Sole proprietorship or company: which one to start with?

Two ways to run your activity

Every new founder faces the same question. Should you trade in your own name or set up an SRL? With a sole proprietorship, you work under your own identity. You and your business therefore form a single person in law. However, an SRL (the Belgian private limited company, BV in Dutch) has its own legal personality. It signs contracts, collects invoices and carries its own debts.

This choice affects your assets, your taxes and your paperwork. Yet nothing about it is final. Many people start in their own name and incorporate later, once the activity grows. We cover that second case in a separate guide on switching to a legal entity. Here, we compare both options for a project that is just starting.

Sole proprietorship: the advantages at launch

The first advantage is speed. You simply go through an approved business desk. It registers your activity with the Crossroads Bank for Enterprises (CBE) and gives you an enterprise number. Then you activate VAT if your activity requires it. You need no notary, and the law imposes no capital.

Management also stays lighter. Below a certain turnover, simplified bookkeeping is enough. You decide alone, without general meetings or minutes. Finally, start-up costs remain modest, although they vary from one desk to another.

For example, Sarah, a graphic designer, begins with two regular clients. She rents no premises and invests little. For her, a sole proprietorship offers a quick and cheap launch. She can still review her structure later.

The limits of trading in your own name

The main risk concerns your private assets. Nothing separates your personal property from your business debts. An unpaid creditor can therefore seize your savings. However, a notarial declaration of unseizability can protect your main residence. Still, that protection remains partial.

Tax also weighs heavily once income rises. In a sole proprietorship, your profits join your other income under personal income tax. The scale rises progressively from 25% to 50%. On top of that come self-employed social contributions: about 20.5% of net income, due every quarter.

Finally, selling a business run in your own name remains tricky. You sell separate items: clients, equipment, stock. With an SRL, you normally just transfer shares.

The SRL: protection and corporate tax

An SRL shields your private assets. Unlike a sole proprietorship, you normally risk only your contributions. This protection has limits, though. Founders remain liable if the SRL goes bankrupt within three years. That applies when the starting equity proves manifestly insufficient. Serious mismanagement can also make the director personally liable.

The law requires no minimum capital. It does, however, require a financial plan covering at least two years. Our article on the mandatory financial plan for an SRL explains its content. Moreover, a single founder can set up an SRL.

On the tax side, the SRL pays corporate income tax at 25%. Under conditions, SMEs enjoy a reduced 20% rate on the first EUR 100,000 of profit. One condition concerns the director's pay. It must reach EUR 45,000, or match taxable profit if that is lower. This pay falls under personal income tax, and the director still pays self-employed contributions.

Costs and obligations of an SRL

That protection comes at a price in formalities. First, you need a notarial deed and publication in the Belgian Official Gazette. Double-entry bookkeeping then becomes mandatory. Every year, the SRL files its annual accounts with the National Bank of Belgium. It also keeps a share register and declares its beneficial owners in the UBO register.

Taking money out also follows rules. Before any distribution, the SRL must pass a double test: net assets and liquidity. You therefore no longer dip freely into the till, as you would in a sole proprietorship. Accountancy fees also rise, since the work grows.

Sole proprietorship or SRL: how to decide?

Start by asking yourself four questions.

Accountants often quote a rule of thumb. Above an annual profit of EUR 40,000 to 50,000, an SRL often becomes more attractive. However, this remains a common estimate, not a rule. Your family situation, costs and income needs shift that threshold a lot.

Consider two more examples. Marc, an electrician, expects a modest profit in his first year. He works for private clients and holds good insurance. For him, a sole proprietorship is enough at the beginning. In contrast, Julie, a consultant, aims for a high profit from year two. She also works for large clients. For her, a costed SRL simulation makes sense from launch.

Common mistakes when starting out

• Setting up an SRL for prestige, without enough profit to cover the costs.
• Keeping a sole proprietorship despite high risks for your assets.
• Forgetting that an SRL director also pays social contributions.
• Confusing turnover with profit when estimating the threshold.
• Neglecting the financial plan, although it can make founders liable.
• Deciding without comparing both scenarios in writing.

Preparing your decision

A financial forecast compares both scenarios in a few hours. Enter the same turnover for a sole proprietorship, then for an SRL. Next, compare the net income left after tax and contributions. Finally, add the fixed costs of each status.

For registration steps, see the FPS Economy website. Our guide to becoming self-employed in Belgium also covers social security affiliation. Juristelo helps you build that forecast and compare both options with real figures.