Many solo founders decide to start a Einzelunternehmen (sole proprietorship) because it’s relatively easy and inexpensive to. Here we get into the nitty gritty of how to set one up in Germany.
- What is a Einzelunternehmen (sole proprietorship)?
- Types of Einzelunternehmen
- How to set up an Einzelunternehmen
- Einzelunternehmen and managing directors
- Einzelunternehmen and employing staff
If you want to set up your own business but don’t want to incorporate a company (UG or GmbH), an Einzelunternehmen or Einzelgewerbe (sole proprietorship) could be for you.
The sole proprietorship is considered a separate legal form and is the easiest business to start in German. Setting one up involves a straightforward registration and avoids most of the red tape of an incorporated company.
Here are the Einzelunternehmen (sole proprietorship) basics:
- No special requirements
- Liability is unlimited with the private assets of the owner
- No initial or minimum share capital needed
- Employment of employees possible
- No further partners/owners are possible
- For commercial business activities (Gewerbliche Tätigkeit as opposed to freiberufliche Tätigkeit)
In Germany, being a sole trader is categorised differently. Depending on what your business does, you could be a Gewerbetreibender (commercial trader), Freiberufler (liberal professional freelancer) or an eingetragenen Kaufmann (Merchant).
Depending on how big your business is, you could also take on the Kleingewerbe (small business) status by using the Kleinunternehmerregelung (small business regulation).
Traders have the following characteristics:
- Self-employed/operates independently
- Work is invoiced using the business’s tax number
- The business activity intention is to make a profit
“Gewerbe” is a commercial activity that is not related to a liberal profession or agriculture, forestry, fishing and mining. Thus, if you’re a sole proprietor whose business falls under the “gewerblich” category (the tax office always makes the final decision about this) then you are a “Gewerbetreibender“.
If you offer services or products to make a profit and regularly (e.g. on eBay) the activity is considered to be gewerblich.
Not all sole traders in Germany are Gewerbetreibender (commercial traders). Some sole traders have businesses that categorises them as Freiberufler (liberal professional). And if they practice purely as a liberal professional, no Gewerbeanmeldung trade registration) is required.
Although Freiberufler (liberal professionals) do have businesses that are Einzelunternehmen (sole proprietorships), the focus of this article is Gewerbetreibender (traders).
Checklists, practical templates and more.
Everything you need to set up your Freiberufler business in Germany
A “Kleingewerbe” (“small trader” or “small business”) is not an official legal form, as it’s not defined in the Handelsgesetzbuch (Commercial Code) or the Gewerbeordnung (Trade Regulation Act).
Generally, this term is means a business that only has to do simple bookkeeping and an EÜR (income statement). Also, small businesses use the Kleinunternehmerregelung (small business regulation), which grants VAT exemptions. Ultimately, the tax office decides who qualifies as a small trader.
In Germany, there are different business categorisations you should be aware of. For example, a Kaufleute or Kaufmann/Kaufrau (merchant) (§ 1 (1) HGB) is someone who operates a Handelsgewerbe (commercial enterprise). But, falling under the Kaufleute category does have implications. Let’s unpack this more below.
- Kaufleute (merchants) are merchants who operate a Handelsgewerbe (commercial enterprise) (section 1 (1) HGB).
- Handelsgewerbe (commercial enterprises) are categorised as Gewerbebetrieb (trade businesses).
- The operator of such a business is deemed to be a Kaufleute/Kaufmann (merchant).
- But, if the type and scope of the business are not structured in a “kaufmännischer Weise” (“merchant-like way”) (§ 1 Para. 2 HGB) then the business operator is not considered to be a Kaufleute/Kaufmann (merchant).
This rough description is provided by the German Commercial Code (Handelsgesetzbuch). Confused? Don’t worry: In practice, the tax office decides whether the “Kaufmannseigenschaft” (“merchant status”) applies to an Einzelunternehmen (sole proprietorship).
If the tax office does deem you to be a Einzelkaufleute (sole trader merchant) then you’ll have to enter your business into the Handelsregister (commercial register) and keep double-entry books.
