What is a Sole Proprietorship? How to Establish a Sole Proprietorship? - Detailed Guide 2023

Establishing a sole proprietorship is a process that happens quite quickly compared to other types of companies. If you are taking a step to establish a company to realize your dreams, starting with a sole proprietorship offers you many advantages.

To benefit from these advantages, you need to learn well how to establish a sole proprietorship and its differences from other types of companies. You can also start scrolling down the page to find answers to all the question marks in your mind.

What is a Sole Proprietorship?

Companies established by real persons are called sole proprietorships. The biggest advantage of this type of company, which can be opened with or without partnerships, is that it can be closed easily at any time.

You can easily prepare the documents you need to open a sole proprietorship with the help of a financial advisor and immediately start your commercial activities with a petition.

What Are the Types of Sole Proprietorships?

There are three different types of sole proprietorships: collective, limited partnership, and ordinary partnership. These types differ from each other in whether there will be a partnership in the company structure and the distribution of tasks among partners.

Collective Company

It is a type of company established by real persons in which the partners have unlimited liability to the company. The profit obtained by the company at the end of the year is distributed according to the capital of the partners. An agreement is mandatory to avoid problems among persons in situations such as profit distribution or other rights.

Limited Partnership

It is the type preferred by individuals who want to continue under a company engaged in commercial activities. Compared to other sole proprietorships, its partnership structure is more extensive, and these partnerships are determined within a contract. In the limited partnership type, some partners have unlimited liabilities (general partners) while some partners (limited partners) have liability up to the capital they contribute.

Ordinary Partnership

It is a type of company that has adopted the assets of the founder as capital without a legal personality. It is one of the types of companies most frequently established by entrepreneurs in our country.

Can a Home Address Be Used for a Sole Proprietorship?

To establish a sole proprietorship, you can show your home address as the headquarters of the company. If the house belongs to you or a relative, you can determine your workplace address as the location where your home is located by providing the title deed during the establishment process. If the place you want to use as a workplace is rented, you can provide the home address by paying a 20% withholding tax on top of the fee you pay every month.

What is the Cost of Establishing a Sole Proprietorship?

The cost of opening a sole proprietorship can be generally categorized under 5 headings. Expenses can be classified as the capital you consider for the company (varies according to the work you will do, your partnership structure, and the agreements made), notary cost (prices are the same across the country but the amounts can be updated during the day), accounting expenses (amounts may vary according to many factors such as the activity region of the firm you will hire, its corporate nature), trade and tax chamber expenses.

These amounts specified for the cost of establishing a sole proprietorship are shown as simple matters. If you get additional services on different subjects, such as advisory services, the prices may vary.

Who Can Establish a Sole Proprietorship?

For the process of establishing a sole proprietorship, in addition to the well-known age limit of 18, you must legally enter the status of merchant. Other than these, you can open a company within certain rules, regardless of religion, language, or race.

Can Civil Servants Establish a Sole Proprietorship?

Since civil servants work within the public sector, they are not in the status of merchant, so it is impossible for them to establish a sole proprietorship. However, depending on the type of company, civil servants can become partners in a company. However, they cannot take any role other than being a partner in these companies.

Can Insured Employees Establish a Sole Proprietorship?

While working somewhere as an insured employee, you can open a company in your own name. Currently, there is no obstacle for this in the labor law. However, if you signed a contract with the institution you work for when starting, you need to pay attention to the clauses of this contract.

If there is a phrase in your contract such as "the employee cannot work in another job or establish a business", the company you work for can unilaterally terminate your contract without paying you any fee.

How to Establish a Sole Proprietorship?

During the process of establishing a sole proprietorship, you need to work in continuous coordination with the tax office. After completing the documents required to open a sole proprietorship, you can start the company establishment procedures yourself or by giving power of attorney to your accountant at the tax office. The steps you need to follow are:

• Step: You must collect signature registration and circulation, the founder's TR identity photocopy, and residence information.

• Step: Company registration process is done.

• Step: You must apply to get a tax identification number.

• Step: You must obtain and certify the books required for accounting.

• Step: A roll-call report is prepared.

• Step: The tax identification number application is finalized, and you receive your account number.

• Step: You can apply for and receive tax signboards and cash register plates.

• Step: You must issue invoice, expense, and waybill documents.

• After these processes, you must publish an announcement in the official gazette and also register with the chamber of commerce.

• Step: You must obtain a workplace opening and operating license from the municipality of your region.

• Step: You must finish SGK or BAĞ-KUR operations.

How to Establish a Sole Proprietorship via E-Government?

Although the above steps are required to establish a sole proprietorship, you can declare the start of business via e-government for commercial, agricultural, and self-employment activities that require tax liability registration by real persons. The requirements for establishing a sole proprietorship through e-government are as follows:

• After logging into the e-government system, you should go to the Interactive Tax Office section.

• Then click on the tab named Transactions in the system, and click on Registry Notifications and Starting Work notifications respectively.

• On the screen that will open, fill in the information consisting of 5 steps related to the job details presented to you correctly.

• After entering all information completely and correctly, the check date information is sent to your phone. Check officers come to the address you specified as your workplace and control your workplace along with your documents.

How to Get a Tax Signboard for a Sole Proprietorship?

To get a tax signboard for a sole proprietorship, you must enter the website of the Revenue Administration. Then you should click on the Internet Tax Office tab.

