Is it time to change your company’s legal structure?

KVK research among almost 400 SME entrepreneurs shows that about half of them have changed their legal structure at some point or have considered doing so. Here are 5 situations where it may be smart to change your legal structure.

1. You are expanding your business

If you expand your business by opening a new shop or selling more products, you face higher costs and more responsibility. This also means more risk. Changing legal form can help you protect your private assets. If something goes wrong, you will not be personally liable for your company's debts. The KVK survey shows that liability is a reason for 30% of the SME entrepreneurs who took part to change legal form, or to consider doing so.

Action points

• Consider a legal form with limited liability, such as a BV.
• Get advice from a financial adviser.
• Make sure you have all the necessary permits for expansion.
• Check whether your current insurance policies provide sufficient cover for the expansion. You can do this with the KVK Insurance Check. You may need additional insurance, such as extended business liability insurance.
• Check that your registration with KVK is still correct.

2. You are going to start other activities

If you start new business activities, such as offering new services or selling other products, you may have to deal with new rules and risks. A different legal form may suit these new activities better and help you comply with the rules and reduce risks.

Action points

• Adjust your legal structure if it better suits the new activities.
• Report your new activities to KVK so that they are properly listed in the Business Register.
• Use the KVK Insurance Check to find out if you need new insurance, such as professional liability insurance for new services.

3. You take on staff

If you hire people, you will have more responsibilities. For example, you must continue paying wages even when someone is ill, and ensure a safe working environment. Changing your legal structure can help you protect your private assets if something goes wrong with your staff, such as an industrial dispute. The survey found that for 12% of SME entrepreneurs surveyed, taking on additional staff was the reason for changing legal form, or considering doing so.

Action points

• Choose a legal structure suitable for hiring staff, such as a BV or general partnership.
• Make sure you know what your obligations are as an employer.
• Consider engaging an HR specialist or payroll company to support you.
• Check whether you need absenteeism insurance, or employer liability insurance. You can do this with the KVK Insurance Check.

4. Your turnover grows

If your business starts earning more money, you may have to pay more tax. A legal structure such as a BV may be fiscally beneficial. This means you pay less tax and have more money left over to invest in your business. 35% of SME entrepreneurs surveyed said tax benefits were a reason to change legal form, or to consider doing so.

Action points

• Consider a legal form that is more tax-advantageous for higher turnovers, such as a BV.
• Get advice from a tax adviser.
• Keep good financial records and use an accountant and/or accounting software to keep an overview.
• Use the KVK Insurance Check to find out if your current insurance policies still provide sufficient cover and consider higher cover limits or additional insurance. 
• Check that your registration with KVK is still correct.

5. You are going to do business abroad

If you are going to sell products or services abroad, you will have to deal with different rules and taxes. A legal form such as a BV or NV can help you follow these international rules and make your administration easier. For 68% of surveyed entrepreneurs with a BV, liability is the reason to change the legal structure, or to consider doing so.

Action points

• Choose a legal form that is internationally recognised and offers advantages, such as either a BV or NV.
• Find out about the rules and obligations in the countries where you want to operate.
• Consider engaging an international legal adviser to help you with regulations.
• Check whether you need export credit insurance, international liability insurance, and transport insurance. You can do this with the KVK Insurance Check.
• Check that your registration with KVK is still correct.

KVK Advice Team

Are you not sure which legal structure is best for you? The KVK Advice Team will be happy to help you. Call our advisers on 088 585 22 22.