Sole proprietorship or company?
A detailed comparison can be found below, however, it is a fact that a sole proprietorship can be set up quickly, which is preferred by entrepreneurs who want to start quickly without too much paperwork.
As there is less paperwork, it’s also cheaper. On the other hand, with sole proprietorship you are fully liable because you literally are your business.
Setting up a company is more difficult and more expensive, but has the advantage that your business assets are separate from your private assets, and it’s also easier for you to optimise your taxes.
Setting up a sole proprietorship
What is a sole proprietorship?
Sole proprietorship is the most common form of enterprise among start-ups. This is mainly because it’s very easy to set up a sole proprietorship:
- You don’t need a separate legal entity
- You are thus acting as a natural person
- You can do it on your own
In other words, there is actually no distinction between yourself and your business.
This has a number of disadvantages.
Setting up a sole proprietorship
To start a sole proprietorship, you need to complete a number of start-up formalities:
- Open a business bank account
- Register your business in the Crossroads Bank for Enterprises (CBE)
- Activate your VAT status
- Become a member of a social insurance fund such as Securex
- Prove your entrepreneurial skills - if required
- Apply for the appropriate permits - if required
Pros and cons of sole proprietorship
Advantages of sole proprietorship
Setting up a sole proprietorship offers you many advantages as a self-employed entrepreneur. In addition to low start-up costs, you also enjoy the following benefits:
- No minimum capital requirement
- No need to involve a notary
- You make all decisions independently, you are not accountable to anyone.
- Few (administrative) formalities, also e.g. no double-entry bookkeeping
- The profits immediately flow back to you as a private person.
Disadvantages of a sole proprietorship
There is, however, an important downside:
- No clear split between business and private assets: creditors can seize both
- Bankruptcy of the business entails bankruptcy of the entrepreneur
- The continued existence of the sole proprietorship is more difficult to guarantee in the event of e.g., retirement or illness of the entrepreneur.
In addition, you will also be taxed via your personal income tax. This means that you pay approximately 50% tax on your income. In the case of a company, your income is taxed at a more favourable rate.
Tip: Ask your notary for a declaration of immunity from seizure. In this way, you can still try to shield your home from seizure.
In other words, sole proprietorship has many advantages, but don't ignore the disadvantages either.
Setting up a company
A first hurdle when setting up a company is to determine the appropriate company form. Only then can you set up the company and draw up the articles of association.
There are five basic forms in Belgium:
- Public limited company (NV)
- Public limited company (NV)
- Cooperative company (CV)
- Partnership
- Companies with unlimited liability, such as a general partnership (VOF) and an limited partnership (CommV)
Each of these company forms has its specific characteristics and requirements.
Would you like advice on how to choose?
Consult your accountant, your notary or a Securex business coach.
Would you like to set up a company via private deed (e.g. for VOF, CommV ...)?
That can be done via the Securex Enterprises Desk.
Company: pros and cons
The advantages of a company
Unlike the sole proprietorship, a company is broader in scope; you can (or must) involve other people in your business.
In addition, with a company you are also less liable in the event of financial problems, although you do have to draw up a financial plan.
The advantages at a glance:
- You have limited liability as a shareholder
- You can better structure cooperation with several partners, and also draw on more financial resources
- It is also easier to arrange a succession or takeover
- You have more opportunities to fine-tune tax and social security contributions
- Your income is taxed separately under corporate income tax (lower rate than personal income tax) and you can optimise your own 'salary'.
The disadvantages of a company
To set up a company, you must demonstrate that you have sufficient initial capital (BV, CV) or a minimum capital (NV). For a BV, you must demonstrate that you can bridge at least two years by means of a financial plan.
As you have to involve a notary in most cases, the start-up procedure is more expensive and complex.
The disadvantages of a company at a glance:
- There are more formalities and obligations
- Incorporation and dissolution is subject to more rules
- In most cases, you must provide for double-entry bookkeeping
- Companies require starting capital or sufficient equity
Setting up a sole proprietorship is easier, but you are much less protected and cannot rely on all tax optimisations. However, the choice is yours.
