Foundation of a sole proprietorship or sole trader business

When founding a sole proprietorship, there are several points to consider. The basic steps are summarized below.

No capital contribution

No capital contribution is required to establish a sole proprietorship.

Registration in the commercial register

When founding a sole proprietorship, the first step is to check whether an entry in the commercial register is required. German law distinguishes between the tradesmen in term of sec. 1 paragraph 1 German Commercial Code(hereinafter referred to as HGB) and tradesmen in terms of sec. 2 and 3 HGB.

A small trader in terms of sec. 2 HGB can be registered in the commercial register. However, he is not obliged to do so. A tradesman in terms of sec. 2 HGB is regularly considered to be a small business if the small business regulation according to sec. 19 UstG applies. This is the case if the (expected) turnover does not exceed EUR 22,000.00 in the first calendar year of business activity and does not exceed EUR 50,000.00 in the following calendar year.

Land and forestry enterprises in terms of sec. 3 HGB do not have to be registered in the commercial register either.

Freelancers such as alternative practitioners, journalists, lawyers and architects are not considered as tradesmen in terms of the HGB. Therefore, they do not have to be registered in the commercial register.

Provided that the sole proprietor is not a small business, an agricultural or forestry enterprise or a freelancer, he is obliged to register his company in the commercial register in accordance with § 29 HGB.

The application for registration in the commercial register must be submitted to the local court where the company's branch office is located.

Business account

Opening a business account is not mandatory. However, it is recommended to open a business account. In the invoices directed to customers, the account details should be given so that the invoice amount can be transferred.

In addition, the account details should also be given to authorities such as the tax office.

Business registration

If there is no freelance activity, the sole proprietorship must be registered as a trade with the competent authority (sec. 14 para. 1 GewO). The competence of the authority depends on the location of the permanent establishment or the registered office.

In the case of a freelance activity, the tax office must be informed about the commencement of the activity and a tax number must be requested.

Tax registration

The questionnaire for tax registration must be filled out and sent to the responsible Tax Office.

Permissions

Permission must be obtained for the performance of certain activities. The following activities may require a permit, approval or notification to the relevant chamber or supervisory authority:

- Operation of a catering establishment (sec. 3 GastG)

- Handicraft enterprises

- Healthcare professions and nursing services

- Brokerage activities

- Passenger transport services, such as the operation of a cab company

If the subject of business of the sole proprietorship is the distribution of products, the corresponding conformity procedures and labelling obligations must be observed re. certain kinds of products. E. g. regarding the following product types conformity procedure has to be conducted.

- Cosmetic products

- Food

- Toys

These are the essential steps to establish a sole proprietorship in Germany.