What Is a Sole Proprietorship? How Is It Established? What Documents Are Required?

What Is a Sole Proprietorship, How Is It Established, and What Documents Are Required?

Sole proprietorships are a type of business generally preferred by individual entrepreneurs and can be established either by one person or by several partners. When a partner in a sole proprietorship wishes to transfer or sell their shares, the transaction can only take place with the approval of all partners. Matters such as transferring partnership shares may sometimes cause complications. Sole proprietorships are therefore generally established by a single individual. The founder or partners of a sole proprietorship are legally regarded as individuals and are personally liable for all debts associated with the business.

How Is a Sole Proprietorship Established? What Documents Are Required?

The process of establishing a sole proprietorship begins with the tax office. You must therefore start by obtaining the required documents. You can submit the company establishment application personally or appoint a financial adviser to complete the process on your behalf. Following an inspection by officials appointed by the tax office, you can establish your business within a few days when all necessary conditions are met.

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The stages of establishing a sole proprietorship can be listed as follows:

Documents such as a copy of the founder’s identity card, proof of residence, signature circular, and signature registration declaration are prepared.
The company is registered.
An application is submitted to obtain a tax identification number for the company.
The statutory books required for the company’s legal processes are obtained and certified by a notary.
A tax inspection report is prepared.
Once the tax identification number has been obtained, both the tax certificate and cash register registration certificate are issued.
Expense vouchers, delivery notes, and invoices to be used in business processes are prepared.
The company is registered with the relevant chamber of commerce, and an announcement is published in the Trade Registry Gazette.
A business opening and operating licence is obtained.
SGK or BAĞ-KUR procedures are completed.

Sole proprietorship establishment procedures can also be completed through e-Devlet without visiting the tax office.

What Are the Types of Sole Proprietorship?

A sole proprietorship is a type of company in which partnership and personal liability are prominent. According to the Turkish Commercial Code, there are two types of sole proprietorship:

General Partnership: A type of company that can be established by at least two natural persons. The most important characteristic of a general partnership is that all partners have equal authority to manage the company. However, management authority may be transferred to specific partners through the partnership agreement or a majority vote.

Limited Partnership: A type of company established by at least two people. In this company structure, general partners have unlimited liability and can only be natural persons. Limited partners have limited liability and may consist of either natural or legal persons.

How Much Does It Cost to Establish a Sole Proprietorship?

In 2023, the cost of establishing a sole proprietorship may vary depending on several factors. You can review the details below for a general cost estimate.

Notary Procedures

The cost of an individual signature declaration may range from 272 to 395 TL.
The cost of granting power of attorney to an accountant may range from 490 to 520 TL.

Financial Adviser’s Fee

The business establishment fee may range from 500 to 850 TL.

The cost of establishing a sole proprietorship is an important factor to consider when planning your decision to start a business. As you will also be subject to local regulations and taxes when establishing a sole proprietorship, you may need to work with a financial adviser.

What Documents Are Required to Establish a Sole Proprietorship?

The documents required to establish a sole proprietorship are essential for ensuring that the establishment process proceeds correctly and smoothly. A detailed list of the documents required to establish your business is provided below:

Tax Office Application Form: The application form, which can be obtained from the relevant tax office or online, must be completed accurately and in full.
Copies of Identity Cards: 2 copies of the identity cards of the business owner and any other partners are required.
Passport Photographs: 2 passport photographs of the business owner and each partner, where applicable, are required.
Notarised Signature Declarations: The business owner and each partner, where applicable, must submit 2 notarised signature declarations.
Proof-of-Residence Documents: The business owner and each partner, where applicable, must submit 2 proof-of-residence documents.
Lease Agreement or Copy of Title Deed: If your workplace is rented, a copy of the lease agreement must be submitted. If you own the workplace, a copy of the title deed showing ownership must be provided.
Power of Attorney (Optional): If you prefer an accountant or specialist to submit the application, you must provide a power of attorney confirming that the person is authorised to act on your behalf.

What Are the Monthly Expenses of a Sole Proprietorship?

The fixed monthly expenses of a sole proprietorship are important for the regular operation of the business and include the following:

Rental Expenses: If your workplace is rented, %20 of the monthly rental amount must be paid as withholding tax. These costs may vary depending on the ownership conditions of your workplace.