No start-up capital is required for setting up a sole proprietorship as you don’t have to provide proof of your available funds like you do with the GmbH or UG. But, it makes sense to have some anyway – it’s hard to set up a business without any investment. Think about the initial costs you’ll have to cover. These can include:
- Gewerbeanmeldung (trade registration)
- Setting up a website
- Purchase of a domain
- Office rent
- Software licences
- Tax advice
Anyone who does not want to rent a shop or office (at first) may, in theory, run a sole proprietorship from home. For many, this is the first logical step toward entrepreneurship.
But be careful because this isn’t possible at every residential address. Throughout Germany, municipalities and city districts decide where businesses can operate from – and where they are not. In purely residential areas, this is often not allowed.
For tenants, there are additional rules. First, don’t run a business in a private flat without asking the owner (it doesn’t matter if the tenancy agreement mentions it or not). Secondly, don’t just rely on a verbal agreement – get written consent before you start operating.
The first step is to register your sole proprietorship with the Gewerbeamt (trade office). But, before you do that should check whether you need a trade licence (Gewerbeerlaubnis). If so, applying for the permit is the first step.
The Gewerbeanmeldung (trade registration) itself is uncomplicated and inexpensive. You can either submit in-person to the Gewerbeamt (trade office) or do it online (unfortunately, the latter doesn’t exist everywhere in Germany yet).
After a successful trade registration, the new business is entered in the Gewerberegister (trade register). The Trade Office informs other authorities and chambers of commerce about the new business:
- Finanzamt (Tax office)
- Handwerkskammer oder Industrie-und Handelskammer (Chamber of Trade or Chamber of Industry and Commerce)
- Berufsgenossenschaft (Employer’s Liability Insurance Association)
As a sole proprietor, business liability is personal, unlimited and jointly and severally.. There is no limitation of liability. And you’re liable with your private assets.
As a sole proprietor, you should include your full name (first name and surname) in the business name. Although the legal obligation to do so has been abolished, it has to be clear that the business and the proprietor are identical. For example, “Klaus Müller, Florist” or “Rechtsanwältin Britta Hausen”.
Other rules apply for branding and advertising purposes. For these reasons, you can use what’s called a Etablissementbezeichnungen (establishment names) such as “Restaurant zum Berg” or “Versicherungscheck 360°”.
But there is a catch: Your name must be clearly written on all invoices, business cards, correspondence and the imprint (Impressum). In other words, it must be easily recognisable to outsiders which natural person is running the business.
Your information from the trade registration (Gewerbeanmeldung) is automatically passed on to the tax authorities. Soon after that, your local tax office will ask you to fill in a tax questionnaire.
Since 2021, the data is preferably requested entirely via the government online portal called ELSTER.
With the successful registration at the tax office, you will receive a tax number and VAT identification number (if desired), which you will need for every invoice. Only now can you really get started and write your first invoices and pay taxes correctly.
Now is the best time to set up bookkeeping!
As the owner of a sole proprietorship, you are treading on legal ice if you use the term “Geschäftsführer” or “managing director”. This is due to the fact that the term is officially only used for companies under the German Commercial Code (HGB). An outsider could therefore be misled as to the size, legal form and the creditworthiness of the company. To avoid confusion, you should generally refrain from using this title and instead use “Betriebsführer” (“business manager”) or “Inhaber” (“owner”).
Even as a sole proprietor, you can employ staff and build up a large company. You can employ staff in the traditional way as a permanent employee. But it is also possible to hire freelancers, working students or mini-jobbers. All employment relationships have advantages and disadvantages, for example, there is always a certain amount of bureaucracy.
If you want to employ staff in your company, you need a company number. If this is not the case, the company number can be applied for at a later date at the employment agency.
The information published on our site is all written and checked by experts with the greatest care. Nevertheless, we cannot guarantee the accuracy of this information, as laws and regulations are subject to constant change. Therefore, always consult an expert in a specific case – we would be happy to connect you with the right professional.
firma.de assumes no liability for damages caused by errors in the texts.