Has the time come to start your sole proprietorship? How exciting! But what is a sole proprietorship and how does it actually work? Do not despair - here you will find the answers before starting your own business. We at Qred explain everything you need to know about starting a sole proprietorship.
In 5 minutes or less , you'll read about what a sole proprietorship is, how to start it from scratch, and how Qred can help you fund your business growth.
What is a sole proprietorship?
A sole proprietorship is a common business structure often chosen by small business owners. It is a form of business where you as the owner are the same as the company - that is, you have full personal responsibility for the company's debts and obligations. Benefits of a sole proprietorship include a simple and quick registration process, as well as full control over the business and its profits. There's also flexibility in terms of bookkeeping and taxation, and you can even use your private bank account for corporate transactions if you wish.
Differences between different types of corporate structures
Now that we understand what a sole proprietorship is, how do the other common forms of business work?
Limited liability company (A/S): A limited liability company (A/S) is a separate legal entity from the owner and offers limited personal liability. This means that you as the owner are not personally liable for the company's debts. On the other hand, an A/S requires more complex bookkeeping and has higher registration costs.
Partnership (I/S): A partnership (I/S) is a corporate structure used when two or more people join forces to conduct business together. Owners have shared responsibility and share both profits and losses – just like a sole proprietorship, the partnership has simpler bookkeeping and is cost-effective to start, but the owners are personally liable for the company's debts.
Are you in doubt about whether to start a sole proprietorship or a limited company? Consider the pros and cons that come with all three types and decide what best suits your needs.
Step by step: how to start a sole proprietorship
Step 1: Register your sole proprietorship
Start by registering your business with virk.dk - through this portal, all relevant authorities can access your registration. Registering your sole proprietorship means that you officially set up your business and give it a legal identity.
Step 2: Get approved for F-tax
The next step is to apply for an F-tax card. F-tax is a prerequisite for doing business and means that you can invoice your customers and pay tax on your income. It is also a requirement for VAT registration.
Step 3: Apply for VAT registration
If your annual turnover exceeds a certain threshold, you must register your business for VAT. This means that you want to charge VAT on your invoices and then report the VAT that you collected to the IRS. VAT registration carries an additional administrative burden, but it can also be beneficial depending on your business and your customer base.
Step 4: Secure business name and insurance policies
Last but not least, choose an appropriate business name that is unique and not already being used by anyone else. Also, check that your business name is registered and doesn't infringe any trademark rights. In addition to this, you may want to consider taking out insurance policies relevant to your business, such as liability insurance and corporate insurance.
What does it cost to start a sole proprietorship?
Starting a sole proprietorship can be cost-effective compared to other business structures. There is no initial capital requirement and the registration fee is usually low. In addition to other minor costs, you can also budget for any consulting fees, such as accountant or legal advice, as well as any start-up capital to cover your company's initial costs.
To create a realistic budget for your business:
Inventory costs: Identify all your business costs, including salaries, rent, operating costs, marketing, and more.
Plan revenue: Estimate your company's revenue based on sales forecasts and customer expectations.
Long-term perspective: Think about long-term investments and save for future growth and unforeseen costs. A realistic budget is key to keeping your business on track financially.
Grow your sole proprietorship with a business loan from Qred
With a business loan from Qred, your new business can invest in new equipment, increase marketing and hire more qualified employees. At Qred, we offer business loans of between 100,000 and 2 million DKK, and with an easy application process, you can access capital quickly and seamlessly – if everything looks good, you can even get the money in your account the same day!
Frequently asked questions about starting a sole proprietorship
How much does it cost to register a sole proprietorship?
The costs of registering a sole proprietorship vary, but they are generally much lower than for other forms of business, as there is no minimum initial capital requirement.
What is required to start a sole proprietorship?
To start a sole proprietorship, you need to register the business, apply for an F tax card, and optionally register for VAT if your annual turnover exceeds the threshold.
Is it worth starting a sole proprietorship?
Absolutely! If it fits your business model and you're willing to take personal responsibility for the company's debts, it may be worth starting a sole proprietorship – especially if you have simple financial needs.
How much can you earn in a sole proprietorship?
There is no specific income limitation for a sole proprietorship. Your income depends on the nature and scope of your business, as well as tax laws. You pay taxes on your income according to the applicable tax rates.