The sole proprietorship is one of the simplest legal forms through which a natural person can carry out economic activities in Romania. This comprehensive guide explains everything you need to know about establishment, taxation, advantages, and comparisons with other legal forms, enabling you to make an informed decision.
What is a Sole Proprietorship?
The sole proprietorship (II) is an authorized form of economic organization through which a natural person carries out economic activities independently. It is regulated by Emergency Ordinance no. 44/2008 regarding the conduct of financial activities by authorized natural persons (PFA), sole proprietorships, and family enterprises.
It is a popular option for freelancers, artisans, small traders, or consultants who want to conduct their activities without complex formalities or management structures. The holder of the sole proprietorship is a single person who has unlimited liability for the obligations assumed within the activity. Although it may employ staff, the entrepreneur remains solely responsible for managing the activity.
The sole proprietorship stands out through its ease of establishment, low administrative costs, and flexibility. It is suitable for those at the beginning of their journey or who want to test a business idea without a complex legal commitment.
Sole Proprietorship vs. PFA and SRL
When choosing the legal form for a business, several factors must be considered, such as legal liability, tax regime, setup and development costs, and administrative complexity. The most common legal forms for natural persons are the Sole Proprietorship (II), Authorized Natural Person (PFA), and Limited Liability Company (SRL). Here’s how they compare:
Legal liability:
- Sole Proprietorship: the holder has unlimited liability with their entire estate for the business obligations.
- PFA: same as II, the liability is unlimited.
- SRL: liability is limited to the share capital, so personal assets are protected.
Establishment method:
- PFA and II are established through a simplified process, without minimum share capital.
- SRL requires a minimum share capital of 200 lei, drafting articles of incorporation, and registration with the Trade Registry.
Activity and CAEN codes:
- PFA: may have one main CAEN code and up to 4 secondary ones.
- II: may have multiple CAEN codes, without limit.
- SRL: may have any number of CAEN codes, but only one may be the main one.
Contributions and taxation:
- PFA and II: 10% tax on net income, plus pension and health contributions if they exceed the legally established thresholds.
- SRL: 1% microenterprise tax (with employees) or 3% (without employees), or 16% profit tax if certain thresholds are exceeded.
Hiring employees:
- PFA: may hire employees, but the holder must mainly carry out the activity.
- II: may hire employees without restrictions regarding the holder’s involvement.
- SRL: may hire any number of employees, including associates.
Image in front of partners:
- SRL is often perceived as more “serious” or more commercially stable, especially in business-to-business relationships.
Therefore, the sole proprietorship offers a balance between flexibility and simplicity, being a suitable choice for small and medium-sized activities, while the SRL is recommended for expanding businesses or those involving greater financial risk.
How to set up a Sole Proprietorship
Registering a sole proprietorship with the Trade Registry involves the following steps:
- Choosing the name:
The name of the business must contain the full name of the holder, followed by the mention “Întreprindere Individuală”. For example, “Popescu Andrei Întreprindere Individuală”. A name reservation is made online or at the counter. - Choosing and verifying CAEN codes:
You must choose the activities to be carried out and the corresponding CAEN codes. II allows choosing an unlimited number of codes. - Preparing the required documents:
- Registration request (standard form)
- Name reservation proof
- Copy of the holder’s ID
- Declaration on own responsibility regarding the conduct of the activity
- Proof of professional headquarters (lease agreement, loan, etc.)
Consent from neighbors or the owners’ association (if applicable)
- Submitting the file:
The complete file is submitted in person at the Trade Registry Office of the county where the headquarters will be located or online, through the ONRC portal. - Obtaining the registration certificate:
After analyzing the documentation, ONRC issues the registration certificate, the certificate of status, and any necessary permits, as applicable. The process takes 3–5 working days. - Registration with ANAF:
A separate registration with ANAF is not required – ONRC automatically transmits the data, but the tax option declarations and social contribution forms must be submitted afterwards.
These steps are simple and can also be carried out with the help of a consultant for submitting the documents.
Advantages and disadvantages of a sole proprietorship
The sole proprietorship is a simple and accessible legal form for those who want to conduct economic activity independently. However, like any form of organization, it has both advantages and disadvantages.
Advantages:
- Simplified establishment procedure: the establishment is fast, with low costs and no minimum share capital, ideal for those who want to start an activity without large investments.
- Flexibility and full control: the holder is solely responsible and has full control over decisions, without needing approvals or partners.
- Possibility to hire staff: unlike PFA, the sole proprietorship may have employees, thus facilitating business expansion.
- Simple administration: accounting is less complex, usually based on simplified bookkeeping, which reduces administrative costs.
Disadvantages:
- Unlimited liability: the main risk is the unlimited personal liability of the holder for all the business obligations, including with personal assets.
- Commercial perception: in relationships with business partners or clients, the sole proprietorship may be perceived as less serious than a limited liability company.
- Development limitations: for businesses that require major investments or partnerships, the II structure may become a hindrance, and switching to more complex legal forms is recommended.
Mandatory social contributions: even without profit, the holder may be required to pay pension and health contributions if certain thresholds are exceeded.
Thus, the sole proprietorship is ideal for small and medium-sized activities with moderate risk, offering speed and flexibility, but it must be carefully evaluated depending on the long-term business objectives.
The tax regime of the sole proprietorship
The tax regime of the sole proprietorship is relatively simple and advantageous for small entrepreneurs. Tax is applied to the net income earned, with a standard rate of 10%. The holder may opt for the real taxation system, where expenses incurred for business purposes are deducted, or for the income norm system, a fixed regime applicable to specific activities.
In addition to income tax, the sole proprietorship holder must pay mandatory social contributions, namely CAS (25%) and CASS (10%), if the annual net income exceeds the threshold of 12 gross minimum wages. If the income is below this threshold, payment of these contributions is optional.
Also, if the annual turnover exceeds 300,000 RON, the sole proprietorship must register for VAT, applying the standard rates provided by the current legislation.
To declare income and contributions, the holder must file the Single Declaration annually with ANAF, estimating income and determining fiscal obligations. This tax regime makes the sole proprietorship an accessible and flexible solution for those who want to carry out independent activities.
Thus, for start-up businesses or activities with low risk, the sole proprietorship can be the ideal solution. Depending on the evolution of the business and long-term goals, this form of organization can represent an important step toward more complex structures, such as the SRL.