Later, fill in the user name and password sections in the E-declaration, and select the Tax Signboard Information tab.

After filling in the Taxpayer Tax Identification numbers and identity numbers separately for each partner, you can get the tax signboard.

What Are the Monthly Expenses of a Sole Proprietorship?

Those who want to establish a sole proprietorship calculate the initial opening cost, but you must keep your monthly expenses in mind. Apart from the costs of the product you will pay, there are amounts you need to pay to the state every month.

What Are Sole Proprietorship Tax Brackets?

Sole proprietorship tax rates vary based on your income status. Tax rates in our country start from 15% and can rise up to 40%.

How is Sole Proprietorship Tax Calculated?

Sole proprietorship tax rates are calculated based on tables determined by the state. The state charges you over 4 different taxes based on the laws. If you are a founder or one of the partners, you can calculate the amount of tax you will give to the state by making calculations based on your gross wage with the rates specified in these tables.

Can a Sole Proprietorship Get a POS Device?

You can get a POS device if you provide the necessary documents for the sole proprietorship establishment process. You can have a POS device for your company by taking the power of attorney, copy of the identity card of the individual who established the company, signature circular, and tax signboard to the bank you want.

Can Import Be Done with a Sole Proprietorship?

If you obtain the customs declaration, you can perform either export or import. However, for some countries, the customs declaration is not enough, and the state may request additional documents.

What Are the Advantages and Disadvantages of Establishing a Sole Proprietorship?

The advantages of establishing a sole proprietorship are as follows:

• You can start your commercial life in the market you want within a short time.

• Its costs are lower compared to other types of companies.

• You have tax exemption based on the income you get.

• Fees for processes like book certification are lower compared to other types.

• Since the transaction volume of the company you established is not high, accounting fees are more affordable.

• In case things do not go as you want, you can close your business in 1 day.

• Responsibility and authority belong entirely to the business owner.

The disadvantages of establishing a sole proprietorship are:

• The reputation of the company you opened before banks is lower compared to other types.

• Credit withdrawal processes may take longer.

• Your tax rate varies between 20% and 40%.

What Are the Differences Between a Sole Proprietorship and a Limited Liability Company?

Sole proprietorships (ordinary, limited partnership, collective) and limited liability companies are different as types. Limited liability companies are within the capital type, and all company affairs must proceed within a certain procedure. By examining the table below, you can learn the differences between a sole proprietorship and a limited liability company.

What Are the Differences Between a Sole Proprietorship and a Joint Stock Company?

You can also quickly learn the differences between Sole Proprietorships and Joint Stock Companies by examining the table below.

You can take the first step with WorqCompany to establish your company and grow your business quickly! Visit the link immediately, and easily access all the services you need, from establishing a company in Turkey and the UK to accounting services.

Frequently Asked Questions About Establishing a Sole Proprietorship

You can review the answers to the questions frequently asked by entrepreneurs who want to establish a sole proprietorship below:

How Much Tax Does a Sole Proprietorship Pay?

Sole proprietorships are obliged to pay tax based on their trade volume and profit. These taxes include taxes such as corporate tax, income tax, and VAT. The amount of these taxes may vary depending on the location and field of activity of the company.

Is Opening a Sole Proprietorship Risky?

Any venture to establish a business may involve certain risks. However, looking at it in terms of sole proprietorship establishment, we can say that this type of business venture is less risky compared to other business types.

In particular, in sole proprietorships, only the company owner's personal assets are held liable for the debts of this business in a limited way. Therefore, looking at it from the perspective of the company owner, sole proprietorship establishment can be a less risky option compared to other business types.

Does Establishing a Sole Proprietorship Make Sense?

Establishing a sole proprietorship can be a logical option for many people. Especially, for small and medium-scale business owners, sole proprietorship establishment allows you to spend less time and effort in the establishment and operation process.

Also, financial obligations are lower in sole proprietorships, and therefore, it can be a less risky option for company owners. However, it may not be a logical option for everyone. For example, for large-scale enterprises, sole proprietorship establishment might not be more advantageous in terms of financial obligations.

Is it a Crime to Establish a Sole Proprietorship While Working?

To establish a sole proprietorship while working at a workplace in Turkey, you do not need permission from your workplace. In this case, you are not considered to have committed a crime legally. However, you need to act in accordance with the rules of your workplace and your employment contract.

For example, you should take care not to harm the activities of your workplace during your workplace's working hours. Also, you have to comply with the financial and confidentiality obligations of your workplace. Therefore, you can also establish your own business while working at your workplace, but in this process, you need to pay attention to the rules and obligations of your workplace.

How Many Types of Sole Proprietorships Are There?

There are three types of sole proprietorships. These are the types of sole proprietorships that can be established as collective, limited partnership, and ordinary partnership.

Is a Shop Mandatory for a Sole Proprietorship?

While establishing a sole proprietorship, having a shop is not mandatory. However, there must be an address where your company operates. This address can be used as the place where your company operates. For example, you can also use an address like your home or office.

Is a Name Given to a Sole Proprietorship?

Sole proprietorships can be established using the name and surname of the owner, as well as by using another name. For example, a name like "Galaxy Technology" can also be used.

This type of name indicates the company's field of activity, but it does not include the owner's name and surname. Therefore, a name is given to a sole proprietorship, and this name indicates the field of activity of the company and the name of the owner.