Learn about the most important procedures for establishing a sole proprietorship

The procedures for establishing a sole proprietorship include a set of basic steps that must be followed to establish a legal entity. These procedures may include determining the main activity of the facility, choosing the appropriate trade name and registering it, determining the ownership structure and preparing the necessary legal documents. The necessary licenses and permits must also be obtained from the competent authorities. Registering value-added tax and submitting tax returns regularly, while adhering to all legal and procedural controls to ensure the successful and effective establishment and operation of an individual facility.

Procedures for establishing a sole proprietorship

The procedures for establishing a sole proprietorship require several important steps, which we mention in the following points:

• Go to the tax office where the activity is based, according to the address on the electricity receipt, to open the activity and make a report of the discussion with the tax officer.
• Submit the following documents to the tax surveyor to determine the inspection (lease contract with a fixed date - national number - electricity receipt).
• After the inspection, a data document is received and addressed to the Chamber of Commerce.
• Go to the Chamber of Commerce with the previous documents to obtain a license certificate to practice trade, taking into account specifying the following data (commercial identity - capital - address of the activity headquarters).
• Go to the commercial registry with all the previous documents to obtain a commercial registry.

Papers required to establish a sole proprietorship

There are some documents that must be available to complete the establishment of the facility, and we explain these documents and papers as follows:

• A lease contract with a date stamped from the real estate registry to which the address of the establishment’s headquarters belongs. The duration of the contract must be no less than one year and not more than 9 years, in order to be able to obtain an ownership contract certified by the real estate registry.
• A recent electricity receipt that is not more than three months old.
• The original national ID number of the facility owner, which must be valid.
• A general power of attorney in the event that a lawyer or legal accountant is responsible for the establishment procedures.

The concept of sole proprietorship

A sole proprietorship can be defined as a small commercial enterprise owned and managed by one person. The sole proprietorship is considered the simplest form of business, where the business owner is solely responsible for managing the business and making decisions, that is, it is affiliated with one person and operates on a small scale as much as the person can. The one manages it and has direct control over all aspects of the business, which makes it easier for him to make decisions and monitor business performance.

Because of their small size, sole proprietorships are exempt from many bureaucratic procedures, and all profits made by the sole proprietorship are his personal share, so the sole proprietorship is a popular choice for individuals who want to start their business simply and quickly, but it also carries risks due to... There is one responsibility on the owner of the institution.

See also: Information of interest to you about the sole proprietorship

Advantages of establishing a sole proprietorship

The sole proprietorship includes several aspects and features that make it an attractive option for individuals who want to establish their own business, through... Diwan Firm We review some of these features:

1. Full ownership: The sole proprietor has full ownership and control of the business, allowing him to make decisions independently without the need to coordinate with other partners.
2. Ease of management: The management system in a sole proprietorship is simple and flexible, as the individual can make and implement decisions quickly without the need to negotiate with other partners.
3. Low cost: Compared to joint stock companies, the cost of establishing and operating a sole proprietorship is lower, as its establishment does not require large capital or complex legal procedures.
4. Speed of decision-making: The sole proprietor can make decisions quickly without delay, which enables him to adapt to rapid changes in the market.
5. Confidentiality and Privacy: The sole proprietor has the right to keep information about his work and performance confidential, without having to share it with other partners.
6. Personal Profit: The sole proprietor can benefit from all the profits generated by the operation without waiting to distribute the profits with other partners.

Please note that there are disadvantages to a sole proprietorship as well, such as taking risks individually and not being able to expand the business as quickly, as partnerships or limited partnerships can do.

See also: Learn about the most important advantages of establishing a company with Dewan

What is the legal classification of a sole proprietorship?

