When starting your new business venture, the first decision you must make is the choice of the legal structure under which you will operate. Often, the decision comes down to choosing between a eenmanszaak and a limited company (BV). In this article, I will explain the differences between an eenmanszaak and a Ltd. and help guide you in making the decision.
The most significant difference between an eenmanszaak and a BV is that the eenmanszaak is transparent, while the BV has legal personality. Transparency in an eenmanszaak means that the business is seen through, and as the entrepreneur, you personally enter into the commitments and debts of the business. You are personally liable for these. In the case of a BV, things are different. The BV has legal personality, meaning the BV enters into agreements and is therefore liable. As a shareholder of the BV, you are generally not personally liable if, for example, the BV goes bankrupt.
Especially when starting a business that involves more risk, the above can be a crucial factor in choosing between an eenmanszaak and a BV Risks can include loans you take, potential liability arising from your activities, or inventory you need to maintain. The greater these liability risks, the more appealing a BV might be.
If you are starting a business with a business partner, you must ask the same question but regarding whether to establish a partnership (VOF) or a BV A partnership is essentially an eenmanszaak with multiple entrepreneurs.
Since a VOF is transparent as well, all partners are personally liable for the full risk of the business. This means that when collaborating, you are also liable for your partner’s potential business mistakes. However, this works both ways. Private creditors of one partner can claim against the entire business assets.
Therefore, when choosing between a VOF and a BV, you must consider not only the risk the business entails and not only the risk your partner’s approach brings but also your partner’s private financial situation.
A BV and an eenmanszaak are also taxed differently. The transparency of an eenmanszaak means that the owner is taxed, not the business itself. The owner is taxed as an individual with income tax. In the case of a BV, it’s different. The BV makes a profit and pays corporate tax on this profit. This highlights that the BV is seen as a separate entity. The specifics of taxation and the differences in taxation are less relevant for this article. What is relevant to understand is that, broadly speaking, an eenmanszaak is more advantageous with lower profits, while a BV becomes more attractive with higher profits. As a rule of thumb, a profit of £100,000 is the point at which you should seriously consider whether an eenmanszaak or a BV is more advantageous.
Apart from the examples mentioned, there are several other considerations to factor in when choosing between an eenmanszaak and a BV The most important piece of advice I can give you is to always gather information before making the decision. Of course, you can convert an eenmanszaak into a BV and vice versa, but there are costs involved, and often you cannot revert to the start of the business. This may lead to temporarily operating from a legal structure that is not optimal for you.
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