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Sole proprietorship or company? A dilemma for every freelancer

Entrepreneurs | 23 September 2021 | Written by Jenny Bjorklof

The most common legal entities for starting as a freelancer in Belgium are to either register as a sole trader or to start a company. 
This blog post explains and compares the pros and cons of  both options. 
 

Sole proprietorship or company? A dilemma for every freelancer
Sole proprietorship

A sole proprietorship refers to the economic activity of a natural person who runs a business.

Pros:
  • Easy, cheap and fast to start. The only cost you incur is the registration of your business at the Crossroads Bank for Enterprises. A Securex business counter does it for you at a cost of  €90.5. Activating your VAT number costs €60 (excl. VAT) and is also settled by the business counter.
  • Easy and affordable to run. Only simplified accounting is needed, meaning you spend around €1,000-2,000 on an accountant a year depending on how many expenses and customers you have. 
  • It is easy and cheap to stop the business. 
     
Cons:
  • The company’s assets are not separate from those of its founder, who has unlimited liability for any debts. In other words, if the company goes bankrupt, your personal assets (and potentially the ones of your spouse) such as your house could be used to pay off the debts.
  • Limited fiscal advantages: your earnings are taxed as a personal income. The more you earn, the more you are taxed.
  • It is complex to sell or transfer a sole proprietorship to another party. 

Company

More details on the various types of company forms? Check it out here

Pros:
  • The company and the founder are two separate legal entities, i.e.  in case of bankruptcy or debts, the founder is not liable with his or her personal assets. 
  • Company tax is generally lower than personal income tax resulting in tax savings.
  • It is possible to deduct more expenses when things are bought by the company, therefore more tax advantages. 
  • It is easier to sell/transfer a limited company than a sole proprietorship. 

Cons:
  • It is more complex, time consuming and expensive to start a limited company. 
  • You will need to set up a financial plan and make sure you have enough capital (as reflected in the financial plan) to operate your business. 
  • You will need the services of a notary to draft articles of association and set up your company. 
  • The accounting and administration to run a limited company is more complicated, resulting in accounting fees around €4,000 a year. 
  • If you decide to stop your activities, this will cost you money.

 

Choose sole proprietorship if: 

  • You don’t have extensive personal assets.
  • You are not married, or you concluded a premarital agreement protecting your spouse from potential claims.
  • You want to try out being a freelancer.
  • You want to keep administration as simple as possible. 
  • Your services are not likely to cause damage to your customers or other parties. There are also liability insurances available which you can use to protect yourself in case of any claims. 
  • You don’t know your future income  nor expect large profits immediately. Remember; it is possible to switch to a company at a later stage.

Start a company if:

  • You don’t want your company activities to be liable for your personal assets or those  of your spouse.
  • Your activities might cause damage or injuries to customers or other third parties.
  • It is fiscally more advantageous for you.
  • You don’t mind the extra accounting and administrative obligations.
  • You know you want to continue your activities for a longer period of time, perhaps even work with other partners and acquire external investment.

If you have further questions about choosing the legal structure for your freelance business or other questions about starting up, check out Start2Freelance.

There you can:

You can also ask questions in the Facebook group Freelancers in België and learn from the experiences of other freelancers.