Table of Contents
You have decided to start your own business. The first thing you need to do is to choose the legal structure best suited for your projects. There are several options available to you for carrying out your self-employed activity:
- a sole proprietorship (self-employed individual);
- a company (with or without legal personality);
- an association (ASBL or AISBL) or a foundation.
In Belgium, non-profit associations (ASBL) can engage in economic activities provided that they do not distribute the profits they generate to their members (unlike companies, where income must be distributed). This restriction is due to the very nature of non-profit associations, which are set up to achieve a non-profit goal, while still needing to finance their activities. A non-profit association could therefore be an alternative to a company in order to carry out your project, if your aim is to use the profits from the association's activities for non-profit purposes, within the framework of the social purpose set out in the articles of association.
Each option comes with its own of advantages and disadvantages, and your choice will have a significant impact on the life of your business. Several key factors come into play when making this decision, including:
- the purpose and type of business activity envisioned;
- the number of employees;
- the capital available;
- the financial contribution of the partners;
- the most appropriate tax regime;
- the foreseeable development of the business, etc.
Choosing one of these options requires careful thought, in accordance with your business project. Don't hesitate to seek advice from a notary, lawyer, tax adviser or chartered accountant.
The Main Characteristics of a Sole Proprietorship and a Company
Incorporation and Operation
Sole Proprietorship
A sole proprietorship is the simplest way to carry out a self-employed activity:
- You don't need to draw up any articles of association, and you don't need to have a minimum start-up capital;
- The costs of incorporation and operation are low;
- You can start your business quickly;
- You are the only one in charge and you can make the necessary decisions to run your business without having to consult other partners;
- As a general rule, the accounting requirements are simplified.
The incorporation of a company may require the following steps:
- the involvement of a notary;
- a minimum capital;
- a financial plan;
- the drafting of articles of association;
- an auditor's report (e.g. in the case of a contribution in kind).
In addition, there are also costs associated with the termination and liquidation of a company.
A company may have a separate legal personality with its own rights and obligations.
The way a company operates differs significantly from that of a sole proprietorship:
- The type of administrative work, formalities and legal obligations is different;
- There are more accounting obligations (in general, maintaining full accounting records, filing annual accounts with the National Bank, etc.);
- The bodies of the company (the board of directors, general meeting, etc.) must be taken into account for the important decisions.
Non-Profit Association (ASBL)
A non-profit association is formed by an agreement (the articles of association) between at least two people, known as the founding members. It must pursue a non-profit objective (its corporate purpose) but may engage in economic activities without restriction in order to achieve its non-profit purpose. A non-profit organisation cannot therefore distribute or procure, directly or indirectly, any financial advantage for its founders, members, directors or any other person. The basic rules governing the operation of a non-profit organisation are laid down in its articles of association.
Unlike a company, setting up a non-profit organisation:
- does not require any minimum initial capital;
- can be done by a private deed filed with the registry of the Enterprise Court. It is therefore not mandatory to appear before a notary.
A non-profit association (ASBL) is a business. It is therefore registered in the register of legal entities, which is part of the Crossroads Bank for Enterprises.
Like a company, an ASBL has an administrative body, a day-to-day management structure (if applicable) and a general meeting. For more information, please consult the brochure and the “ASBL” page on the FPS Justice’s website.
The Responsibility of the Entrepreneur
In a sole proprietorship, there is no separation between the assets allocated to the business activity and the entrepreneur’s private assets.
Entrepreneurs are therefore fully liable with all their assets for the commitments of their company. This is not without risk, if they are unable to repay their professional debts. These debts may be recovered from all of their assets, whether movable or immovable, present or future, unless those assets, amounts, sums and payments that the bankrupt receives as from the time of declaration of bankruptcy have a cause subsequent to that bankruptcy (XX.110, § 3, subparagraph 2 of the Code of Economic Law).
The assets of the spouse may also be used to pay the company's debts, unless a matrimonial agreement provides otherwise.
