Limited liability company or sole proprietorship / V.O.F.?
The age-old question that seems to be current every year. Because these legal forms are formally complicated, the exact difference is unknown to many entrepreneurs. This article explains the main differences.
Advantage of a B.V.
The B.V. is an insurance policy for your private assets. In the event of bankruptcy, creditors will not be able to access your private assets. However, tax-wise, a B.V. is disadvantageous for taxable profits under €150,000 – €200,000 (depending on pension accrual). Thus, if your tax result is below €150,000, you must weigh your business risk against the cost of higher taxes (often €5,000 / €6,000**). For taxable profits above €200,000, the limited liability company is more tax advantageous.
By the way, you are not completely exempt from liability in a limited liability company. In the case of culpable misconduct that prevents the B.V. from fulfilling its obligations, you may still be held liable in private.
Advantage of a sole proprietorship / V.O.F.
The main advantage of the sole proprietorship / V.O.F. is the tax advantage. The self-employment deduction of €7,280 is a good benefit, in addition to the 14% SME profit exemption. You also have some administrative relief that saves money. A B.V. must go to the notary for incorporation and any changes; this is not required for a sole proprietorship. In addition, the annual work of a B.V. requires more work, such as preparing annual minutes, filing financial statements, corporate tax returns, dividend payments. Although these costs are not very heavy, they add up every year.
From sole proprietorship to limited liability company or vice versa?
Has your situation changed, and does a limited liability company better suit your business or vice versa? This is what the legislature designed the silent contribution to a B.V. or silent return from a B.V. for. By taking advantage of these arrangements, you can continue your business without settling on hidden reserves (think property with book value 100k, actual value 200k). However, a deferred tax claim (payable only upon cessation) of 20% on the hidden reserves does arise on this.
On a return, the company does have to pay off any accrued pension or tribal right (can be prohibitive). It is possible to implement this scheme retroactively, however, this requires the presence of a letter of intent dated Oct. 1 of the relevant fiscal year.
We can assist you in this choice, and do the executive work for you. In addition, we work with skilled notaries who will carefully go over the important formal requirements, with you.
**At a net pre-tax profit of €60,000, incl. entrepreneurial deductions (excluding other) Compared to a B.V. where €44,000 is paid. Every situation is different, contact us for customized advice.