Sole proprietorship, BV or holding: what fits your startup?

One of the first choices when starting a company: which legal form? For the average freelancer it's a tax calculation, but for a startup other things matter: investors, shares and liability. Here's how the legal forms differ and why most startups choose a BV (almost) right away.

If you're building a company that wants to grow with investors, staff and shares, you almost always end up with a BV, often with a personal holding above it. If you're first testing an idea on your own, without major risk and without funding plans, a sole proprietorship (eenmanszaak) can be a fine and cheap starting point. Here's why.

With a sole proprietorship you ARE the business: there is no separation between your business and private assets, so you are personally liable for business debts. A BV is a separate legal entity: the business risk in principle sits with the company, not with you privately. Note that this protection isn't absolute. In cases of mismanagement you can still be liable as a director, and banks sometimes ask young companies to co-sign privately.

With a sole proprietorship you pay income tax on the profit, and as an entrepreneur you're entitled to deductions such as the self-employed deduction and the SME profit exemption. One caveat: the self-employed deduction has been scaled down step by step for years, so this advantage keeps shrinking.

With a BV, the company pays corporate income tax on the profit, and you pay tax on what you take out: salary and possibly dividend. Important to know: as a director-major shareholder (DGA) you are required to pay yourself a salary that fits your work, with a legal minimum that is set annually. That's called the customary salary rule. So you can't simply 'take out nothing' to save tax.

Which form works out better fiscally depends on your profit and situation; there is no single tipping point. For startups, the tax comparison is rarely decisive anyway, and here's why.

• Investors invest in shares. An investor wants shares in exchange for capital, and shares only exist in a BV (or NV). No BV, no round.
• Employee participation. Options or certificates for your team require a company with shares.
• Multiple founders. A BV arranges the relationships between founders properly through shares and a shareholders' agreement.
• Risk. A startup takes risk by definition; you don't want to carry that with your private assets.

Incorporation happens through a notary, and unlike in the past no large starting capital is required.

Many founders put a personal holding above the operating BV: shares and built-up value then sit in the holding, while the business risk stays in the operating company. That gives flexibility at a funding round or exit. It does mean two administrations.

A BV comes into being at the notary. They draw up a deed of incorporation containing the articles of association, and that document is the proof your company exists. The notary then registers the BV in the Trade Register and files the UBO details, so that part is not on you.

Minimum capital is no longer a hurdle: one eurocent is enough, and you may contribute in kind as well. What you pick up yourself afterwards is the practical side.

• Your Chamber of Commerce number arrives, and your VAT number follows from the tax administration.
• A business bank account in the name of the BV, separate from your private account.
• The shareholder register. The board has to keep it and hold it at the company's address, listing each shareholder's shares and how they were acquired. The notary usually updates it, but the responsibility stays with the board.
• Updating your invoicing: new name, new Chamber of Commerce number, new VAT number.

Notary fees differ per notary, so ask for a price up front and ask what it does and does not cover.

The conversion also runs through the notary. What founders underestimate is that the business does not move along automatically: contracts, subscriptions, domain names, insurance and your bank account are all in the name of the sole proprietorship and all have to be transferred.

For tax purposes there are two routes to bring your business into the BV, and which one works out in your favour depends on your hidden reserves, your goodwill and your plans. That is specialist work with consequences running for years, so it is exactly the kind of question we refer on. What we do afterwards is make sure the BV's opening balance is right and that the final return of the sole proprietorship and the first of the BV line up.

Count on a few months of overlap in which both administrations exist: the sole proprietorship has to be wound up while the BV is already running. That is normal, but it is two administrations in the same period.

Choosing a BV is not only a tax and legal decision, it changes your yearly calendar. Where a sole proprietorship essentially has one income tax return a year, a BV takes on a rhythm of recurring obligations:

• A VAT return every quarter, or every month if the tax administration requires it.
• A payroll tax return every period, from the moment you pay yourself a salary. Also when you are the only person on the payroll.
• A corporate income tax return per financial year, with its own term and its own extension rules.
• Filing the annual accounts with the Chamber of Commerce: prepared within five months of the financial year end, two months to adopt them and eight days to file, so on a calendar year that is 8 August at the latest. With an extension for special circumstances that date moves to 31 December.

None of those deadlines moves with your sprint. That is exactly the difference founders underestimate when they come from a sole proprietorship.

A holding above your operating BV literally means two administrations: two bank accounts, two VAT numbers, two returns, two year-end closes. On top of that comes traffic between the two that has to be documented, such as a management fee from the operating company to the holding and a current account when money moves back and forth.

That is why we bill per entity. In practice a holding falls in the Starter plan at 250 euros per month, because few invoices pass through it, and your operating company falls in the plan that matches its invoice volume. So the holding is not a doubling of your cost, but it is not free either.

Yes. Many entrepreneurs start as a sole proprietorship and convert to a BV once the business grows or funding approaches. Such a conversion can be guided fiscally, but it is a project: count on a notary, new registrations and transferring contracts. If you already know you're taking the startup route, with investors and staff, starting with a BV right away saves you that exercise.

• The managing director's salary is started too late, so payroll tax returns have to be filed retroactively.
• Private payments run through the business account without a current account being kept, and by year end there is no way to reconstruct what was private.
• The operating BV pays costs belonging to the holding or the other way around, with no invoice and no arrangement, after which the two administrations no longer reconcile.
• The annual accounts are filed late, and that is a default visible in the commercial register.

• Sole proprietorship: simple and cheap, but personally liable and no shares.
• BV: separate legal entity, corporate tax plus a mandatory DGA salary, and the only route to investors and participation.
• The tax comparison is rarely decisive for startups; the shares and the risk are.
• A holding on top gives flexibility, but means two administrations.
• Converting later is possible, but starting right saves hassle.