Choice of legal form for a business

Choice of legal form for a business

When establishing an organization, a legal form must be chosen. To determine which legal form best suits the business, the tax implications of the choice of legal form will also be considered. A distinction can be made between a legal form without legal personality and a legal form with legal personality. When a legal form possesses legal personality, the legal entity is, with certain exceptions, liable for the debts incurred by the legal entity. However, a legal form without legal personality can be attractive due to certain tax benefits. Moreover, the administrative burden is lower.

The legal forms without legal personality include the sole proprietorship, the general partnership (VOF), the limited partnership (CV), and the professional partnership. The private limited company (BV) and the public limited company (NV) do have legal personality.

As an organization grows, it may be beneficial to convert the organization without legal personality into a BV or NV. Our team of tax specialists investigates the tax implications of this change of legal form. Furthermore, our tax specialists collaborate extensively in an interdisciplinary manner with the Corporate Law practice group, ensuring that other legal implications are also examined.

Questions regarding the choice of legal form? Contact us.

Tax implications per legal form: sole proprietorship or corporate income tax

The tax treatment varies significantly by legal form and is the primary reason for many entrepreneurs to choose a particular form. For legal forms without legal personality – the sole proprietorship, the general partnership (VOF), the limited partnership (CV), and the professional association – you are considered an income tax entrepreneur for income tax purposes. You pay income tax in Box 1 on the profit and are often entitled to entrepreneurial tax benefits such as the self-employment deduction and the SME profit exemption. On the other hand, you are personally liable for the debts of the business.

In the case of a private limited company (BV) and a public limited company (NV), the legal entity pays corporate income tax on profits. The director-major shareholder receives salary (taxed in Box 1) and potentially dividends (taxed in Box 2). The heavier administrative burden is offset by the fact that, in principle, your private assets remain unaffected. Which structure proves to be the most tax-efficient depends on your profits, your plans, and your personal situation. Our tax specialists and (corporate) lawyers calculate this for you – just as carefully for an international group as for the baker on the corner.

The tipping point: when is a private limited company more advantageous than a sole proprietorship?

As profits rise, a BV eventually becomes more fiscally attractive than a sole proprietorship or general partnership. For many entrepreneurs, a BV comes into consideration starting from around €80,000 in structural profit, but this tipping point is not a fixed figure. It is strongly influenced by the customary salary that the director-major shareholder must receive from their BV, by whether you distribute profits or leave them within the BV, and by the additional costs of a BV (annual accounts, administration, and advice). The only reliable way to make the choice is through a calculation based on your actual figures and plans. We perform this calculation and link the fiscal outcome to the legal implications, ensuring you do not pursue a standalone tax advantage that has a legally counterproductive effect.

Conversion of a sole proprietorship or general partnership into a private limited company: tax-neutral or taxable

If your business grows, it may be wise to convert the sole proprietorship into a private limited company (BV). This can be done in two ways. With a silent contribution, you contribute your business to the BV at the existing book values, without immediately settling the tax on hidden reserves and goodwill; the BV continues the business tax-neutrally. With a noisy contribution, however, you do settle the tax on the capital gains, which can be more attractive in certain situations (for example, with losses or a retirement annuity).

If you wish to have the BV take effect retroactively, timely action is required: for retroactive effect to January 1, you must generally submit a letter of intent to the Tax and Customs Administration no later than October 1 of that year. Missing a deadline will cost you the benefit. Our tax specialists guide the contribution and monitor the deadlines; the Corporate Law and Tax Return handles the legal execution.

Liability and the choice of legal personality

The legal form determines not only your tax burden but also your liability. In a sole proprietorship, general partnership (VOF), or professional partnership, you are personally liable for the company's debts; in a general partnership, the partners are jointly and severally liable pursuant to Article 18 of the Commercial Code. If you choose a private limited company (BV) or public limited company (NV), the legal entity is in principle liable, while your private assets remain protected. However, this protection is not absolute: in the event of improper management, a director can be held personally liable pursuant to Article 2:9 of the Civil Code, and in the event of bankruptcy due to manifestly improper management pursuant to Article 2:248 of the Civil Code. We take these risks into account to ensure that the chosen legal form suits your business both fiscally and legally.

Our approach: tax and legal in one team

The choice of legal form is a prime example of a subject where tax and legal advice go hand in hand. At MKB Juristen, tax specialists, lawyers, and in-house counsel collaborate in mixed teams, ranging from international corporations to entrepreneurs with a single location. We map out your situation, calculate tax scenarios, assess liability and governance implications, and guide the conversion or contribution where necessary. This allows you to choose a legal form that suits your business – both today and for the next growth step. This page is part of our Tax Law.

Frequently asked questions about choice of legal form

Which legal forms have legal personality?
The private limited company (BV) and the public limited company (NV) have legal personality. The sole proprietorship, general partnership (VOF), limited partnership (CV), and professional partnership do not; in these cases, the entrepreneur is personally liable.

When is a BV more tax-efficient than a sole proprietorship?
Often from around €80,000 in structural profit, but the exact break-even point depends on the customary salary, your dividend policy, and the costs of the BV. A calculation based on your own figures will provide the answer.

What is a silent contribution?
With a silent contribution, you contribute your sole proprietorship or general partnership to a private limited company at book value, without immediately settling the tax on hidden reserves and goodwill. For retroactive effect, a letter of intent signed before October 1st is usually required.

Can I still be held personally liable in the case of a BV?
Yes. In the event of improper management (Article 2:9 of the Dutch Civil Code) or manifestly improper management in the event of bankruptcy (Article 2:248 of the Dutch Civil Code), a director may be held personally liable, despite the legal personality of the BV.