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

Establishing a sole proprietorship is a process that takes place very quickly when 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 brings you many advantages.

In order to benefit from these advantages, you need to learn well how to establish a sole proprietorship and its differences from other company types. You can find answers to all the question marks in your mind by starting to scroll down the page.

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 start your commercial activities immediately with a petition.

What are the Types of Sole Proprietorships?

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

Collective Company

It is a type of company established by real persons where 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. It is mandatory to make an agreement in order to avoid problems in cases such as profit distribution or other rights among individuals.

Limited Company (Komandit)

It is the type preferred by individuals who want to continue under a company operating commercially. Compared to other sole proprietorships, the partnership structure is larger and these partnerships are determined around a contract. In this type of limited partnership, some partners have unlimited liability (general partners) while some partners (limited partners) have liability up to the capital they contribute.

Ordinary Company (Adi Şirket)

It is a type of company that has acquired the assets of the founder as capital without being a legal entity. It is one of the most common types of companies 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 of your house by submitting 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 price you pay every month.

What is the Cost of Establishing a Sole Proprietorship?

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

These amounts specified for the cost of establishing a sole proprietorship are shown in a simple manner. If you receive additional services in different areas such as consultancy services, 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 hold the status of a merchant. Apart from 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 do not hold the status of merchants, making it impossible for them to establish a sole proprietorship. However, depending on the type of company, civil servants can become partners in a company. Yet, they cannot take part in any duty other than being a partner in these companies.

Can Insured Employees Establish a Sole Proprietorship?

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

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

How to Establish a Sole Proprietorship?

Throughout the process of establishing a sole proprietorship, you need to work in constant coordination with the tax office. After completing the required documents to open a sole proprietorship, you can start the company establishment procedures either yourself or by giving a 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, a photocopy of the founder's T.R. identity card, 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: An audit report (yoklama tutanağı) is prepared.

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

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

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

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

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

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

How to Establish a Sole Proprietorship via E-Devlet?

Although the steps above are necessary to establish a sole proprietorship, you can submit a notification of starting a business via e-devlet for commercial, agricultural, and self-employment activities that require tax liability for real persons. The requirements for establishing a sole proprietorship through e-devlet are as follows:

• After logging into the E-devlet system, you should proceed to the Interactive Tax Office section.

• Then, click on the tab named Transactions within the system, and click on Registry Notifications and Commencement of Business notifications respectively.

• On the screen that opens, fill in the information consisting of 5 steps regarding the job details correctly.

• After entering all information completely and correctly, the audit date details will be sent to the phone you use. Audit officers will come to the address you specified as the workplace and inspect your workplace along with your documents.

How to Get a Tax Plate for a Sole Proprietorship?

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

Afterward, you should fill in the username and password fields in the E-declaration section and select the Tax Plate Information tab.

After filling in the Tax Identification numbers and ID numbers separately for each partner, you can obtain the tax plate.

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 for, there are amounts you have to pay to the state every month.

What are the Tax Brackets of a Sole Proprietorship?

Sole proprietorship tax rates vary according to the status of your income. In our country, tax rates can start from 15% and 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 on 4 different taxes subject to the laws. If you are the founder or one of the partners, you can calculate the amount of tax you will pay to the state by making calculations with the rates specified in these tables over the gross amount you have.

Can a Sole Proprietorship Get a POS Device?

In the process of establishing a sole proprietorship, you can get a POS device if you provide the required documents. You can have a POS device for your company by taking the power of attorney, a photocopy of the ID card of the individual who established the company, the signature circular, and the tax plate to the bank you want.

Can Imports Be Made with a Sole Proprietorship?

If you obtain the customs declaration, you can make exports or imports if you wish. However, for some countries, the customs declaration is not sufficient 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 in a short time

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

• You have tax exemption according to the income you earn.

• Fees for transactions such as 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 company owner.

The disadvantages of establishing a sole proprietorship are:

• The prestige of the company you opened in the eyes of banks is lower compared to other types.

• Loan 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 have to progress within a specific procedure. You can learn the differences between a sole proprietorship and a limited liability company by reviewing the table below.

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

You can quickly learn the differences between sole proprietorships and Joint Stock companies by reviewing the table below.

Frequently Asked Questions About Establishing a Sole Proprietorship

You can check 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 according to 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 business establishment initiative may involve certain risks. However, looking at it in terms of sole proprietorship establishment, we can say that starting this type of business is less risky compared to other business types.

In particular, in sole proprietorships, only the personal assets of the company owner are held liable for the debts of this business in a limited manner. 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 It Make Sense to Establish a Sole Proprietorship?

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

In addition, 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 sensible option for everyone. For example, for large-scale businesses, sole proprietorship establishment may not be more advantageous in terms of financial obligations.

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

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

For example, you should take care not to harm the activity of your workplace during your working hours. In addition, you must comply with the financial and confidentiality obligations of your workplace. Therefore, while working at your workplace, you can also establish your own business, but you need to pay attention to the rules and obligations of your workplace during this process.

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 (komandit), and ordinary (adi).

Is a Shop Mandatory for a Sole Proprietorship?

When 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 Sole Proprietorship Given a Name?

Sole proprietorships can be established using the owner's name and surname, or they can be established using another name. For example, a name like "Galaxy Technology" can also be used.

This type of name indicates the field of activity of the company but does not include the name and surname of the owner. 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.