Obligations of sole proprietorships
As long as the sole proprietorship continues, the company shall expressly state that it is a sole proprietorship in all its documents, correspondence, order notes and invoices, as well as in all notices that it is required by law or the articles of association to publish.
As you are aware, a sole proprietorship is a single-member company, either because it was formed as such by a single partner, or because over time the number of partners has been reduced to one.
The sole partner may be either a natural person or a legal entity.
Thus, it may happen that a company formed by several partners becomes a “sole proprietorship” at a certain point in time, i.e. a single partner becomes the owner of all the shares. In this case, the supervening sole proprietorship must be declared and entered in the Commercial Register:
– If the sole proprietorship is not entered in the Register within six months, you as the sole shareholder will become liable for all of the company’s debts incurred during the period of sole proprietorship. Once the sole proprietorship is registered – albeit late – you will not be liable for subsequent debts, but you will continue to be liable for the debts incurred up to that time).
-This liability is unlimited and joint and several, so you would be liable with all your assets and creditors could claim against the company, you or both at the same time.
Depending on its corporate form, there are both sole proprietorships with limited liability and public limited companies, so that the sole proprietorship does not prevent the company from taking this type of form, as long as it adopts the regime of its own type of company, with the special features that sole proprietorship entails. Companies may therefore be called single-member limited liability companies (SLU) or single-member public limited companies (SAU).
The formation of a sole proprietorship, the declaration of such status as a result of a single shareholder becoming the owner of all the shares or all the shares, the loss of such status or the change of the sole shareholder as a result of the transfer of some or all of the shares or all of the shares shall be recorded in a public deed which shall be entered in the Commercial Register. The registration shall necessarily state the identity of the sole shareholder.
As long as the single-member status continues, the company shall expressly state its single-member status in all its documentation, correspondence, order notes and invoices, as well as in all notices which it is required by law or the articles of association to publish.
Decisions of the sole shareholder
The fact that one person holds all the shares or holdings does not exempt him from observing the company’s operating rules, so that the single-member company must have legal bodies and observe the procedural and formal precepts relating to decision-making.
In capital companies, this decision-making competence is vested in the general meeting. In the case of sole proprietorships, the powers of the general meeting are vested in the sole shareholder, whereby the sole shareholder represents the figures of the chairman and secretary of the general meeting and adopts the relevant resolutions.
The decisions of the sole shareholder shall be recorded in the minutes, under his signature or that of his representative, and may be executed and formalised by the shareholder himself or by the directors of the company.
The fact that a company is a sole proprietorship may raise the question of what happens to transactions that the sole shareholder carries out as a creditor or customer of the sole proprietorship. This activity is entirely lawful and must respect the principles of transparency, responsibility and protection of both the company and third parties.
Thus, the Capital Companies Act stipulates that contracts entered into between the sole shareholder and the company must be recorded in writing or in the documentary form required by law in accordance with their nature, and shall be transcribed in a company register, which must be legalised in accordance with the provisions for company minute books. The annual report shall refer expressly and individually to these contracts, indicating their nature and conditions.
In the event of the insolvency of the sole shareholder or of the company, the contracts referred to in the preceding paragraph which have not been entered in the register and which are not referred to in the annual report or which have been referred to in a report not filed in accordance with the law shall not be enforceable against the estate.
During a period of two years from the date of conclusion of the contracts referred to in the first paragraph, the sole shareholder shall be liable to the company for the advantages which he has directly or indirectly obtained to the detriment of the company as a result of such contracts.
For further information, please consult our legal advice service .