What is a Sole Proprietorship?
A sole proprietorship is the simplest type of business, established and managed by an individual. The owner is responsible for all profits and losses. Sole proprietorships can be owned by one person or established as a partnership by multiple individuals. However, in such companies, the owners are personally liable for all the debts and obligations of the business. This means that if the business cannot pay its debts, the owners must use their personal assets to settle these obligations.
What Are the Types of Sole Proprietorships?
Sole proprietorships are generally divided into two main types:
- Single-Person Sole Proprietorship: These are businesses established and managed by a single individual. The founder assumes full financial and legal responsibility for the company.
- Partnership: These are businesses established by multiple individuals. The partners actively participate in management and decision-making processes, but all partners are jointly liable for the company’s debts and obligations.
Difference Between Sole Proprietorship and Limited Liability Company?
There are significant differences between sole proprietorships and limited liability companies:
- Establishment Process: A sole proprietorship is simpler to establish compared to a limited liability company. It can typically be set up within a few days, whereas setting up a limited liability company involves a more complex process.
- Taxation: Sole proprietorships are taxed based on income tax, while limited liability companies pay corporate tax.
- Liability: Sole proprietors are personally liable for all debts and obligations of the business. In contrast, the liability of limited company owners is limited to the company’s capital.
- Credit and Investment: Limited liability companies generally have greater capacity to secure loans and attract investments compared to sole proprietorships.
Who Can Establish a Sole Proprietorship?
Any individual over the age of 18 and a citizen of the country can establish a sole proprietorship. Additionally, individuals who meet the eligibility to be taxpayers can also set up a sole proprietorship. Foreign nationals may also establish sole proprietorships after obtaining the necessary permits.
How to Establish a Sole Proprietorship?
Setting up a sole proprietorship is relatively straightforward and involves a few basic steps:
- Tax Office Application: Apply to the tax office to establish a sole proprietorship. You’ll need to have your ID and application form ready for this process.
- Business Registration: If opening a physical business location, you must register the business with the municipality.
- Trade Registry Registration: Registering with the trade registry is required. During this process, details such as the business name, address, and activity area are officially recorded.
- Bookkeeping: After establishment, you must keep financial records using a tax certificate obtained from the tax office. This process is typically managed by a certified accountant.
- Issuing Invoices: Once your business is established, you can start issuing invoices for commercial activities.
How to Establish a Sole Proprietorship Online?
The steps to establish a sole proprietorship online via e-government are as follows:
- Log in to the e-government system and access the “Interactive Tax Office” service provided by the Revenue Administration.
- From there, go to the “Taxpayer Transactions” section and apply for establishing a sole proprietorship.
- Upload the required documents online after completing your application.
- Once your application is approved, your tax certificate and other necessary documents will be available online.
What Documents Are Needed to Establish a Sole Proprietorship?
The following documents are required to establish a sole proprietorship:
- Copy of ID card
- Residence certificate
- Notarized signature declaration
- Business lease agreement or property ownership document (if applicable)
- Authorization for a financial consultant
What Taxes Do Sole Proprietorships Pay?
Sole proprietorships are required to pay various taxes based on their earnings. These include:
- Income Tax: Based on the income earned, calculated in progressive tax brackets.
- Value Added Tax (VAT): Applied to the revenue from commercial activities.
- Provisional Tax: Paid quarterly and credited against income tax.
- Stamp Tax: Levied on official documents and contracts.
- Withholding Tax: Applied to income tax deducted from employee salaries.
What to Know Before Establishing a Sole Proprietorship?
Some important points to consider before establishing a sole proprietorship include:
- Sole proprietorships may be subject to high tax rates based on income level.
- Owners are personally liable for all debts and obligations, so financial risks should be carefully analyzed.
- Compared to limited liability companies, sole proprietorships may face challenges in securing loans and investments.
- Depending on the type of business activity, various permits and licenses may be required during the establishment process.
Frequently Asked Questions About Sole Proprietorships
How long does it take to establish a sole proprietorship?
Establishing a sole proprietorship typically takes a few days. The process is quick once the necessary documents are prepared.
Is there any educational requirement to own a sole proprietorship?
No, there is no specific educational requirement to establish a sole proprietorship. However, having business knowledge and experience can be advantageous for managing operations.
What is the cost of establishing a sole proprietorship?
The cost of establishing a sole proprietorship varies depending on notary, trade registry, and tax office application fees, averaging between 1,000-2,000 TRY.
Is it difficult to close a sole proprietorship?
Closing a sole proprietorship is easier compared to setting it up. The process involves applications to the tax office and trade registry. However, financial obligations such as debt repayment must be fulfilled.