BAĞ-KUR Contributions: Sole proprietorships operate under BAĞ-KUR. As of 2023, the minimum monthly BAĞ-KUR contribution is 3.452,76 TL. This amount must be paid to provide insurance and social security coverage.

Stamp Duty: Stamp duty, paid whenever a tax return is submitted, is required to prepare your business’s financial reports and share them with the authorities. For example:

VAT return, paid monthly: 194,60 TL
Withholding tax return, paid every three months: 230,70 TL
Provisional income tax return, paid every three months: 194,00 TL
Annual income tax return: 294,90 TL in stamp duty.

Accountant’s Fees: You must pay an accountant to monitor your business’s financial transactions and prepare tax returns.

These fixed expenses are important for meeting the legal requirements and maintaining the regular operation of your sole proprietorship. They may also vary depending on the size and activities of your business and local regulations.

Sole Proprietorship Tax Brackets

Tax regulations for sole proprietorships vary according to the annual income of the business. As your income increases, the applicable tax rate also increases. The size and income level of your business shape your tax obligations. As of 2023, the tax brackets applied to sole proprietorships are as follows:

Income of up to 70.000 TL is taxed at a rate of %15.
For income between 70.000 TL and 150.000 TL, a fixed tax of 10.500 TL is paid on the first 70.000 TL, while the remaining amount is taxed at %20.
For income between 150.000 TL and 370.000 TL, a fixed tax of 26.500 TL is paid on the first 150.000 TL, while the remaining amount is taxed at %27.
For employment income between 550.000 TL and 1.900.000 TL, a fixed tax of 26.500 TL is paid on the first 150.000 TL, while the remaining amount is taxed at %27.
For income between 1.900.000 TL and more than 1.900.000 TL, a fixed tax of 85.900 TL is paid on the first 370.000 TL, while the remaining amount is taxed at %35.
For employment income between 1.900.000 TL and more than 1.900.000 TL, a fixed tax of 134.500 TL is paid on the first 550.000 TL, while the remaining amount is taxed at %35.
For income exceeding 1.900.000 TL, a fixed tax of 621.400 TL is paid on the first 1.900.000 TL, while the remaining amount is taxed at %40.
For employment income exceeding 1.900.000 TL, a fixed tax of 607.000 TL is paid on the first 1.900.000 TL, while the remaining amount is taxed at %40.

These tax brackets reflect your business’s annual income and determine the applicable tax rates. As your income increases, the amount of tax you pay also increases.

Advantages of Establishing a Sole Proprietorship

Establishing a sole proprietorship offers many advantages. These advantages can be listed as follows:

1. Progressive Tax System Based on Income

The progressive tax system applied to sole proprietorships varies according to the size and income of your business. This system allows small businesses with lower incomes to pay less tax, providing greater opportunities to grow and develop the business.

2. Low Establishment Costs

The cost of establishing a sole proprietorship is lower than that of other company types. This means that you need less capital when starting your business.

3. Fast Establishment

A sole proprietorship can begin operating within 2 business days. Compared with other company types, this allows you to begin conducting business more quickly.

4. Easy Closure

When you want to cease operations, you can complete the closure procedures for a sole proprietorship in only 1 day. This makes terminating your business easier.

5. Lower Book Certification Fees

The certification fees for the statutory books of sole proprietorships are generally lower, reducing your operating costs.

6. Lower Accountant’s Fees

Accountant or financial adviser fees for sole proprietorships are generally lower. This means that business management requires lower costs.

Disadvantages of Establishing a Sole Proprietorship

Establishing a sole proprietorship also has certain disadvantages. You may want to consider these disadvantages when setting up your company. The disadvantages of establishing a sole proprietorship include:

1. Progressive Tax System

In a sole proprietorship, the tax rate increases as your income grows. While a fixed tax rate of %20 applies to other company types, sole proprietorships are subject to a progressive tax system ranging from %20 to %40 according to income. This may cause high-income businesses to pay more tax.

2. Differences in Business Reputation

Banks and financial institutions generally consider other types of companies, particularly limited companies, to have a stronger business reputation. This may enable loan applications and virtual POS approvals to be processed more quickly and easily. As sole proprietorships may provide less financial assurance, they can sometimes be at a disadvantage in this area.

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