ENTREPRENEURSHIP

bv or sole proprietorship: Which is the best choice for you?

Table of contents

What are the differences between a limited company and sole proprietorship? Read more about this here.

When you start a business, you choose a legal form. In this article, we look at the differences between the legal forms the sole proprietorship and the besloten vennootschap (bv). We list the pros and cons so you can choose which legal form suits you best.

Differences between sole proprietorship and bv

The sole proprietorship and the besloten vennootschap (bv) are two legal forms that have several differences. These include differences in liability, taxes, formation & costs and asset accumulation. The table below compares the two legal forms:

	Sole proprietorship	Besloten vennootschap (bv) in the Netherlands
Founding	Registration in the CoC	Besloten vennootschap (bv) in the Netherlands
Capital contribution	No requirements	Initial capital of at least €0.01
Board	Owner	Board/director
Property	Personal	Shareholders
Participation in other companies	No	Yes, the bv can hold shares in other companies
Liability	100% private liability	Shielded private assets
Tax	Income tax and sales tax (except for KOR scheme)	Payroll tax, sales tax, corporate income tax and dividend tax
Financial annual report	None	Mandatory
Social security	No entitlement to employee insurance benefits	No employee insurance except if dismissal is possible against the wishes of the director-major shareholder (dga) and/or if the shareholding, with or without your partner, is less than 50%.

Advantages of a bv or sole proprietorship

Discover the main advantages by legal form.

Besloten vennootschap advantages

Investors or family can get shares in a bv, making it more interesting for investors to invest in a besloten vennootschap.
A besloten vennootschap appears more professional.
Within a bv, you can save without having to pay tax on it. You only have to do so when you pay it out as profit/dividend.
Only the bv is liable.

Benefits of sole proprietorship

Because you are sole owner, you are always in control.
You can make decisions quickly without accountability.
Starting a sole proprietorship is relatively simple and inexpensive.
Accounting remains easier.
For the first few years as a sole proprietor, you have many tax advantages.

Liability

Perhaps the biggest difference between a sole proprietorship and a besloten vennootschap is liability. With a sole proprietorship, you are liable both in business and in private for any debts incurred by the sole proprietorship. Creditors can then recover not only the assets in the sole proprietorship, but also the assets you have in your private life. If you have very high debts in your sole proprietorship and cannot pay them in business, this is a risk for your private situation. For example, you could lose your own savings, house or car. When a limited liability company goes bankrupt, creditors can only appeal to the assets left in the company to get their money back. When, as a director of the bv, you performed your managerial duties properly, you are not liable privately.

Tax

The sole proprietorship is usually more tax advantageous in the early stages of a business. Only the profit (turnover - purchases and expenses) of a sole proprietorship is taxed in Box 1 of income tax. In addition, the owner of a sole proprietorship is entitled to various deductions such as entrepreneur deduction, self-employment deduction and start-up deduction. Want to know more about taxes with a sole proprietorship? Then read our blog on this subject.

From a profit of €80,000, it is more advantageous to conduct the business in a bv. With a bv, profit is turnover - purchases and expenses. These costs include your salary (as director). A bv pays corporate tax on profits. All profits up to €200,000 are taxed at 19%, everything above is taxed at the high rate of 25.8%. In addition, the DGA (director-major shareholder) pays income tax on his/her salary and any dividends paid.

Formation and costs of bv or sole proprietorship

Starting a sole proprietorship is very simple, a visit to the Chamber of Commerce and a payment of €80.10 and you have registered your sole proprietorship and can start operating from it. With a bv, this is a bit trickier and more expensive. To set up a bv you need to go to the notary, you need a notarial deed. A visit to the notary can quickly run high in costs, this is something to consider when starting up.

Also, with a besloten vennootschap, you are obliged to pay start-up capital into the company, recently this minimum amount has been reduced to €0.01. Despite being allowed from as low as €0.01 these days, it is still something formal to take into account when setting up a company.

With a bv it is easier to attract investors. A bv has shares that can be sold/given away. At incorporation, all shares go to the founder(s). When the founders then start looking for investors, these investors can be promised shares (or bought with the amount to be invested) in exchange for the investment. This way, the investors also get a direct connection with the company and also benefit if, partly because of the investment, the company is doing well.

Converting from sole proprietorship to bv

If you choose to start your business as a sole proprietorship and want to convert it to a bv at some point, for example due to the growth of your business, you can still do so! We can assist you in converting a sole proprietorship to a bv Please contact us to do so.