Setting up a limited liability company: what should you pay attention to? + step-by-step plan

Introduction

As an entrepreneur, one of the things you decide is which legal form suits your business. It may be attractive to start a private limited company (BV), or to convert your existing sole proprietorship or partnership into a BV. You will then not be personally liable for your company's debts, and with high profits you will have to pay less tax. Thinking about setting up a BV?

In this article, we discuss what you need to consider and how to set up a limited liability company.

What is a limited liability company?

A BV is a legal entity, which participates independently in legal transactions. This means that the BV carries all the rights and obligations of the company. A BV can have debts, enter into contracts and be held liable. Because a legal entity cannot act itself, it requires a representative, who sits on the board of the BV and is employed by the company.

What are the advantages of a limited liability company?

There are several reasons why you might want to set up a limited liability company. Starting a BV has several advantages:

Benefit 1: Limited liability

You secure your private assets. As director of your private limited company, you are not personally liable for any debts. If you have a sole proprietorship or partnership, creditors can recover from your private assets.

Benefit 2: Less tax on your profits

You pay less tax than with a sole proprietorship or partnership.

• With a sole proprietorship or partnership, you pay income tax on your profits. In the first bracket this is 37.07% tax for your income up to EUR 73,031 and everything above EUR 73,031 is 49.50%.
• With the limited liability company, you pay 19% corporate income tax on your profits up to 200,000 euros and for profits over 200,000 euros you pay 25.8% corporate income tax.

Benefit 3: Attractive to investors (equity)

At incorporation, you as founder determine how many shares you want to issue and at what value. If you then multiply the number of shares by the value per share, you have your share capital. If you are a company looking for a financial investor, you may choose to sell part of your company (in the form of shares) to shareholders for a certain amount.

Benefit 4: Reliable reputation

BVs have a trustworthy reputation because they require a notarized deed. With a sole proprietorship or VOF, there is no notary control: anyone can start a sole proprietorship.

What are the disadvantages of a limited liability company?

Setting up a BV has advantages, but also disadvantages. For example, a BV involves much more administrative burden than a sole proprietorship. In addition, there are start-up costs that you don't have with sole proprietorships. For example, it is necessary to have a notarized deed drawn up, which can be pricey. You also cannot take advantage of favorable schemes and tax deductions, such as self-employment deduction, start-up deduction and SME exemption. Your business must turn a sizable profit to make a limited liability company attractive.

Incorporating a BV step-by-step plan

Establishing a Besloten Vennootschap (BV) in the Netherlands is a process that consists of several steps. To get you started, we have created a step-by-step plan:

Step 1: Business concept and planning

Develop a clear business concept and create a solid business plan. This plan will help you determine your strategy, goals and the start-up capital needed.

Step 2: Choose a company name

Think of a unique business name that is not already in use. Check the availability of the name through the Chamber of Commerce (CoC) Trade Register.

Step 3: Certificate of incorporation

Make an appointment with a notary to draw up the BV's memorandum of association. The notary will also draft the BV's articles of incorporation, which establish the company's internal rules and procedures.

Step 4: Registration with the Chamber of Commerce (CoC).

Register the BV with the Commercial Register of the Chamber of Commerce. The Chamber of Commerce will assign a Chamber of Commerce number and inform the Tax Office of the establishment of your BV.

Step 5: Apply for tax numbers

The Tax Office will automatically provide your BV with a VAT (sales tax) number and an RSIN (Rechtspersonen en Samenwerkingsverbanden Informatienummer). If applicable, you can also apply for a payroll tax number.

Step 6: Open a business bank account

Open a business bank account in the name of the limited liability company. It is important to keep business and personal finances separate.

Step 7: Bookkeeping and administration

Set up an accounting system and keep good records. Consider hiring a bookkeeper or accountant to help you with the financial aspects of your business.

Step 8: Insurance and permits

Make sure you take out the necessary insurance, such as liability insurance, disability insurance and any business-specific insurance. In addition, check whether you need any specific permits or licenses for your business activities.

Step 9: Hiring staff (if applicable).

If you plan to hire staff, make sure you comply with relevant labor laws and social security regulations.

Step 10: Promote your business

Develop a marketing strategy to promote your products or services and attract customers.

This roadmap provides an overview of setting up a BV in the Netherlands. It is advisable to seek legal and financial advice at each step of the process to ensure that you meet all legal requirements and get your company off to a successful start.

What does it cost to set up a limited liability company?

Until 2012, it was very expensive to start a BV: €18,000 in start-up capital was required and there were several additional strict requirements. Since the introduction of the flex-bv that has changed. You can now start a BV with any starting capital you want, so 1 cent is already enough. However, it is advisable to have a higher initial capital. There is a chance that you will otherwise be held personally liable for any debts of your BV, because you have made irresponsible financial choices.

The cost of establishing a limited liability company consists of:

• Registration with the Chamber of Commerce: €75.
• Notary fees: €500-1000.

There are also a number of online providers where you can have a limited liability company incorporated from as little as €300. Just make sure it's clear what you get for that.

What conditions must you meet?

If you want to open a limited liability company, you only need to meet two conditions: you need to register your company with the Chamber of Commerce and you need to have a deed of incorporation drawn up at the notary. Thus, although a start-up capital is no longer required, start-up costs are necessary.

What should you pay attention to when setting up a limited liability company?

A limited liability company entails several obligations, including:

• You are required to have annual accounts prepared and to file them with the Chamber of Commerce. A limited liability company also involves setting up other administrative matters, such as payroll.
• For your limited liability company, you must set up an organizational structure, with a board of directors. A Supervisory Board is not mandatory. It is mostly the large companies that have a SB.
• As a director, you are employed by your private limited company. You pay yourself a salary. The tax authorities set requirements for this, to avoid additional tax benefits: for example, an annual salary must be at least €51,000 and must be in line with the market. You may also not earn less than your highest-paid employee.

Make careful consideration

There are advantages and disadvantages to starting a limited liability company. Consider for yourself which legal form best suits your company and your future plans. Setting up a BV is not mandatory. You can also convert your sole proprietorship or partnership into a BV at a later stage.