A sole proprietorship is known as a freelance business or individual business. In this type of business, the owner is one person who owns and manages the entire business, enjoys all profits, and bears all risks and obligations. Here are some legal aspects related to a sole proprietorship: 

• Ownership: A sole proprietorship is wholly owned by one person, meaning that all assets and balance sheets belong to the owner.
• Management: The owner has complete control over the facility's operations and decision-making.
• Unlimited Liability: The owner is personally and unlimitedly liable for all obligations and debts associated with the business, so the owner can be required to pay off debts using his personal property if the business defaults.
• Individual Taxes: The profits of a sole proprietorship are treated as personal profits of the owner and are added to his personal income when calculating taxes. This means that there are no taxes at the level of the business itself, but rather the profits are counted as part of the owner’s personal income.
• Registration and Licensing: Registration, licensing and accounting requirements vary from country to country, and the owner is usually required to register the facility and obtain the necessary licenses to conduct business activities.
• Laws and Regulations: The owner must comply with all laws and regulations relating to business activities including taxes, labor, health and safety, and consumer rights. 
• Dissolution of the establishment: Dissolution of a sole proprietorship is usually simple as the owner can terminate and liquidate the business himself without the need for complex legal procedures.

In short, a sole proprietorship is an efficient and easy way to start a business, but it carries with it the risks of unlimited liability and the legal personality of the owner being overlapping with the business. When planning to start a sole proprietorship, the legal aspects must be carefully studied and a lawyer or legal advisor consulted if necessary.

See also: Steps to establish a limited liability company

The importance of having an incorporation contract for your sole proprietorship

 

Having a contract to establish your sole proprietorship is extremely important, as this contract represents the legal and regulatory framework that defines the relationship of the founder to the establishment and between partners, if they exist. Below are some of the reasons why having a contract is necessary for your sole proprietorship:

1. Define terms and procedures: The contract helps define the terms and procedures for managing and operating the facility, providing clear guidelines for how to operate and resolve disputes.
2. Intellectual property protection: The contract may include clauses that protect the intellectual property rights of ideas and innovations produced by the facility, thus reducing the possibility of theft or misuse.
3. Defining goals and directions: The organization’s strategic goals and directions can be defined and clear action plans can be developed to achieve them, which facilitates the process of decision-making and planning for the future.
4. Organizing internal relationships: defining the powers and responsibilities of each individual in the organization, including partners and employees, which reduces internal confusion and enhances cooperation and effectiveness.
5. Dispute Resolution: If disputes arise between partners or between stakeholders in the business, the contract can set out mechanisms and procedures for resolving those disputes peacefully and effectively. In short, having a contract for your sole proprietorship is essential to building a strong foundation for success and sustainability, and can help organize work and achieve goals more effectively and transparently.

How to choose the main activity of your sole proprietorship wisely

Choosing the main activity of your individual facility is a very important step, as this choice determines the nature of your business and your future directions, so through Diwan Firm We will provide some tips that can help you choose your main activity wisely:

1. market study: Conduct comprehensive market research to understand the market needs, available opportunities, and potential competitors, as this study will help determine the activity that could have high demand and potential for growth.
2. Analyze personal skills and interestsEvaluate your skills, abilities, and what you enjoy. You can succeed in your project if you love working in this field.
3. Benefit from previous experiences: If you have experience in a particular field, it may be a good idea to choose an activity that builds on that experience to make it easier to get started and achieve success.
4. Evaluation of financial aspects: Analyze the financial aspects of the potential activity such as costs and expected returns, analysis of the required investments and fixed and variable costs.
5. Taking into account industrial trends: Look at current and expected market and industry trends, to determine which activity fits these trends.
6. Consult the experts: Do not hesitate to seek advice from experts and consultants in the field to obtain unbiased and useful opinions, so that you can build a successful and prosperous individual enterprise.

What permits and licenses are necessary to establish a sole proprietorship?

To establish a sole proprietorship, you may need to obtain the following permits and licenses, which may vary by type of activity and location as shown:

• Commercial registry license: The commercial registry license is the main permit that must be obtained to establish any business activity.
• Municipality permit: You may need a permit from the local municipality to conduct business activity in the specified location.
• Licensing economic activities: In some countries, a special license must be obtained to carry out specific economic activities.
• Industrial license: If your facility operates in industry, you may need a special license.
• Special licenses: Some specific activities need special licenses such as health licensing or safety and environmental permits, for example.

