Sole proprietorships

The key features of a sole proprietorship are as follows:

• Unlimited personal liability (the more financial risk your enterprise takes on, the more you should consider choosing an organisational form with limited personal liability)
• Owned by a natural person, i.e. you will run the business on your own account and at your own risk (corresponding starting point where spouses run a joint business together)
• Owner cannot be an employee of their own sole proprietorship (But you can have employees).
• Owner has inferior social security rights compared with employees.
• Not a separate legal person.
• Not very investor-friendly.

Commercial activity

One condition for registering a sole proprietorship is that you carry out commercial activity. In order for an activity to be accepted as commercial, it must be carried out on your own account and at your own risk and have a certain scope and duration. Over time, it must be likely to generate a profit. If your activity meets these conditions, the Tax administration will probably consider this as a commercial activity.

Here are some points that are important for you to consider when considering establishing a sole proprietorships:

Financial risk

All commercial activities entail financial risk, but when you consider registering a sole proprietorship it is particularly important to take a position on the financial risk in your project. The reason for this is that the owner has unlimited personal liability. This means that you are personally responsible for all claims that have arisen in the business. Central to the assessment of financial risk is the need for capital and the scope of the business. To answer this, you must decide what costs the start-up entails, and what investment needs you have.

It may also make sense to ask yourself questions about the scope, for example, are you going to run for yourself and get yourself an income? (lower risk)
Or are you planning for more employees and growth? (higher risk).
The greater the capital requirement and scope, the more financial risk you will normally take. This risk must be seen in the light of and assessed against the fact that you are personally responsible and what consequences this may have for your personal finances.

Employees

As the proprietor of a sole proprietorship, you are not an employee and you will therefore not receive a salary for the job you do. You decide what to do with your enterprise's profits and you can in principle take out as much or as little as you wish for your own private use (private withdrawals), but you must set aside money for taxes and other financial obligations.

Your spouse can work for your business and receive a share of the profits, but they cannot be taken on as an employee. If you employ anyone else, you become an employer and you will have to pay wages/salary and employer's National Insurance contributions.

Social security rights

Sick-pay

As the owner of a sole proprietorship, you will have more limited rights than employees. Self-employed persons are entitled to sick-pay from the 17th day, with 80 % cover. This is in contrast to employees, who have 100 % cover from the first day. You can take out various insurance policies in order to improve your sick-pay rights.

Unemployment benefit

You do not accrue entitlement to unemployment benefit on what you earn in your sole proprietorship. You are also not entitled to unemployment benefits in the event of layoff.

Pension

As the owner of a sole proprietorship, you earn a pension on your business income. You should be aware that most people will experience a substantial reduction in their income when they retire. Saving for your retirement is therefore important. You can also enter into private pension agreements.

Tax

You must calculate how much profit you expect your business to generate (profit occurs when income is higher than expenses). You can report your expected profit as a change in your tax deduction card. The tax authority calculates how much tax you have to pay, based on what you state as expected profit in the tax card. Sole proprietorships pay advance tax four times a year. The tax rate will generally be somewhere between 33 - 50,6 %. Sole proprietorships must submit the tax return for self-employed persons. 

Tax for sole proprietorships

Value added tax

Value added tax (VAT) is a sales tax on goods and services. Some goods and services are exempt from VAT or subject to reduced rates. Sole proprietorships with a vatable turnover of more than NOK 50,000 over a 12-month period must register in the VAT Register.

Accounts

Commercial activity normally also triggers a bookkeeping obligation. This means that you must retain documentation of your incomes and expenses and arrange them in a system. If you do not know much about accounting, you should consider asking an accountant to do it for you.

Permits

In certain industries, you must have a permit to run your own business. Examples of this are the catering/restaurant and cleaning services sectors.

Planning

Setting up your own business is a big step. Realising your dream can also be both expensive and take up a lot of your time. In order to find out what will be required of you, it is important to take the time to prepare a thorough plan before you register your business.

Registration and organisation number

Registration of a sole proprietorship is done via the Coordinated register notification in Altinn. 

You will be assigned an organisation number when the registration has been approved.

The Brønnøysund Register Centre – Registering a sole proprietorship

Are you considering starting a sole proprietorship?

The startup tutorial will provide you with information on what to consider and how you should proceed.