Which legal form suits you best? Choosing the right form of business contributes to a successful start as a freelancer. This choice has consequences for liability and tax obligations, among other things.
In this article, we discuss six different legal forms for self-employed persons. Curious about a specific legal form? Then click on one of the links below to jump directly to that section.
- The sole proprietorship
- The general partnership (general partnership)
1. The sole proprietorship
The sole proprietorship has been the most popular legal form for starting entrepreneurs for many years. In this case, the company has only one owner: so more people can work for your sole proprietorship.
If you want to start your own business on your own now, but keep in mind that you want to hire staff someday, the sole proprietorship is still a good option.
Tax benefits of a sole proprietorship
The sole proprietorship is especially popular with starters, because it is usually quick and easy to set up. Registration in the Trade Register of the Chamber of Commerce (KvK) is sufficient.
In addition, as a single person you are eligible for various tax benefits, such as the self-employed person’s allowance and SME profit exemption . As a starter you are also entitled to the starter allowance .
Liability sole proprietorship
What is important to remember is that as the owner of a sole proprietorship you will be jointly and severally liable for any debts.
This means that these costs can soon be recovered from your private assets and that can result in you losing your owner-occupied home and inventory to the creditors.
In a sole proprietorship, there is no legal distinction between your private and business assets. Always discuss the risks with your partner first and consult a financial advisor.
In certain cases it may be advisable to draw up a prenuptial agreement in which you have the consequences of a possible bankruptcy included.
2. The general partnership (general partnership)
Do you want to set up a company with someone else? Then the legal form of general partnership (usually abbreviated to general partnership) may be a good choice. The incorporation requirements are quite simple, just as with a sole proprietorship.
It is true that all owners (the so-called partners) must contribute something to the company. Usually this is a sum of money, but you can also think of working hours, for example.
The partnership contract
It is not mandatory to draw up a so-called company contract, but such a legal document is a good way to record the agreements made with the other partners in writing.
This includes decisions in the area of responsibilities and authorities, but also, for example, profit distribution.
With such a contract in place, there can be no uncertainty about the agreements made in the event of a possible future conflict .
Keep in mind that you and your business partner (s) can also be held jointly and severally liable for the debts incurred at a general partnership. It does not matter which of the partners caused these financial problems.
Although the creditors will initially recover the debt from the company assets, your private assets – and those of the other partners – could be endangered if those initial proceeds are insufficient.
Just as with a sole proprietorship, drawing up a prenuptial agreement can therefore also be relevant here. Ask a civil-law notary about the options and conditions.…Read More