Don't forget to consult a lawyer or legal consultant who specializes in commercial laws and licensing, to ensure that you comply with all local laws and regulations applicable in your area.

See also: Advantages and disadvantages of a sole proprietorship

Financial Aspects of Establishing a Sole Proprietorship

Establishing a sole proprietorship is a step that requires a lot of planning and organization. One of the important aspects that you must be aware of when establishing a sole proprietorship is financial planning. Therefore, we will explain some of the financial aspects of establishing a sole proprietorship below:

Initial capital

Start-up capital is the amount of money you need to start your business, and this amount can include start-up costs, such as renting a workplace, equipment, software, and licenses.

To estimate the initial capital, you must first conduct a comprehensive market study and study the competitors to determine the financial needs.

Next comes the turn to create a detailed budget and financial plan that includes all possible expenses.

Then the sources of financing must be identified, which may be personal savings, small loans, or investors.

Revenue and operating costs

It is important to estimate the expected revenues in the initial stage. This can be done by setting the price of the product or service, taking into account that it is a competitive and appropriate price based on market analysis. 

Set realistic sales forecasts based on market analysis, then manage operational costs, which include recurring costs required to run the facility, such as (rents, salaries and wages, raw materials in the case of producing goods, public services such as electricity, internet, and water, and finally the costs of marketing and advertising campaigns). 

Financial and accounting management

It is preferable to use accounting software to track daily financial transactions and forecast monthly cash flows to ensure sufficient liquidity. 

You should check the tax obligations of your business in your area, and for this you may need to register for taxes and obtain a tax number.

Check and obtain required business licenses to avoid fines.

Marketing costs Marketing costs are an important part of operating costs, and this can include digital marketing such as online advertising campaigns, social media, and traditional marketing that includes print, banners, and television or radio ads. 

Long-term financial planning

Clear and measurable financial goals must be set for the growth of the business, and these can include various goals including the following:

• Increase revenue: Develop strategies to increase sales.
• Cost Reduction: Find ways to reduce operational costs without compromising quality. 
• Future investments: Look for investment opportunities that will enhance the growth of the business, such as expanding the business, opening new branches, or offering new products or services.
• Invest in new technology: Invest in technology to improve efficiency and productivity. 

Establishing a sole proprietorship requires careful financial planning to ensure success. By determining the initial capital, forecasting revenues and costs, managing cash flows, and setting clear financial goals, the sole proprietor can lay a solid financial foundation that contributes to the long-term success of the business.

How to properly register the tax and financial records for a sole proprietorship

For tax and financial registration of a sole proprietorship, the following steps must be followed carefully to ensure it is registered correctly:

1. You must specify precisely the type of activity that the sole proprietorship will undertake, whether commercial, service, or other.
2. Choose a suitable and appropriate name for the activity, and ensure that it does not conflict with the names of other registered activities.
3. Identifying the individual owner of the business, usually by submitting a copy of the owner’s national ID.
4. You must go to the General Authority of Zakat and Income or the competent authority in the country to submit a tax registration application and complete the necessary procedures.
5. Obtaining a tax number: After submitting the application and fulfilling the conditions, the competent authority will issue a tax number for the sole proprietorship.
6. Commitment to financial estimates, as the sole proprietorship must adhere to its financial estimates and submit tax and financial reports regularly.
7. A sole proprietorship must open its own bank account to facilitate money transfers and other financial transactions.

At the conclusion of this article, we explained all the procedures for establishing a sole proprietorship correctly, as when you follow the appropriate steps and submit the necessary documents, you can establish your establishment smoothly and successfully, and remember that researching well and consulting experts in this field such as Diwan Company is a guarantee of implementing the establishment procedures correctly, In short, establishing a sole proprietorship may be a difficult challenge, but it represents a great opportunity to achieve your dreams and build a successful career.