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Sole proprietorship: an overview of possible variations
Company founders who are the only ones to advance their company set up a sole proprietorship practically fully automatically, in which other forms of jurisdiction are also possible. In addition, freelancers also belong to the company form of the sole proprietorship. This form is ideal for coping with the entry into self-employment. The key is that the responsibility of a sole shareholder is not limited, so that private assets are also used in an emergency.
According to the Federal Statistical Office, this form is clearly the leading company in Germany when it comes to founding a company: At 79%, a sole proprietorship with a clear leadership position occupies a leading position. For comparison: the corporate forms GbR and GbR are only 12% and 5ct. In this context, it can be clearly stated that the start-up scene in this country is dominated by individual entrepreneurs.
At the beginning it is about the different characteristics of the foundation, so that several options for practical implementation are shown. Then essential rights, obligations and requirements of this type of company are examined. Options for limiting liability and the basic advantages and disadvantages of this type of company are discussed. Finally, all the important functions are listed in a compact summary so that potential entrepreneurs can find their way around quickly.
Start-ups that make their own offer have already met the requirement to set up a one-man business. Depending on the field of activity and the question of whether a commercial operation is necessary, a distinction is made between a small entrepreneur and a sole trader (full merchant). Freelancers started their own business from the beginning of their business activities, but for which the economic requirements do not apply, which is reflected in the form of simplifications in the accounting area.
In general, the responsibility of sole traders is not limited, so that private assets can also be used. Liability for such companies can be limited, for example, in the case of a one-person limited liability company to company capital, which must reach a minimum amount of $ 24,000. It must be taken into account that any other form of company, in addition to cheaper contingent liabilities, can also provide access to possible own funds.
In general, however, individual companies have a fairly simple relationship with credit institutions because they are considered credible due to their contingent liabilities. A sole proprietorship does not provide seed capital, so the companies themselves determine what amounts and securities they provide. Of course, the credit institutions also want to secure their lending.
In particular, the financial reserves and their careful design are of crucial importance in the start-up phase of every (individual) company. You decide whether you want to be entered in the commercial register or not. Registered traders must register in the commercial register, which is charged to the notary. Freelancers must register their activity with the tax office and then get a new tax number, which must also be shown on newer statements.
Small business people and self-employed persons who are not entered in the commercial register must appear with their first and last name in their professional lives. However, traders registered in the commercial register do not necessarily have to use their first and last name. A purely technical name is allowed, such as B. Morning rest prevention e. K. This already shows that the addition e. K. must be added as an explicit reference to the corporate form.
Sole proprietors have sole control over all business matters, they assume overall responsibility, which is ultimately logical, because they are also responsible for their private assets. Registered traders are required to keep double books, while the self-employed and small entrepreneurs do not. Due to the unlimited liability up to the legal confiscation limits, the entrepreneurial risk has to be considered consistently from the start.
For very capital-intensive business models, it makes sense from a strategic point of view to act as a limited liability company (GmbH or UG). For tax purposes, a sole proprietorship generates income from a company or from freelance work. Freelancers are not subject to trade tax due to their legal status. However, the individual entrepreneur is also liable for any tax claims that may arise with his entire share of the assets if he does not opt for one of the options mentioned here.
Although liability relationships are actually a disadvantageous factor of this type of company, they are far ahead of all other types of company. Because the individual entrepreneur lives for his corporate idea, he determines everything himself, so that he consciously accepts the liability risk. Those who do not want to take this residual risk can give the individual company a different form of company.
If another form of company such as a one-person limited liability company, a one-person limited company or an entrepreneurial company (UG) is based on a single person, it is formally a sole proprietorship. If several donors are involved, it is no longer possible to set up a sole proprietorship. The legal basis for sole traders is laid down in Sections 1 to 104 HGB.
Even if the foundation itself is informal, fully qualified traders must be entered in the commercial register as mentioned above. As with all other forms of company, the company name must not be misleading. Registered traders must pay the additional e.Kfm. or eK in the company name. Individual entrepreneurs are obliged to keep accounts in accordance with applicable commercial and tax law, so that the financial situation and business transactions are understandable to third parties.
Who will comply for the requirements?
Unlike corporations, individual companies do not have to comply with disclosure requirements. It is therefore difficult for competitors or the general public to look into the business books of retailers or registered dealers. Because no seed capital is absolutely necessary and the establishment can be carried out quickly and inexpensively, the sole proprietorship is the preferred form of company for founding a company.
For many individual companies, it is of great benefit in the sense of the greatest possible freedom of development to have unrestricted decision-making authority, which also applies to the earnings achieved. On the other hand, there is, of course, the disadvantageous effect that damage can be borne alone and, if necessary, compensated for by private assets. Unlike other forms, it is not possible for a sole shareholder to completely disregard his private assets.
The liability risks can be limited by the company name as a one-person company or AG or alternatively as a company. If self-financing is not possible, loans are required. It should be clear from the start that the creditworthiness of the individual entrepreneur is crucial. But here too it happens very often in business practice that securities from private assets have to be confiscated.
In the case of long-term loans, the entrepreneur’s room for maneuver may also be limited if Fine Bank sets up a specific codetermination or control system. The entrepreneurs in Germany are still shaped by this type of company, even if modern variants such as the English Limit also open other company doors.
Ultimately, the need for complete self-determination should be given more weight than the risk of self-liability.