Legal forms of doing business

There are two types of legal forms:

• Legal forms which do not involve a legal person. Your entire personal assets are liable for obligations. 
  – Sole trader or freelancer
  – Vennootschap Onder Firma (VOF) or partnership under common firm
  – Commanditaire Vennootschap (CV) for limited partnership
  – Maatschap or partnership
• Legal forms which do involve a legal person: you are liable for the amounts that you have invested. Like an individual, a legal form with a legal person has independent rights and obligations.
  – Besloten Vennootschap (BV) or limited liability private company
  – Vereniging or association
  – Stichting or foundation 

Sole trader

There may be several people working in your company, but you are the only owner. As the owner you are entitled to the profits your company makes.

Taxes

You pay income tax on the profits. In certain circumstances you are entitled to the self-employed tax allowance.

Liability

There is no distinction between your business and personal assets. If you have business obligations, your creditors can demand that you pay these from your personal assets. If you have personal obligations, your creditors can make a claim on your business assets.

If you are married on the basis of communal estate, creditors can also make claims on your partner´s assets. If you are married on the basis of a marriage contract, the personal assets of your partner fall partially or completely outside the area of business liability. If you are married on the basis of communal estate, you can still arrange a marriage contract. Ask a notary for details.

For more detailed information see the page about freelancing.

Partnership under common firm (VOF)

You run a business with one or more other persons. This makes you partners. Each partner brings money, goods and/or manpower into the business. A partnership contract is not compulsory, but is in fact essential.

The agreement states the length of the limited partnership, the contribution, authority, profits share and the arrangements for resignation of the partners. Profits are allocated in line with a formula set out in the partnership contract. You can either ask a civil notary to draw up the contract or do it yourself using a model contract.

Taxes

Generally the tax authorities consider each partner to be a self-employed entrepreneur. Each partner can therefore benefit from tax allowances for the self-employed. Each partner pays income tax over his or her share of the profits. Visit the tax authority for more information.

Liability

The partners are each jointly and severally liable for the obligations of the VOF. If the assets of the partnership are insufficient, creditors can make a claim on the personal assets of the partners in the VOF.

If you are married on the basis of community of goods, creditors can also make claims to your partner’s assets. If you are married on the basis of a marriage settlement, the personal assets of your partner fall partially or completely outside the area of business liability.

If you are married on the basis of community of goods, you can still arrange a marriage settlement. Ask a notary for details.

The husband-wife business (‘man-vrouw firma’)

Two people who are married, living together or are registered partners who start a business can enter into a VOF with each other, the so-called husband-wife business. If they both want to claim tax allowances for the self-employed, they have to perform equal tasks within the business.

The disadvantage of the husband-wife construction is that they are both jointly and severally liable, even if they are married on the basis of a marriage settlement.

Limited partnership

The limited partnership (CV) is a special form of the General partnership (VOF). There are two sorts of partners:

• active partners 
• limited or sleeping partners.

The active partner is active as an entrepreneur. The sleeping partner stays in the background and tends to finance the business. He has much less authority and bears less risk. He is not allowed to act as active partner and his name cannot be used in the name of the partnership.

A limited partnership tends to develop from a sole trader or general partnership when a sleeping partner enters the business to provide extra finance for growth.

A partnership agreement is not compulsory, but is in fact essential. The agreement states the length of the limited partnership, the contribution, authority, profit share and the arrangements for resignation of the two sorts of partners. You can either ask a civil notary to draw up the contract or do it yourself using a model contract.

Taxes

Generally the tax authorities consider active partners to be self-employed entrepreneurs. Active partners can therefore benefit from tax allowances for the self-employed, the fiscal retirement reserve, the working partner’s allowance and termination allowance. Each active partner pays income tax over his or her share of the profits.

If the sleeping partner only provides capital for the business without any liability towards the business creditors, the new tax system does not consider the sleeping partner to be an entrepreneur. It considers him or her to have joint entitlement.

