One of the most preferred types of businesses for entrepreneurs looking to start their own ventures is the sole proprietorship. The relatively quick completion of establishment procedures, lower initial costs compared to capital companies, and the ease of management processes make the sole proprietorship particularly attractive for small businesses and freelancers.
What is a Sole Proprietorship?
A sole proprietorship is a business structure established by a real person conducting commercial or professional activities in their own name. Although it is commonly referred to as a "sole proprietorship," in tax legislation, the activities are conducted through the real person's tax liability.
Freelancers, consultants, e-commerce operators, software developers, designers, and entrepreneurs providing individual services may prefer this business model. However, it should be noted that the business owner may be personally liable for the company's debts.
Required Documents to Establish a Sole Proprietorship
The required documents may vary depending on the type of activity, but they generally include:
- Identification information
- Residence information
- Lease agreement or title deed showing the workplace address
- Signature declaration
- Business subject and NACE code
- Power of attorney to be given to the financial advisor
- If a virtual office will be used, the virtual office contract
In some professions, registration with a chamber, license, or professional qualification certificate may also be required. Therefore, it is important to check the specific obligations related to the area of activity before applying.
Steps to Establish a Sole Proprietorship
a. Determine the Business Subject
First, it is essential to determine the area in which the business will operate. The chosen business subject can affect tax obligations and the NACE code to be used. To avoid selecting an incorrect or incomplete activity code, support from a financial advisor can be obtained.
b. Choose a Workplace Address
A formal business address must be provided during the company establishment. This address can be a rented office, a home address if conditions permit, or a virtual office. Using a home address may lead to some tax consequences and privacy issues, so a virtual office is a practical option, especially for entrepreneurs working remotely.
c. Notify the Start of Business
The application can be made through the tax office or electronically. According to the Revenue Administration, real persons can notify the start of business within 10 days from the date they commence activities to the tax office, either by mail or through the Digital Tax Office. The notification can be made by the taxpayer themselves, their lawyer, or an authorized professional.
d. Complete Tax Inspection
After the application, the tax office may conduct an electronic or physical inspection at the business address. It is important that the address is genuinely usable and that the necessary documents are readily available. After the inspection and checks are completed, the tax liability is established, and a tax plate is created.
e. Establish Invoice and Accounting System
Before starting operations, the type of document to be issued should be determined; if necessary, preparations should be made for e-Archive Invoice, e-Invoice, or freelance receipt applications. Working with a financial advisor facilitates timely submission of declarations and regular maintenance of income-expenditure records.
Depending on the scope of the activity, registration with the trade registry, crafts registry, or relevant professional chamber may also be required. This obligation should be evaluated specifically for each business.
What are the Taxes for a Sole Proprietorship?
Sole proprietorships are subject to income tax on their earnings. Additionally, depending on the type of activity, obligations such as VAT, withholding tax, stamp tax, and provisional tax may arise. The amounts to be paid vary according to income, expenses, the field of work, and current legislation.
Independent income tax payers working in their own name are generally evaluated under the SGK's 4/b insurance status. Notifications are usually made through the relevant institutions; however, situations such as working insured in another job or retirement may affect this.
The main advantages of a sole proprietorship are as follows:
- Establishment procedures are quick.
- Initial costs are lower.
- Management and decision-making processes are easy.
- Accounting processes are simpler compared to capital companies.
- Closing the business generally takes less time.
On the other hand, the progressive income tax that increases as income rises and the personal liability of the business owner should be considered. When the business volume grows, transitioning to a limited or joint-stock company may be beneficial.
If you want to acquire a professional business address without facing high office expenses while establishing your company, you can benefit from Porte Offices' virtual office solutions. By obtaining a central address, tracking mail and cargo, and receiving the office services you need from a single point, you can make a strong start to the establishment process of your sole proprietorship.