Sole proprietorship in Germany: what it is and how to start one

Looking to set up your own business with minimal admin? Becoming a sole trader offers one of the simplest ways to get started. In this step-by-step guide, you'll learn how to register, what to expect, and how this business model compares to others like a limited company or LLP.

If you want a full overview of all business structures available, see our main guide: Business structures in Germany: your guide to making the right choice.

Summary

1. What is a sole trader and who is it suitable for?
2. Sole trader, Ltd or LLP? A quick overview
3. How to set up as a sole trader
4. Liability and costs
5. Useful tips for getting underway
6. FAQ
7. Conclusion: your journey into self-employment starts here

What is a sole trader and who is it suitable for?

A sole trader is someone who runs their own business and takes full responsibility for it — from invoices to income. It’s a great choice for freelancers, tradespeople, and service providers. You don’t need start-up capital, can begin trading straight away, and stay fully in control.

Your benefits:

• Quick set-up and minimal paperwork
• No upfront capital required
• Total freedom to make decisions

What you should know:

• You’re personally liable for any business debts, including with your own assets
• Larger companies may see sole traders as less “established” than limited companies

Sole trader, Ltd or LLP? a quick overview

Here’s a brief look at how the main legal structures compare — so you can decide what suits you best. 

Sole Proprietorship: you start and run the business alone, no starting capital is required, you are personally liable, and the setup is quick and straightforward.

UG (limited liability entrepreneurial company): also suitable for a single founder, requires a low minimum share capital starting at 1 €, liability is limited to company assets, but the setup involves more formalities than a sole proprietorship.

Learn more in our blog post: setting up a UG – the mini-GmbH for founders.

GmbH (limited liability company): Requires a minimum share capital of €25,000, liability is limited to the company’s assets, and it is generally more suitable for medium to larger businesses.

Find out more in GmbH in Germany: requirements, setup, benefits & costs 2025.

How to: setting up as a sole trader – step by step

Clarify your business idea: being specific helps. Instead of just “consultancy”, go for “marketing consultancy for small online retailers”. It makes registration easier and gives customers a clear picture.

Choose a business name: you can trade under your own name or use a brand name. If you choose a brand name, make sure your legal name still appears on official paperwork.

Register with HMRC: you’ll need to register for Self Assessment with HMRC, which you can do online. It’s free and they’ll send you a Unique Taxpayer Reference.

Check if extra licences apply: some industries — like food, beauty or transport — may require specific licences. Most sole traders won’t need anything beyond HMRC registration, but it’s good to check early.

Open a separate business account: not a requirement, but a good idea. Having a dedicated account makes it easier to keep business and personal transactions separate.

Set up your bookkeeping: use digital tools to track income and expenses from day one. This makes your life easier at tax time and helps you make informed decisions. Tools like FreeAgent, Xero or QuickBooks are built for exactly this.

Liability and costs

As a sole trader, you’re personally liable — meaning that your business debts aren’t legally separate from your personal assets. This structure gives you freedom, but it also means you take on all the risk. Think about whether this suits your goals and circumstances.

There’s no charge to register as a sole trader, but you might choose to invest in things like accounting software or public liability insurance. If you change your business structure later, there’ll be more administrative costs.

Taxes and bookkeeping

Your tax responsibilities:

• Income Tax on profits
• National Insurance (Class 2 and 4 contributions)
• VAT, if your business turns over more than the UK threshold

How to manage your bookkeeping: most sole traders use cash basis accounting — where you record money only when it comes in or out. It’s simple, and the right software makes it even easier.

Useful tips for getting underway

• Register with HMRC as soon as you start trading
• Keep all receipts and invoices, ideally stored digitally
• Check which insurance you may need — for example, public liability or professional indemnity

FAQ: your key questions answered

Who can register as a sole trader?

Anyone over 18 in the UK — no special licences required unless you work in a regulated industry.

Do I need to register with Companies House?

No. Sole trader status only requires registration with HMRC.

Can I change to a different structure if I grow?

Yes. Many successful businesses start out as sole traders and later become a limited company or LLP as they expand.

How long does registration take?

Registering with HMRC online usually takes under 30 minutes. Your tax reference number typically arrives within one to three weeks.

Conclusion: your journey into self-employment starts here

Starting as a sole trader is one of the easiest, most flexible ways to turn your skills into a business. You’re in control from day one, with few upfront costs and minimal paperwork.

Just keep in mind: you’re responsible for managing risk, handling your own taxes, and staying compliant. Good recordkeeping and smart planning will serve you well — and if your business outgrows this structure, you can always switch.

Take the leap on your own terms — and grow your venture at your own pace.