The entrepreneur is the taxpayer on whose account the business is run and who directly commits the business to obligations.

Liability

The active partner is jointly and severally liable for the obligations of the business. The sleeping partner has no liability to third parties. His only risk is losing the money he has invested.

If you are married on the basis of communal estate, creditors can also make claims on your partner’s assets. If you are married on the basis of a marriage contract, the personal assets of your partner fall partially or completely outside the area of business liability.

If you are married on the basis of communal estate, you can still arrange a marriage contract. Ask a notary for details.

Private limited liability company (BV)

The private limited liability company is a legal entity. This limits the risks of liability. When it is established, a BV must have a share capital. The amount of this capital is flexible.

The capital is divided into shares which cannot be freely transferred (although this can be adjusted in the Articles of Association). The shares are registered by name and you can’t simply trade them. When you establish a BV, a civil notary has to draw up the Articles of Association.

Taxes

You are not entitled to tax allowances for the self-employed. Corporation tax is charged on the profit; income tax is charged on the managers’ salaries.

If you own more than 5% of the shares in a BV, you are considered to own a substantial interest in the company. The new income tax system taxes income from a substantial interest (such as dividend payments and profits from the sale of shares) in box 2 at a rate of 25%.

Liability

The BV is a legal person. In principle creditors can only make claims on the assets of the BV and not on the assets of the director(s) or shareholder(s). The liability of shareholders is limited to the amount invested.

For more information see Limited company.

The partnership (“maatschap”)

Entrepreneurs in the liberal professions (such as doctors, lawyers and graphic designers) often set up a partnership.

It is advisable to draw up a partnership contract which states the rights and obligations of the partners.

Taxes

Generally the tax authorities consider each partner to be a self-employed entrepreneur. Each partner is entitled to the self-employed tax allowance. Each partner pays income tax on his or her share of the profit.

Liability

There is no separate partnership capital. In principle a partner may only enter into obligations towards third parties on his or her own behalf. The other partners are not jointly and severally liable for obligations. However, each partner is liable for the partnership obligations.

If you are married on the basis of common estate, creditors can also make claims on your partner’s assets. If you are married on the basis of a marriage contract, the personal assets of your partner fall partially or completely outside the area of business liability.

If you are married on the basis of common estate, you can still arrange a marriage contract. Ask a civil notary for details.

Foundation

A foundation is a legal person without members which is established with a certain amount of capital to achieve a goal which is stated in the Articles of Association. Foundations tend to have idealistic or social objectives. A foundation is allowed to make profits, but there are restrictions on how the profits can be allocated. This is why the foundation and the association are not the ideal legal form in which to start a business.

Taxes

If a foundation does run a business, it has to pay corporation tax on the profits. Deciding whether or not turnover tax (BTW) has to be paid can be quite complex.

Liability

In principle the managers of a foundation are not liable for obligations. However, if the foundation runs a business, the managers may be held liable under certain circumstances.

Association

An association is a partnership between two or more people (members) who wish to realize a certain objective. An association is allowed to make a profit, but the profit must be used for the common goal. The objective must not be to disturb law and order or to challenge public morality. Profits may not be divided amongst the members.

There are two sorts of association:

• Associations with complete authority under the law: the association is established with articles of association drawn up by a civil notary. The association has to be registered in the Chamber of Commerce trade register.
• Associations with limited authority under the law: the articles of association are not drawn up by a notary. The associations can register in the trade register but this is not compulsory.

Taxes

An association that runs a business pays corporation tax on the profits. Deciding whether or not turnover tax (BTW) has to be paid can be quite complex.

Liability

Once an association with complete authority has been registered in the trade register, the executives and members are not liable for obligations. Once an association with limited authority has been registered in the trade register, the executives and the association are jointly and severally liable for the agreements entered into by the executives. If the association is not registered, the executives are jointly and severally liable.