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Sole proprietorship: Definition, Requirements, Capital and Construction

What is a sole proprietorship?

This type of company occurs when a person, either with physical or legal power, decides to start a company of which he is the owner of 100% of the share capital, i.e. the company’s assets. The possibility of autonomy in all areas of the company, as well as decision-making and management in general, is what has made this type of company one of the most important in the sector.

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It is important to take into account that not all countries allow for the incorporation of sole proprietorships, because the consolidation methodology there indicates that if you do not have partners to launch a business, the option is to become an entrepreneur as a self-employed person.

Characteristics of a sole proprietorship

The constitution of the sole proprietorship implies that the owner is subject to the rights and obligations that he has from his social patrimony, acquiring the faculty of legal personality. Let’s see more about how this type of company works:

Liability of a company with a sole proprietorship: in this case, the self-employed worker has limited liability, however, this does not happen in all cases. In some areas, he is classified as an entrepreneur with limited liability, a process by which, although he is liable with his personal assets for the debts acquired as a company within the professional activity, the self-employed person’s assets are protected with certain limitations. In short, we are talking about a partial limited liability.

Share capital: this will be formed by the sole partner. The capital will enable the company’s activities to be carried out and its own formalisation. It will be the patrimony which is available to assume debts or obligations assumed in the company. This share capital can be made up of money or in the form of goods.

Partners: although it may be formed by a single partner, this does not imply that more people can join it. Thus, in the single-member company it is possible to access and form a General Meeting, in which different types of activities related to decision-making and the direction that the company will take at each step are designated.

Requirements: it is extremely important that the contracts made by the sole shareholder and his own company are presented in accordance with the legislation of the place where he is located. These must be included in the company’s book, which must be legalized.

Dissolution of the company: a company can be terminated for different reasons, in the case of the single-member company it can happen for legal or statutory reasons, taking into account the period of liquidation of the person who appears as a legal entity, the termination of the contract and the period. When this is done, the partner is the one who takes charge of the liquidation of the relations, distributes the social patrimony, but as it is a unipersonal society, these will be for himself.

What is a sole proprietorship

Steps to create a sole proprietorship

There are two particular cases in which the sole proprietorship is formed, from the moment the partner becomes the owner of the company over the entire share capital. Thus, firstly, there can be a single partner directly at the time of incorporation and secondly, when, despite the fact that the company is incorporated and there are several partners present, only one person, a single partner, takes charge of all the capital some time later.

To start the process, the company must be registered with the Commercial Registry. You must also have the public deed to establish your company there and even make changes if desired, on the position of the sole partner, the personal declaration and the loss of the single-member status. Although a partnership agreement is not required, as there are no more than two parties participating in the company’s activity, it is founded as a unilateral act as it belongs to only one person.

Articles of Association: this document must include all the elements of the company, from its name or corporate name, to the share capital, the corporate purpose which will refer to the activities to be carried out there, the mode of operation, the members of the General Meeting, among other key aspects.

Advantages of a single-member company

This type of company stands out because it allows any person to consolidate their own company with personal assets, which grants management autonomy in all aspects related to the process, this, taking into account the limitation of its responsibility as a partner.

Another aspect that should be mentioned, has to do with the financial responsibility, since the transactions that are made will go to a single account, The owner’s account, so it allows him to directly manage all the income in this account, as well as to take care of the corresponding payments only by his own approval.

The decision making in the different areas, allows you to have a unique power. Therefore, if you want to know more about this type of company, how to incorporate it and what you should take into account based on your location and legislation, we recommend that you seek the advice of an expert to guide you through the process so that you do not have any inconveniences.