You can set up a sole proprietorship* relatively quickly and easily, but it does come with unlimited liability. What exactly does that mean? If your company gets into debt, your private assets will be at risk. Would you prefer a company? This is a separate legal entity, so your private assets will enjoy better protection. The founders, say shareholders, have only limited liability, making a company a safer choice for risky ventures.
"}},{"componentType":"sectionTitle","title":"Taxes: personal or corporation tax?"},{"componentType":"paragraph","richBody":{"value":"In a sole proprietorship*, your income counts directly for personal income tax, which can be as much as 50%. What if you opt for a company? Then you are subject to corporation tax: 25% standard rate, and for SMEs it is as low as 20% on the first 100,000 euros of profit. When your income is paid out, you will pay taxes again, but a company often opens more doors for smart tax optimisation.
Brief overview of pros and cons:
Sole proprietorship*
Pros:
Cons:
Company
Pros:
Cons:
Are you noticing that your revenue is going up and the tax burden in your sole proprietorship* is increasing? If so, it may be wise to consider switching to a company. Not only will such a move offer more tax advantages, it may also enable strategic growth. Staying with the bicycles comparison: imagine you only have a small racing bicycle. Soon, however, you find that you need a mountain bike to tackle mountainous routes. It’s the same with switching to a company: it can help you tackle bigger challenges.
When you ought to switch to a company and which form is the most appropriate depends very much on your specific situation. So, consult your accountant for personal advice and get a clear picture of your income in advance with this handy free simulator.
"}},{"componentType":"sectionTitle","title":"Do you actually need a separate bank account?"},{"componentType":"paragraph","richBody":{"value":"Opening a separate bank account for your sole proprietorship* is not a legal requirement, but it is often set out as a contractual obligation in banks’ general terms and conditions. Moreover, it is also a smart move to strictly separate your business and private expenses. This keeps your accounting records clear. Better yet, you avoid any hassle during a possible tax audit. Think, for example, of a business lunch popping up among your private expenses: that can cause unnecessary questions.
Companies such as private limited companies (BVs) do require a separate business account. This is a good thing because it ensures clear and transparent financial records. This keeps your data organised, reliable and transparent, which is vital for sound bookkeeping!
"}},{"componentType":"sectionTitle","title":"Conclusion: which form will you choose now?"},{"componentType":"paragraph","richBody":{"value":"The choice between a sole proprietorship* and a company is crucial and depends very much on your personal situation, the nature of your business and your future ambition. A sole proprietorship*1 offers simplicity and low formation costs. So, it is ideal for start-ups starting out with a relatively low financial risk.
On the other hand, a company offers more long-term benefits, especially as your business grows and becomes more complex. Separating your private and business assets limits your financial risks and creates opportunities for fiscal optimisation. This makes a company particularly attractive for entrepreneurs looking to expand and diversify.
"}},{"componentType":"highlight","richBody":{"value":"Do you have any questions or are you looking for additional information?
Make sure you check out ING’s start-up tips and discover the step-by-step plan.
"}},{"componentType":"cta","textLink":{"url":"/en/business/starters/starterspackage-current-account","text":"Set your business up for success"}}]},"complementaryZone":{"flexComponents":[{"componentType":"cards","cards":[{"componentType":"productCard","cardType":"product","cardSize":"small","title":"Setting your price as a freelancer","intro":"Three steps to a pricing strategy thanks to pricing expert Denys Robyn.","image":{"transformBaseUrl":"https://assets.ing.com/transform/273a6bc8-ee27-4d48-81c9-0579ac118c48/Young-woman-leaving-the-office-with-her-laptop-in-hand","type":"image","width":1920,"original":"https://assets.ing.com/m/54f2926a918db7c2/original/Young-woman-leaving-the-office-with-her-laptop-in-hand.jpg","extension":"jpg"},"link":{"url":"/en/business/starters/setting-your-price-as-a-freelancer"}},{"componentType":"productCard","cardType":"product","cardSize":"small","title":"Financial management of a sole proprietorship","intro":"How exactly does accounting work?","image":{"transformBaseUrl":"https://assets.ing.com/transform/c64d5589-9af9-47eb-add6-8ddb2fb2ce30/Business-man-talks-hands-free-on-mobile-with-takeaway-food","type":"image","width":1920,"original":"https://assets.ing.com/m/34315c20ae1731d6/original/Business-man-talks-hands-free-on-mobile-with-takeaway-food.jpg","extension":"jpg"},"link":{"url":"/en/business/starters/financial-management"}}]}]},"legalZone":{"flexComponents":[{"componentType":"paragraph","title":"Disclaimer","richBody":{"value":"This article is for information purposes only and the information can change over time. Always consult the latest rules and requirements with the competent authorities. Additionally, seek professional advice before making any decisions. ING Belgium NV cannot be held liable for decisions based on the information provided.
ING Belgium reworked an article by Bizantium for commercial purposes.
*natural person acting as a self-employed person
* cons for a sole proprietorship: concerning the unlimited liability: your private assets are not protected. But there are possible exceptions to this, e.g. founder’s liability.
"}}]}}}