Protection of the Main Residence of the Self-Employed Person
The risk regarding the self-employed person’s main residence has been somewhat mitigated by a measure allowing them to protect their home by having it declared unseizable in certain circumstances. The protection only applies to the self-employed person's main residence, i.e. the place where they live for most of the year.
The protection is not automatic, the self-employed person must file a declaration of unseizability before the notary of their choosing.
The protection only applies to debts pertaining to the professional activity subsequent to the declaration of unseizability. Therefore it will not apply to private debts.
The self-employed person can, of course, waive the protection by filing a new declaration. It will also end if the self-employed person changes status or dies.
For more information on this legal provision, please contact a notary. You can consult the directory of notaries on the website of the Royal Federation of Belgian Notaries - Fédération Royale du Notariat belge.
Company
In a company, there is a separation between the assets of the business and the assets of the entrepreneur. Part of the assets can therefore be exempted from the entrepreneurial risk.
Limited Liability
In limited liability companies (SA, SRL, SC under Belgian Law), the shareholder is only liable for the company’s debts up to the amount of their contribution. This implies that the company’s creditors cannot make any claims on the personal assets of the entrepreneur. The personal assets of the entrepreneur and the shareholders are therefore protected.
In certain cases, however, liability may be invoked. This is the case in particular if the company is declared bankrupt within three years of incorporation and if the initial capital or the capital contribution was clearly insufficient to ensure the normal functioning of the company for two years.
Unlimited Liability
In unlimited liability companies (SNC, SComm), the partners (with the exception of the limited partners) put their own assets as collateral for the debts the company may incur. If the company is unable to honour its debts, its creditors may pursue the payment of their claims against the private assets of the partners.
Non-Profit Associations (ASBL)
The directors of a non-profit organisation may be held liable for certain errors or misconduct. The rules governing the liability of directors in the event of minor errors or negligence on their part are the same as those for companies. The liability of directors is limited to a maximum amount depending on the size of the ASBL (Art. 2:57, CSA). They face unlimited liability for serious misconduct.
The Tax Regime
The profits of a sole proprietorship are subject to personal income tax. This tax is progressive, which means that larger profits are taxed more heavily.
A company is subject to the corporate tax system, which is lower and less progressive. If the profits are substantial, it will be fiscally more advantageous to be taxed under this regime.
However, directors remain liable for tax on their own income as directors and on any dividends they received.
Most non-profit associations are subject to corporate income tax. Depending on the nature of their activities, they may, however, be subject to business taxes.
Call for Funds
A company requires financial resources. However, an individual's possibilities are usually limited in this respect. A company offers precisely the legal possibility of attracting partners who wish to invest venture capital in the company. These lenders then participate in the company's future profits and, in most cases, its losses.
Cooperation with One or More Partners
The company’s legal structure makes it possible to attract partners who, in addition to contributing capital, can also be actively involved in the running of the company. Company law provides a legal framework for cooperation with one or more partners. The articles of association stipulate the agreements made with regard to management, development, etc.
Continuity of the Company
The continuity (or survival) of the company is an important factor, especially in family businesses. Problems can arise when founders want to sell their business or if they die.
In a sole proprietorship, ownership and management of the business are one and the same. If the entrepreneur dies, inheritance law provides that assets can be divided among multiple heirs. This situation can create a great deal of uncertainty for an heir who was already involved in managing the business prior to the death of the entrepreneur-owner.
In a company, ownership and management can be separated. The founder and their company are legally separate persons. As a result, the company’s existence is not in jeopardy if the founder dies. The shares representing the company's assets simply change ownership.
More Information?
Federal Public Service Justice - Service public fédéral Justice
Service des droits économiques
Boulevard de Waterloo, 115
1000 Brussels
Tel.: +32 2 682 10 10
Website: Federal Public Service Justice
Royal Federation of Belgian Notaries - Fédération Royale du Notariat belge
Rue de la Montagne, 30 - 34
1000 Brussels
Tel.: +32 2 505 08 50
Website: FRNB
