A sole proprietor or a sole proprietorship is a person who engages in a business activity in their own name, be it as:
- a trader;
- a craftsman;
- a self-employed intellectual worker.
This form of enterprise entails the most basic formalities in terms of administrative procedures and managing the business.
On the other hand, sole proprietors are more vulnerable to the financial risks of doing business, for which they are personally liable. A sole proprietor's legal status is determined by the type of activity they are engaged in, as:
- a trader; or
- a regulated profession (e.g. lawyer, architect, healthcare professional, etc.).
Who is concerned
The term 'sole proprietorship' refers to all entrepreneurs doing business in their own name – i.e.:
- people who, on their own account and in their own name, engage in a business activity that falls within the remit of:
- self-employed intellectual workers, who fall into 3 categories:
Entrepreneurs must be in a position to acquire the status of a trader, craftsman or self-employed intellectual worker, and must be in possession of the qualifications and permits required for their activity.
Depending on the profession, additional conditions may need to be satisfied in order to practise – e.g. registration with a professional body/council/association.
How to proceed
Setting up the business
Sole proprietors conduct business in their own name. As such, no specific formalities are required to set up the business, and there is no need to create a separate legal entity.
Entrepreneurs doing business in their own name must be registered with the social security authorities as self-employed workers.
The sole proprietor must complete all other formalities required to start doing business.
Company name / 'trading as'
Sole proprietors engaged in a commercial activity may use a 'trading-as' name. This name must be unique – i.e. it must be a name that no-one else/no other company is using. The availability of the name will be checked by the RCS manager at the time of registration.
The name must leave no room for ambiguity as to the nature of the activity.
Sole proprietors operating a store must display their name (first name and surname) and their 'trading-as' name at the entrance to the premises.
There is no set duration for the operation of a business that is not distinct from the person of the entrepreneur. However, the operation of the enterprise may be restricted by the duration of validity of administrative authorisations, or by rules specific to the operator's profession.
In the event of closure, certain administrative formalities must be completed.
As a general rule, a sole proprietor operating as a trader may form a company to continue doing business through a legal form that is compatible with their activity.
However, the rules governing certain professions may restrict or prohibit operating as a company.
In the event of the entrepreneur's death, the business is subject to the common law on inheritance. Unless the business is taken over, it will be dissolved. Certain administrative formalities must be completed in the event of closure.
There are no minimum capital requirements. It is up to the operator alone to decide how much capital they wish to commit to their business.
The entrepreneur alone takes all decisions in connection with their business. They are free to appoint attorneys-in-fact to act on their behalf.
Sole proprietors take all decisions on their own. They alone are responsible for financing their business.
They commit their personal assets to their business and assume full liability for debts incurred by the business. As such:
- no distinction is made between their private and business assets;
- the entrepreneur's liability for all of the business' debts and commitments is unlimited and extends to their personal assets.
Oversight of sole proprietorships
The law makes no provision for financial oversight of sole proprietorships.
Sole proprietors must keep transparent accounts (ledgers with records of income and expenses).
Sole proprietors operating as traders must use the uniform minimal chart of accounts. They must also file their accounts at their enterprise's registered office and make them available to concerned parties, if their annual turnover exceeds 100,000 euros (exclusive of VAT).
Sole proprietors operating as traders must register with the Trade and Companies Register (Registre de commerce et des sociétés - RCS), specifying:
- their first name and surname;
- their 'trading-as' name and, where applicable, any abbreviations used;
- the full address of the main establishment where they conduct business;
- the purpose of their business;
- the date of establishment of the business;
- where applicable, the first name and surname, and date and place of birth of any managers and attorneys-in-fact, and their duties;
- their civil status details, including their date and place of birth, their full private address, their nationality, their civil status and, where applicable, the name of their spouse, their date and place of birth, the date and place of their marriage, the type of matrimonial regime and its date of application;
- their business permit number;
- details of any transfers, leasing agreements or closures.
The following must also be registered with the RCS:
- any changes to the trader's matrimonial regime;
- any legal decisions affecting the entrepreneur's status.
Any subsequent changes must be filed with the RCS.
The annual accounts are not subject to disclosure-to-third-party requirements.
For tax purposes, the business is considered to be "transparent" and profits are taxed as part of the entrepreneur's income as a natural person. Their business is subject to the following taxes:
The withholding tax scheme does not apply.
The Luxembourg Inland Revenue (Administration des contributions directes) may require the entrepreneur to make quarterly advance payments on their tax owing.