The choice of a certain legal form for a company has significant consequences, including at the level of responsibility, the decision-making process, the distribution of profits, taxation and inheritance.
1. How can private assets be protected ?
One of the most significant disadvantages of the sole proprietorship is the blurred line between the self-employed worker's private assets and his business assets. The self-employed worker's liability has no limit and the latter commits the entirety of his personal assets to the company's commitments. This is why the best option for you, as a trader, is to conclude a marriage contract with separation of property to avoid your partner's income and assets being potentially used to cover your company's debts.
If you work through a company such as a PLLC (SPRL - BVBA) or a PLC (SA - NV), there are two distinct types of assets and this is an advantage. On the one hand, your private assets and, on the other hand, your company's assets.
Therefore, your liability is limited to the capital you have invested in your company. Your private assets are completely separate from your company's assets. If things unexpectedly go wrong with your company, you will only lose what you invested in the latter. Your private assets remain untouchable in principle.
If your company asks the bank for a loan, the latter will often ask you to provide a personal guarantee. If your company doesn't pay its bank debts, the bank will be able to contact you. You will become personally liable for the bank debts.
Self-employed workers, people exercising a self-employed profession and company directors can protect their main residence, which is to say their unfurnished home, against any seizure by the creditors. The latter will not be able to seize the property from the date of the declaration. An important detail: banks tend to be more unlikely to agree to credit when the entrepreneur declares his property as indissociable, which plays a part in the limited success of the measure.
2. Alone ? Or with a partner ?
The entrepreneur's freedom is a significant advantage of the sole proprietorship. The sole proprietorship has fewer obligations in terms of decision-making, administration and profit distribution. The entrepreneur can make decisions quickly and less formally. Simplified accounts are sufficient given that all the income from the sole proprietorship are subject to the entrepreneur's personal income tax with post-tax income being retained by the entrepreneur himself. The latter may then decide if he wants to reinvest it in his business and, if so, to what extent.
A sole proprietorship can also be managed by several people in the form of a de facto association, even if this is not very common.
Working through a company makes it easier to attract partners who bring capital with them and invest actively in the company. Corporate law allows collaboration with one (or more) partner(s). The articles of association define the agreements made in terms of management, development, etc.
The S.P.R.L. is the only company which can be created by just one person. In this case it is a sole-trader PLLC (SPRLU - EBVBA).
3. What financial requirements does a company have?
A company requires financial resources. Most of the time, the financial resources of an individual are limited. A company has the legal capacity to attract partners who want to invest risk capital in the company. Backers share any future profits.
4. Which tax system should I choose?
The income from a sole proprietorship is subject to personal income tax. This taxation is progressive: higher income is more heavily taxed.
In principle, a company is subject to the corporation tax scheme. This taxation is lower, and increases less quickly. If the company has a large profit, it is fiscally advantageous to be subject to corporation tax.
5. What happens to the company after your death?
In many cases, the death of the entrepreneur leads to the disappearance of the company. In fact, Belgian inheritance law does not offer a climate favourable to the continuity of a company. At the time of death, the company becomes jointly owned by the heirs. However, our legislation sets out that any heir can claim their share of the inheritance at any time, and thus demand the company's division.
A sole proprietorship also becomes vulnerable when the entrepreneur dies.
Working through a company can avert the aforementioned problem to some extent. Thus, the indivision caused by the death no longer affects the company itself, but instead the shares that the deceased received in exchange for his contribution. In addition, the provisions may be integrated into the company's articles of association to regulate the transfer of the undivided shares.
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