies as so-called input tax from the sales tax that he has to pay. This results in the sales tax payable, which must be transferred to the tax office by the 10th of the following month or by the 10th of the month following the calendar quarter.

Business tax

The sole proprietorship is subject to trade tax as a so-called "standing business enterprise". The basis of assessment for the trade tax is the trade income. The relevant trade tax rate is made up of the tax index and a rate of assessment. The tax index is 3.5%; it applies to all traders regardless of their legal form. The assessment rate is set by the respective municipality in which the individual entrepreneur operates his business. Sole proprietorships receive a trade tax exemption of € 24,500.00 (Section 11 (1) No. 1 GewStG).

Since 2008, trade tax is no longer deductible as a business expense from income tax or corporation tax. The Federal Fiscal Court has declared the legally anchored non-deductibility of trade tax from the assessment basis of income tax (Section 4 (5b) EStG) to be constitutional (ruling of 6.1.2014 I R 21/12 and of 10.9.2015 IV R 8/13).

As of May 4, 2021

Despite careful data compilation, we cannot guarantee the complete accuracy of the information presented. If you have specific questions on one of the topics, we are always available for a personal conversation.