If you want to become self-employed, you must first carefully determine your form of enterprise. Both self-employed people in a main or secondary occupation can opt for a sole proprietorship or a company. We explain the differences here so that you can choose the form of enterprise that best suits you and your self-employed activity right from the start.
There are differences in several areas:
- Establishment
- Liability
- Discontinuation
- Accounting obligations and costs
- Number of persons
Difference 1: Establishment of a sole proprietorship vs. a corporation
If you want to start a corporation, you need to get a lot of things in order. Among other requirements, you have to draw up a financial plan, determine the articles of association, draw up and register a deed of incorporation, and create a share register.
For all these things you need an accountant and (usually) a notary, which immediately raises the cost price. Thus you may quickly expect to pay €2,500. All these intermediate steps will take 3 to 4 weeks before you can actually start doing business.
Founding a sole proprietorship, on the other hand, is very accessible and not expensive. Moreover, you can do this all by yourself. You can also establish a sole proprietorship very quickly. To do so, you must contact a recognized enterprise counter. Often you will have your company number on the same working day of your application and you are ready to start doing business.
Difference 2: Liability
The establishment of a corporation involves a lot more than the establishment of a sole proprietorship, but that is because a corporation is a new legal entity and a sole proprietorship is not.
In a sole proprietorship, you as an individual coincide with your company, which also makes you jointly and severally liable yourself when your company incurs debts. If you have a corporation, you are (usually) not liable yourself, but the corporation is.
It ultimately depends on the form of corporation chosen, but the private limited liability company, for example, does offer this protection. In the event of bankruptcy, the corporation can be dissolved and you yourself will not be personally liable.
Difference 3: Discontinuing a sole proprietorship vs. a corporation
Discontinuing a sole proprietorship is a piece of cake. You can announce the cessation completely online through a recognized enterprise counter. This enterprise counter can also immediately process the discontinuation with the VAT administration and your social insurance fund.
Discontinuing a sole proprietorship has the same cost as establishing one. So again, the sole proprietorship is the most accessible and least complicated form of enterprise.
In the case of a corporation, it is a lot more complex. It has to be dissolved and liquidated by a certified accountant and (usually) you also have to see a notary to complete the dissolution. All in all, these costs can quickly add up to as much as €4,000.
Difference 4: Accounting obligations and costs
As an entrepreneur in Belgium, you must always keep your accounts, regardless of your form of enterprise. However, as you probably guessed based on all of the above, accounting obligations are more complex for corporations than for sole proprietorships.
That’s because a sole proprietorship may use single-entry bookkeeping. Simply put: as a sole proprietorship, you must enter only your purchases and sales, single accounting in other words. This is cheap and easy, and you can perfectly do it yourself, using an accounting tool.
Tip
If you would like to know more about this, feel free to read our article on single and double-entry accounting.
Difference 5: Number of persons
As the name suggests, a sole proprietorship always involves one entrepreneur. This does not mean that this person always does everything alone, as a sole proprietorship is also perfectly capable of employing staff.
In a corporation, there can be several shareholders. Everyone gets a pre-agreed number of shares. So if you want to do business with several people together, a corporation seems more appropriate.
If you are two people wanting to do business, you could also choose to each set up a sole proprietorship, with one sole proprietorship invoicing his or her share of the profits to the other.
Conclusion: Think about it carefully
As you can see, there are quite big differences between a sole proprietorship and a corporation.
In Belgium, about 60% of start-ups are sole proprietorships because they are much easier to set up and the accounting is a lot simpler and cheaper.
| Sole proprietorship | Corporation | |
|---|---|---|
| Establishment | Easy: enterprise counter | Difficult: you need an accountant and a notary |
| Liability | Yes, joint and several liability | Usually none |
| Discontinuation | Easy and cheap | Difficult and expensive |
| Accounting | Single-entry, you can do it yourself | Double-entry, you need an accountant |
| Number of persons | 1 entrepreneur | Multiple entrepreneurs |
Once you’ve been able to test and fine-tune your concept for a certain amount of time, then it may be the ideal moment to make the switch to a corporation.
For inexperienced entrepreneurs, setting up a corporation right away is not always recommended, as it also costs a lot of money to discontinue it.
