Which business structure should you choose when becoming self-employed in Belgium?

Got a tax question? We’ll answer for free by email.

Bitte gib eine gültige E-Mail-Adresse ein

Ask your question

You’ve developed a service or have a product in mind and want to start your own business. But before you can become self-employed, you need to choose a business structure. When you’re starting out, you have several options to choose from. You might already have heard of a BV/SRL, NV/SA, a partnership, or a sole proprietorship.

In this article, we discuss the pros and cons of the two most popular business structures in Belgium: sole proprietorship and a company.

What business structures exist?

When you become self-employed for the first time, you can choose between two business structures, namely, a sole proprietorship or a company. This choice shouldn’t be taken lightly, as there are significant differences in terms of liability, administration, start-up costs, and in some cases, the taxes and VAT you have to pay.

What is a sole proprietorship?

As the name suggests, this type of business structure has only one owner who bears full responsibility for the business activities. Legally, the sole proprietorship is a ‘natural person’, meaning there is no ‘legal personality’. As a result, the owner of the sole proprietorship is personally liable and is responsible for all losses, but on the other hand, all the profits are also theirs.

Pros and cons of a sole proprietorship

Sole proprietorship is the most commonly chosen business structure for people becoming self-employed in Belgium. Here are the advantages and disadvantages at a glance.

👍 Advantages

• Easy to set up: Starting your sole proprietorship is generally straightforward. Unlike a partnership, you don’t need any statutes. Plus, you can do everything online.
• Full control: In a sole proprietorship, you are the only decision-maker. You have more agility and can fully maintain your own vision for the company.
• Simpler accounting and administration: There are fewer administrative obligations than with a partnership. For example, you don’t have to hold a general meeting, and double accounting isn’t required.

👎 Disadvantages

• Personally liable: You are liable for your professional debts, meaning both your personal and professional assets are potentially at risk. Therefore, a sole proprietorship is not suitable for high-risk businesses.
• Higher taxes: Income from a sole proprietorship is not subject to the more favourable corporate tax rates but rather to the higher personal income tax rates.
• Limited financial options: If you want to get investors for your project or sell part of the sole proprietorship, this is much more challenging than if you have a partnership.

What is a company?

You can set up a company on your own, or you can choose to set it up together with two or more people. A company has its own legal personality, meaning that the partners are not personally liable for mistakes or losses the business makes.

Compared to a sole proprietorship, though, it is much less straightforward to pay out profits to yourself. This is because the income of a partnership is taxed under the corporate tax regime. If you want to pay yourself as a partner or owner, this is also taxed under the personal income tax regime.

There are different types of companies, such as a private limited company (BV/SARL) or a public limited company (NV/SA), each with different advantages and disadvantages.

Pros and cons of companies

There are several types of companies in Belgian law. These generally share the following pros and cons, with minor differences among them.

👍 Advantages

• Limited liability: With a partnership, you have the option to protect your personal assets from the debts and obligations of the partnership.
• Tax benefits: Unlike a sole proprietorship, a partnership is not subject to personal income tax but to corporate tax. The maximum tax rate here is 25%. It is also possible to withdraw money from your business in a more favourable way through dividends and liquidity reserves.
• More financing options: If you need investors to help your business grow, you will find them much faster if you have a partnership. You can easily sell shares and pledge them to third parties.

👎 Disadvantages

• More complex to set up: Setting up a company requires more administration. For example, you need to draw up statutes, and in certain cases, you need a business plan. In addition, setting up a partnership is also significantly more expensive.
• Still potentially liable: Certain companies, such as a VOF/SNC, do not protect your personal assets. Also, if you make serious mistakes, you can be held personally liable for debts of your BV/SARL or NV/SA.
• Shared decision-making: In this business structure, you are generally not the only decision-maker. As a result, you sometimes have to compromise on your vision and plans.
• More administration: A company is subject to more accounting obligations (such as double accounting) and cannot make all decisions without drawing up documents such as meeting minutes.

Which business structure is best when starting as self-employed?

Making the right choice when selecting your business structure can prevent unpleasant surprises in the future. We’ve put together a series of questions that you should go through and answer for yourself. Based on your answers, you can weigh the pros and cons of sole proprietorship and partnership and make an informed decision about your business structure.

1. How high do I estimate my annual profit from my activity? Do you think you’ll generate much more profit than you need to live on? Then look into a company.
   
2. Am I taking significant financial risks with my business? High risks and personal liability are not an optimal combination. A company can offer a solution in this case.

1. Is administration an obstacle? A sole proprietorship brings simplified and straightforward accounting.

1. How much start-up capital do I have? If you have little or no start-up capital, it’s best to start with a sole proprietorship. You can always switch later.

1. Do I prefer to work alone or do I want to have partners? You cannot set up a sole proprietorship with more than one owner.

1. What is the chance I will get involved in legal disputes? Risky activity? Then consider a company.

Choosing your business structure as a starter

As a first-time entrepreneur, you should approach your choice of business structure with caution. It’s important to carefully consider your personal situation and your business ambitions.

If you want to undertake a risky activity, it’s worth considering whether the protection of a partnership is the optimal choice. On the other hand, if you don’t expect much income and want to start quickly and cheaply, then a sole proprietorship is an excellent option.

Your personal tax coach

Do you still have questions after reading this article? Then contact Accountable’s Tax Coaches for free and with no obligation. They’ll be happy to assist you! ✨

Author - Valesca Wilms

As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.

Who is Valesca ?