2024 What is a Sole Proprietorship – How to Establish – What is the Tax Rate – Who Can Establish – What is Required – What are the Advantages and Disadvantages – What are the Types?

Sole proprietorships do not have a minimum (basic) capital requirement. Therefore, establishing a sole proprietorship is an easier process than other company formation processes. However, of course, convenience is not the most important factor for company formation. Each business needs to decide on the type of company according to its own objectives and volume. This decision may differ even for 2 different companies in the same sector, selling the same products. If you have decided to establish a sole proprietorship at the last hearing, you also need to decide on the types of sole proprietorship.

What are the Types of Sole Proprietorship?

There are 3 types of sole proprietorship and the characteristics of these types differ in financial, managerial, legal and many other aspects. Each entrepreneur should examine the characteristics of these 3 types in detail and decide to establish the type that best suits their field. Here are these 3 types of sole proprietorships:

What is the Scope of a Sole Proprietorship?

• It can be established with a single partner.
• If a company does not have a separate capital or asset from its founder/owner, it is called “ordinary company”.
• It is a type of company that can also be referred to as ordinary partnership.
• It has no legal personality and does not require registration.
• It is one of the most common types of company.
• It is legally regulated by Articles 620-645 of the Turkish Code of Obligations.
• All partners must act jointly in a legal process regarding the company and its assets.
• Tax identification numbers are used for all taxes such as withholding tax and value added tax.
• A separate tax identification number is created for all partners and tax liability is ensured for income/income provisional tax.

What is the Scope of a Collective Private Company?

• Can be established with 2 or more partners. There is no legal restriction on the number of partners. Small family businesses are a good example of this type.
• Equity capital is provided by the partners.
• The capital provided by the partners during the establishment phase determines the proportion of their responsibilities. The highest shareholder has the highest responsibility.
• Shareholders have the right to audit the company. All documents such as the balance sheet can be examined by any of the partners.
• All shareholders have a say in the management of the company, unless there is a different interpretation in the contract.
• No partner can take any action on behalf of the company independently of the other partners.

What is the Scope of a Limited Partnership?

• It can be established with 2 or more partners.
• The main difference of this type of sole proprietorship from other types of sole proprietorship is the form of partnership.
• Real persons who are partners have unlimited liability, while others are limited to a certain capital.
• Partners with unlimited liability are called “commandite”.
• Those with limited liability are called “commanders”.
• This type of company is suitable for people with little commercial knowledge.
• People with insufficient capital can engage in commercial activities with this type of company.
• The supervision and management of the company is managed by boards.

Who Can Establish a Sole Proprietorship and Who Cannot?

There is an age limit of 18 to establish a sole proprietorship. There are obstacles to the establishment of a sole proprietorship for civil servants or public officials. Public officials and civil servants who are restricted from being called merchants for reasons such as unlimited liability and preventing economic damage cannot establish a sole proprietorship. However, being a student or insured employee is not an obstacle to establishing a company.

In which areas, sectors or markets can a sole proprietorship be established?

Sole proprietorships are only allowed to work in banking and stock exchange. Apart from that, there are no sector restrictions for opening an ordinary, collective or limited partnership company.

E-commerce, software, game development, web development, advertising, social media management, consulting companies or agencies are suitable for establishing a sole proprietorship.

What is the 2024 Sole Proprietorship Income Tax Rate?

Annual incomes are taken into consideration when calculating tax brackets. It is useful to know that income tax is applied separately for each bracket. The tax rate corresponding to your total annual income is not applied directly. Income limits in tax brackets are evaluated separately for each tier.

Current tax brackets are calculated at 5 different rates: 15%, 20%, 27%, 35% and 40%. While the rates based on the 2024 tax brackets remain constant, the income limits are redetermined every year based on the Domestic Price Index of the previous year. Here are the 2024 tax brackets:

How to Calculate 2024 Sole Proprietorship Income Tax?

• If your annual income is up to 110 thousand TL, your tax rate will be 15%,
• Up to 230 thousand TL, 16,500 TL for 110 thousand TL and 20% for the amounts abov
• Up to 580 thousand TL, 40,500 TL for 230 thousand TL and 27% for amounts above
• Up to 3 million TL, 135 thousand TL for 580 thousand TL and 35% for amounts above
• For higher amounts, it is calculated as 982 thousand TL for the amount of 3 million TL and 40% for the amounts above 3 million TL.

What are the Advantages of Sole Proprietorship?

• It is the type of company that requires the least amount of paperwork.
• It can be established in one day and closed in one day.
• Establishment costs are less.
• Less costly in terms of accounting.
• It is possible to benefit from lower tax rates for businesses with low profit margins.
• It is possible to transfer the company to other company classes.
• The company is easier to manage and operate.

What are the Disadvantages of Sole Proprietorship?

• The fact that tax rates vary according to the rate of earnings can turn into a disadvantage when there is high profitability.
• Sole proprietorships do not have a legal personality and are therefore less reputable than other types of companies.
• Risky for high-cost businesses as the owner is fully liable for the company’s debts.

Office Requirements for Sole Proprietorship

If you want to establish a sole proprietorship, you need to have a legal address. However, with the rise in office costs, entrepreneurs have started to look for lower cost solutions.

If you are looking for a more flexible and comfortable office solution with lower costs, you can benefit from the professional serviced office, virtual office, coworking or private office services offered by Joker Ofis and you can contact our experts for information.

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