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FORM OF ENTERPRISE

Sole proprietorship

Sandra Boots - Fiscalist
Sole proprietorship
Learn all about the pros and cons of setting up an one-man business. Find out if this business structure is right for you!

An one-man business is a form of business in which one person forms the company. That person is both the founder and owner of the business. This type of business form is popular among start-ups because of its easy incorporation and flexibility. As owner, you are responsible for all decisions, are personally liable for any debts and taxes, and get to keep all profits made. It is important to note that a one-man business is not considered a separate entity, so there is no difference between private and business assets.

Choosing the right business form is essential for setting up a business. It is important to carefully consider whether an one-man business suits your needs and objectives. To make the choice easier, we have listed the pros and cons of sole proprietorship.

Advantages of an one-man business

A sole proprietorship offers many advantages for the entrepreneur looking for a simple and flexible way to start and run a business. We have listed the advantages of an one-man business for you:

  • You can act independently, make decisions and set your own work pace.
  • An one-man business is easy to set up in the Netherlands.
  • No initial capital is required.
  • You have tax advantages when profits are low.
  • You have lower costs than with a limited liability company.
  • Subject to conditions, you are entitled to self-employment deductions and other deductions.
  • No articles of association are required.
  • You have no obligation to prepare financial statements and no obligation to publish financial figures. 

Disadvantages of an one-man business

An one-man business does not have segregated assets. You are privately liable for all debts. Creditors of your business can therefore also claim your private assets. In case of bankruptcy, you will also go bankrupt personally. If you are married in community of property, your partner is also liable for the debts. You can avoid this by having prenuptial agreements drawn up at the notary. We have listed the other disadvantages for you below:

  • With a sole proprietorship, you are privately liable for the company's debts.
  • An one-man business has a slightly higher tax burden than, say, a limited company.
  • You have weaker access to the asset market (harder to take out loans).
  • The entrepreneur must take additional insurance for disability and make pension provisions.
  • If you are married in community of property, your partner is also jointly and severally liable for debts arising from the business.

As an entrepreneur, you can set up a maximum of one one-man business, but the nice thing is: it allows you to have multiple trade names, activities and branches! Fortunately, starting an one-man business is easy and inexpensive. In fact, you can even start it at your kitchen table without the help of an expensive lawyer or notary. How? By simply registering once in the Chamber of Commerce Trade Register for just 75 euros. 

There are different types of taxes to be paid in an one-man business. First, there is turnover tax, or VAT. In addition, income tax has to be paid on the profits made. Do you employ staff? If so, income tax must also be paid. An one-man business also has tax advantages due to various deductions. Deductions may be deducted from the profit made. After that, income tax is calculated. The higher the deductions, the lower the tax payable.

The main tax deductions for a sole proprietorship are:

  • Self-employment deduction: if the hours criterion is met.
  • Starter deduction: in the first five years of your entrepreneurship, you have three additional deductions.
  • MKB-winstvrijstelling: na aftrek van de andere aftrekposten mag 14% van de overgebleven winst worden afgetrokken van de gemaakt winst. Vanaf 2024 is dit nog maar 13,31%)
  • Co-work deduction: depending on the number of hours your partner contributes to the sole proprietorship, a percentage of the profit may be deducted.
  • Tax credit for research and development: if your company is involved in technological and innovation innovations, you may be eligible for a subsidy.
  • Cessation deduction: only relevant when the business is wound up.
  • Investment deduction: depending on the cost of the investment(s) made, money can be deducted from profits.

Are you planning to start an one-man business? Congratulations, that's an exciting step! But when it comes to running a business, there is a lot to sort out. Don't worry, because our team of tax advisers can help you with this. We can advise you on selecting the most suitable legal form and preparing the necessary legal documents. Call or Whatsapp us today for a no-obligation meeting on + 31(0)40-3035112. We are ready to help you on your way!

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