Sole Proprietorship and Partnership

For some small businesses a self proprietorship (in Dutch: Eenmanszaak) or a general partnership (in Dutch: VOF) can be considered. The setup is simple and affordable, but depending on the business the tax and liability is often less attractive. Below you will find a comparison of the three legal entities: sole proprietorship (eenmanszaak), general partnership (venootschap onder firma or vof) and private limited (BV).

Advantages of a eenmanszaak (sole proprietor) or vof (partnership)

• Low-threshold. Registration at the Chamber of Commerce is cheap (€50 one-off) and no starting capital is required. Furthermore, you do not need an office, but you need at least an address. This may even be a residential address.
• Flexible. Easy to start a business with several partners by drawing up a form-free partnership contract.
• Tax advantages for small businesses. Although income tax that you will have to pay as a partner is higher than the corporate income tax rate in the BV, if the profit is relatively low it can make sense to have a partnership (liability is another issue). This is mostly due to a couple of tax benefits. In case you have a 50/50 percent partnership, each partner will have to add 50% of the profits to his personal income tax. Some of the tax benefits are the following: You can qualify for ‘Zelfstandigenaftrek’ (+/- €7000). On top of that, as a starter you will qualify for ‘Startersaftrek’, an additional discount of over €2000 during three out of the first five years of the partnership or sole proprietorship. MKB-winstvrijstelling takes 14% of your taxable profit (after you have deducted the ‘Zelfstandigenaftrek’ and the ‘Startersaftrek’.

Disadvantages of a sole proprietorship or partnership

• Liability. As the owner of a sole proprietorship you are personally liable for all matters of the company. In a partnership each partner is liable with his / her private assets for all debts of the VOF, regardless of whether the debts have been caused by this partner.
• Not investor-friendly. A VOF does not have shares and therefore it will be difficult to attract outside investment in a general partnership.
• Higher taxes. In many cases a sole proprietorship or a general partnership pays more taxes than a Dutch private limited (BV) company.
• A BSN (national social security number) is required to set up a one-man company or general partnership. In practice you will need to be a resident to set up one of these business forms.