When to expand from a sole proprietorship into a bv?
Your business is doing well: profits are growing considerably, and maybe you’ve even had to hire employees by now. You’ve once heard or read somewhere that it could be wise to transition into a bv (private limited company) at some point. But exactly how does that work? What are the benefits, and at what point should you take that step? We’ll explain everything in this blog.
Liability
The biggest advantage of converting a sole proprietorship (or general partnership) to a bv (private limited company) is, as the name suggests, the limitation of your personal liability as an entrepreneur. What does that mean? As a sole trader, you’re fully personally liable for any debts of the company, and possible creditors of the company are able to recover claims from your private assets (such as savings or your home). As the company increases in size, the risk of being held personally liable may also increase. With a bv, the liability of the company is, in principle, limited to the assets of the bv. Because a bv is an independent entity, creditors of the bv can only hold you, as the director-majority shareholder, privately liable for business debts in exceptional cases.
Taxes
If you have a sole proprietorship, you pay income tax on the profits from your business (up to 49.5%). However, as an independent entrepreneur you’re entitled, under certain conditions, to a number of tax benefits for income tax, such as tax relief for new businesses, private business ownership allowance, and SME profit. As a result, you pay less income tax, up to a certain profit level, than when you’re employed. If your profit continues to grow, at a certain point it may be more interesting from a tax perspective to convert the company to a private limited company, since profits of private limited companies are taxed in a different way.
In the case of a bv, the annual profit is first taxed with corporation tax (19% on profits up to € 200,000 and 25.8% on higher profits). If the profit after corporation tax is subsequently paid out as dividend by the bv to you as a shareholder of the bv, another dividend/income tax will be levied on this dividend (a total of 24.5% on a dividend up to € 67,000, and 33% on the rest). This dividend/income tax is only due if the dividend is actually paid out by the bv. To prevent you from having no income, and therefore being entitled to allowances for example, you, as a director-majority shareholder who works for his own bv, are obliged to pay yourself a salary.
Advantages of a bv
How much profit do I need to make to transition into a bv?
By now you’re probably wondering: How high does my profit need to be to opt for a bv? There’s no simple answer to that question. It depends on the type of company, the salary you receive, how much money you need to meet your living expenses, the business risks, the extra costs you would be faced with as a bv, etcetera. In order to go from a sole proprietorship to a BV, a profit of € 100,000 per year is a pretty good guideline. With such profits, it may be more fiscally attractive to run your business as a bv instead of as a sole proprietorship.
Do keep in mind that a bv also entails higher costs. To set up a bv you need to go to a notary: For a standard bv, the costs for this are approximately € 500 to € 1,500. In addition, there may be costs involved in coordinating the fiscal switch from a sole proprietorship to a bv. Finally, the costs of a bookkeeper will also be higher than for a sole proprietorship, since a bv has more obligations and its administration is more complex.
Does Kees de Boekhouder also do the bookkeeping for private limited companies?
If your sole proprietorship has managed to achieve a profit of € 100,000 per year, or if you would like to transition into a bv for another reason, please discuss this with your accountant. Kees de Boekhouder has a sister company, Founders, which focuses specifically on private limited companies. We’re more than willing to think along with you about the possibilities!
