From sole proprietorship to company: when to change?
Your business is doing well, even very well… As a self-employed person in a sole proprietorship, you find yourself having to pay very high taxes and social security contributions. Did you know that you can optimise your social status in order to reduce your tax costs?
Indeed, switching to a company can be highly advantageous from a tax point of view and in no way detracts from the social rights that you have acquired as a sole proprietor. There is one condition: you must attain a certain annual turnover.
Don't hesitate to consult your accountant to find out when is the ideal time to set up your company. Only your numbers can tell you
Why set up a company?
There are several advantages to switching from sole proprietorship to a company: while we have already mentioned the tax reasons, this legal form also offers you better protection and the possibility of teaming up with a partner.
Reducing your taxes
- When you set up your company, you pay yourself a company director’s salary. From this salary, the state deducts the personal income tax that you used to pay as a self-employed person. The remainder of your profit is subject to corporate taxation, capped at 25%.
- The difference, compared to the taxation of sole proprietorships, is huge. The self-employed as a main occupation are taxed according to their income: though they are only taxed at 25% below €13,250 of income, their tax rate can soar up to as much as 50% if they earn more than €40,480.
Better protecting your assets
- Setting up a company, in particular a limited liability company, allows you to clearly separate your private assets from your company's assets. In the event of difficulties or bankruptcy, only the money you have invested in your company can be seized.
- As sole proprietorship, the state makes no distinction between your own assets and those of your business.If you have creditors, they will have the right to pay off debts by using your savings, real estate or other assets.
Bringing an external person into your company
It’s often thought that being self-employed amounts to running your business alone. However, this is not inevitably the case. Setting up a company gives you the opportunity to associate yourself with an external person.
The advantages of an associate
You will be able to better spread the costs of running your business, benefit from your partner's financial investment, as well as avail yourself of someone else's skills without having to recruit an employee.