Sole proprietorship or private limited company?

Differences between a sole proprietorship and a private limited company (bv)

The choice for a sole proprietorship or a private limited company has everything to do with taxes and liability. You want to pick the structure that will cost you less in taxes and limit your entrepreneurial risk. Take a look at some of the key differences.

The differences at a glance:

Advantages of a sole proprietorship or a private limited company (bv)

The main advantages per legal structure:

Sole proprietorship advantages

• Quick and easy setup
  You register with the Business Register at the Netherlands Chamber of Commerce KVK, and you are in business. You pay a one-off registration fee.  To start a bv, you have to let an attorney draw up a notarial deed. This takes more time, and it costs you a couple of hundred euros.
• Fiscal advantages for starters
  The profits of a sole proprietorship are taxed under income tax. Under certain conditions, you can make use of schemes to lower the amount you have to pay. The bv cannot make use of these schemes.

Private limited company advantages

• No personal liability
  Do you have debts you cannot pay, and that you did not cause by acting irresponsibly? The bv can go bankrupt, but you as a director and shareholder will not have to pay with your private assets.
• Suited for complex business management
  You can set up a holding company structure with multiple operating companies, to spread risks or gain tax advantages.
• Attract investors
  Persons who fund your business, like investors or family, can participate in a bv as shareholders.
• Image
  A bv may have a more professional image in the eyes of business partners, especially when doing business abroad.
• Build capital
  A bv allows you to set aside money: a reserve, or a provision. For example, you can build your own pension, or add profits to the bv’s business capital.

Profits and taxes

Roughly speaking, a bv only becomes fiscally advantageous when you have a profit of over € 130,000. This is one of the reasons why many starting businesses opt for a sole proprietorship.

In a sole proprietorship, your turnover minus purchases and costs is your profit. You pay your income tax on your profit at the end of the year. The profit minus this income tax is your net income.

A sole proprietorship may also be entitled to entrepreneurial deductions, including the entrepreneur allowance and private business ownership allowance.

A bv pays corporate tax on the profit, and in case of profit division, dividend tax. In a bv, turnover minus purchases and expenses is profit. The costs of the bv also include your salary as director. The profit and loss account therefore looks different with a bv than with a sole proprietorship. A bv pays corporate income tax on the profits and, if applicable, dividend tax from the profit distribution. The director-major shareholder (DGA) of a bv also pays income tax on their tax-minimum salary (€56,000 in 2024) and on dividends. If you cannot yet pay this minimum wage, you can apply to the Tax Administration for a lower wage.

Liability

If you are the owner of a sole proprietorship, you are personally liable. With your private capital, including your car and your house. And possibly your partner’s possessions as well. That depends on your partnership or marriage arrangements (whether or not you have a pre-nuptial, for instance). For financial purposes, the private and business assets of a sole proprietorship are one. A bv has separate capital, and this means you are usually not personally liable for the bv’s debts. The bv is liable, unless you as a director have been demonstrably negligent. For example, if you are unable to pay your employees’ wages or the bv’s debts, and you fail to report this to the Tax Administration, or if you enter into agreements you know the bv cannot honour.

As a sole proprietor, you run a greater risk. But that should not be your main reason to choose for a bv. You can reduce entrepreneurial risks by drawing up solid general terms and conditions, and by taking out business insurance. And if you need financing for your starting bv, odds are your financing party will make you sign the contract as a private person as well – and that means you will be personally liable after all.

Board

With a bv, you have to deal with a management board and possibly shareholders who contribute money. They do have some say in your company, for example, they have profit and voting rights. This is called shared control. Do you want to keep control yourself? Then opt for a sole proprietorship. Is your business more complicated with more risk and do you need external funds? Then consider a bv.

Social benefits

An entrepreneur is not insured for social benefits like unemployment benefit (ww) or sickness pay (wia). You have to make your own arrangements. Are you employed as DGA by your bv, and do you (and your partner) own less than 50% of the shares? And can you be dismissed against your will? In that case, you are insured for social benefits. The bv has to pay contributions for these benefits via your wage tax.