When you convert your sole trader business to a limited company, more changes legally than just your business structure. The new limited company is an independent legal entity, and this has direct consequences for your existing contracts, licences, and other agreements held in your name. It is wise to take stock of these matters in good time, as without the right steps contracts may become invalid or licences may lapse.
Why the transition does not happen automatically
A common assumption is that everything simply transfers to the limited company. Unfortunately, that is not always the case. As a sole trader, you are personally a party to a contract. The limited company you incorporate is a new, separate legal entity. Contracts and licences held in your name as a natural person do not automatically transfer to the limited company.
Whether you choose to convert your sole trader business to a limited company via a tax-neutral contribution, a taxable contribution, or an assets and liabilities transaction, in all cases you must consider what happens to your existing agreements and licences. The method of conversion also determines which steps are required.
Existing contracts: what do you need to do?
Contracts you entered into as a sole trader were concluded with you as a private individual. Think of lease agreements for business premises, supplier agreements, subscriptions, or collaboration contracts with clients. When transitioning to a limited company, you must in principle transfer these contracts to the limited company. This is known as contract novation.
In most cases, contract novation requires the cooperation of the other party. You cannot simply put a contract in the name of the limited company without the other party’s consent. Engage with your suppliers, clients, and landlord in good time.
Practical tips for your contracts:
- Draw up an overview of all current contracts in your name or in the name of your sole trader business.
- Check each contract for any clause relating to transfer or change of legal structure.
- Contact the other party and request written consent to the contract novation.
- Record the transfer in an addendum or new contract in the name of the limited company.
- Ensure that the commencement date of the new agreement aligns with the incorporation date of the limited company.
Some contracts contain a so-called anti-assignment or prohibition of transfer clause. In that case, transfer without consent is not permitted. Always check this in advance to avoid any unwelcome surprises.
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprekLicences: do they remain valid?
Licences are generally personal or business-specific. This means they have been granted to you as a natural person, or to the sole trader business. The limited company is a new legal entity and cannot lay claim to these licences without submitting a fresh application.
Examples of licences that must be reapplied for or transferred include a licence for a hospitality or off-licence establishment, an environmental or planning permit, a transport licence, or a professional qualification certificate linked to the business.
It is advisable to check with the relevant local authority, central government body, or regulatory authority how they handle a change of legal structure. Some government bodies have a transitional arrangement in place; others do not. Act promptly, as in some sectors you may simply not be permitted to operate without a valid licence.
Intellectual property and domain names
Have you registered trade names, trademarks, patents, or copyrights in the name of your sole trader business or yourself? These do not transfer automatically either. Trademark registrations with the Benelux Office for Intellectual Property (BOIP) can be transferred to the limited company, but this requires a formal deed of transfer.
Do not overlook your domain names, social media accounts, and business email addresses either. These are not legal obligations as such, but operationally they are crucial to arrange in good time.
The role of sound bookkeeping
Accurate and up-to-date bookkeeping is indispensable during a conversion. You need a clear overview of all assets, liabilities, and obligations you wish to bring into the limited company. But good record-keeping is equally essential for contracts and licences. If you are not entirely sure which contracts are current, you may overlook crucial agreements that need to be transferred.
Why Belastingadviseur Eindhoven
Converting to a limited company affects far more than just your tax position. At Belastingadviseur Eindhoven, we help entrepreneurs in Brabant not only with the tax aspects, but also think alongside you about the practical implications for your day-to-day business operations. We identify where you are at risk and ensure you are thoroughly prepared.
Would you like to know how best to arrange your contracts and licences when making the switch to a limited company? Feel free to contact us with no obligation. We would be delighted to look at your situation together.
Frequently asked questions
Do my existing contracts automatically transfer to the limited company?
No, contracts held in your name or in the name of your sole trader business do not automatically transfer to the limited company. Contract novation requires the cooperation of the other party. Arrange this in writing and in good time.
Do I need to reapply for my licences after the conversion?
In most cases, yes, because licences have been granted to you personally or to the sole trader business. The limited company is a new legal entity. Check with the issuing authority which procedure applies to your specific licence.
What is contract novation and how does it work?
With contract novation, you transfer your position in an existing contract to the limited company. This requires the consent of all parties involved. The transfer is recorded in an addendum or a new agreement in the name of the limited company.
What happens to my brand name or trade name during the conversion?
A registered trade name or trademark is held in the name of the natural person or the sole trader business. You must formally transfer this to the limited company by means of a deed of transfer. Seek advice on this matter to ensure your intellectual property is properly protected.
We are happy to think along with you. For advice tailored to your situation we would gladly sit down with you. No rights can be derived from the content of this page and it may contain inaccuracies.
