Converting a sole proprietorship into a private limited company? Here's how it works
Many entrepreneurs start their business as a sole proprietorship because of the simplicity and low set-up costs. But as your business grows, it can become attractive to convert your sole proprietorship into a private limited company (BV). Setting up a BV offers advantages such as limited liability and tax benefits on higher profits. In this article we explain what is involved in converting a sole proprietorship into a BV and what steps you need to follow to do this successfully.
Why convert your sole proprietorship into a BV?
There are several reasons why it may be wise to convert your sole proprietorship into a BV: Limited liability: With a sole proprietorship, you are personally liable for the debts of your company. If you convert to a BV, the BV itself becomes liable for its obligations. This protects your private assets. Tax benefits with higher profits: If your annual profit is more than approximately €100,000, a BV can be more fiscally advantageous. Corporate tax is lower than the income tax you pay with a sole proprietorship. Professional appearance: A BV is often seen as more professional and reliable, which is especially important if you do business with large customers or want to attract investors. Easier to attract investors: In a BV you can issue shares, making it easier to attract investors for further growth.The steps to convert your sole proprietorship into a BV
Converting a sole proprietorship into a BV is a formal process that consists of several steps. Below we explain step by step what you need to do.- Preparation: Discuss the options Before you start converting your sole proprietorship into a BV, it is important to carefully consider the consequences. Contact a financial advisor or accountant to determine whether switching to a BV is fiscally and legally beneficial for your situation. It is important to weigh the benefits against the extra costs and administrative burdens that a BV entails.
- Choose a company name and draw up articles of association Just as when setting up a new BV, when converting your sole proprietorship into a BV, you must choose a company name and draw up articles of association. The company name of your BV must be unique and must not cause confusion with other companies. The articles of association are included in the deed of incorporation and contain important information such as the company structure, the distribution of shares and the rules regarding decision-making.
- Draw up a notarial deed of incorporation A notarial deed is required to establish a BV. A notary draws up this deed of incorporation, which includes the articles of association of the BV. The notary also plays an important role in converting your sole proprietorship into a BV by ensuring that everything is legally correct.
- Contribution of assets and liabilities
When you convert your sole proprietorship into a BV, the assets and debts of your sole proprietorship must be contributed to the BV. This can be done in various ways:
- Noisy contribution: In this case, the sole proprietorship is terminated for fiscal purposes and a settlement is made with the tax authorities for the accrued reserves and hidden reserves. This can lead to taxation, but you can possibly use tax facilities to reduce the tax burden.
- Silent contribution: With silent contribution, the sole proprietorship is contributed to the BV without direct tax consequences. You do not have to pay tax immediately on the hidden reserves, because the tax claim is passed on to the BV. This can be a fiscally attractive option, but there are certain conditions attached to it.
- Registration with the Chamber of Commerce (KvK) After the BV has been established, it must be registered with the Chamber of Commerce (KvK). This means that you will receive a new Chamber of Commerce number for your BV and your sole proprietorship will be deregistered. When registering, you provide the company name, business activities and details of the directors. The BV is only officially established after registration with the Chamber of Commerce.
- Tax registration with the tax authorities After registering with the Chamber of Commerce, the BV is automatically registered with the Tax Authorities. The Tax Authorities assess which taxes apply to your BV, such as corporate tax and VAT. As a director-majority shareholder (DGA), you must also pay yourself a salary that complies with the usual wage regime. In 2024, a minimum salary of approximately €51,000 per year will apply, unless you can demonstrate that this salary is unreasonably high for your specific situation.
- Administrative obligations A BV entails more administrative obligations than a sole proprietorship. You must prepare annual accounts every year and file them with the Chamber of Commerce. In addition, as a DGA you must file tax returns for payroll tax, corporate tax and, depending on your activities, VAT. It may be wise to engage an accountant to help you with these administrative obligations.
