Sole proprietorship or company? How to make the right choice as an entrepreneur

Sole proprietorship or company: what's the difference?

What is a sole proprietorship?

A sole proprietorship is a straightforward way to start as a self-employed professional. You carry out your activities as a natural person and benefit from relatively limited administrative obligations.

However, you must register with the Crossroads Bank for Enterprises (CBE), apply for a VAT number if you carry out VAT-liable activities, affiliate with a social insurance fund, and register with the National Social Security Office (NSSO) if you employ staff.

Advantages of a sole proprietorship

• Quick and inexpensive start-up

• Limited formalities when setting up and closing the business

• Single-entry bookkeeping is sufficient

• No start-up capital required

Points of attention

• You have unlimited liability: your personal assets are not separate from your business assets.

• Your income is taxed under personal income tax. Depending on your income level, higher progressive tax rates may apply.

What is a company?

When you set up a company, a separate legal entity is created with its own assets dedicated to your business activities. There are more formal requirements involved. In addition to the basic obligations (CBE registration, VAT number, social insurance fund, NSSO), you will also need a formal deed of incorporation and UBO registration.

Advantages of a company

• Possibility of limited liability (depending on the legal form)

• Lower and more predictable corporate income tax rates

• More options for tax optimization (remuneration, dividends, benefits in kind)

• Suitable for partnerships, growth and family succession planning

Points of attention

• More formalities at incorporation (e.g. deed of incorporation, financial plan, UBO registration)

• Double-entry bookkeeping and annual accounts are mandatory

• Start-up capital required (except for certain legal forms)

Which legal form suits your company?

Have you decided to set up a company? The next step is choosing the appropriate legal form. This depends on several factors.

Limited or unlimited liability?

Do you want limited liability? Then choose a BV (private limited company) or NV (public limited company). In this case, you are only liable for the company’s obligations up to the amount of capital you have contributed. Your personal assets are therefore protected.

In a CommV (limited partnership) or VOF (general partnership), you do have unlimited liability, but there are fewer formalities: the incorporation can be done privately (no notarial deed required), no financial plan is required at incorporation, the annual accounts are not published, etc.

In short, in a CommV or VOF, you have the same liability as in a sole proprietorship, but your company still operates as a separate legal entity in legal transactions. Moreover, you benefit from the more favorable corporate tax rates and are subject to fewer formalities compared to a BV or NV.

The level of risk associated with your activities will play an important role in this decision.

How much start-up capital do you need?

Do you have limited start-up capital? Then an NV may not be suitable, as it requires a minimum start-up capital of € 61,500. All other legal forms (BV, CommV, and VOF) do not have a minimum capital requirement.

Are you starting alone or together?

Are you the sole founder? Then you must opt for a BV (or NV). All other legal forms require at least two founders. It is sufficient for the second founder to subscribe to just one share.

For completeness, it should be noted that the second founder of a CommV will be a “silent” (limited) partner. This partner benefits from limited liability but may not perform any acts of management.