Converting a sole proprietorship to a private limited company: do you need a financial advisor? – The Happy Financial

Hiring the right specialist when converting your sole proprietorship can save you a lot of money later.

The transition from a sole proprietorship to a private limited company is an important step in your growth. Yet this is where things often go wrong: entrepreneurs only ask for advice once the BV has already been established. Involving a financial or tax specialist before that step prevents tax surprises and legal errors.

Why entrepreneurs go to the accountant too early

Many entrepreneurs call their accountant as soon as they think about starting a private company. This is logical, because an accountant seems to be the best person for financial advice. Yet that is something different. Most accountants are strong in figures and annual work, but are not always specialized in the tax and legal side of a business transfer or change of legal form. Their role often starts after incorporation, with the declaration and preparation of the annual accounts.

The result? The BV has already been established, while important choices, for example about the moment of transfer, the contribution of assets or the tax consequences, have not yet been thought through. These decisions are difficult or expensive to correct afterwards.

What does a financial or tax specialist do differently than an accountant?

A financial or tax specialist looks broader than the accounting picture. He or she assesses whether the switch makes sense at all, based on profit expectations, risks, personnel and future plans. This includes questions such as:

• Is it fiscally beneficial to switch to a BV now?
• How much salary do you have to pay yourself as a director/majority shareholder?
• What happens to your accrued profit or investments?
• How do you arrange the contribution of your sole proprietorship to the BV?

A specialist looks at these points from three perspectives: fiscal, legal and strategic. This way you know in advance what the best timing is and how to set up the structure smartly. Only then does the accountant or bookkeeper come into the picture.

Bookkeeper, accountant or specialist: what is the difference?

In practice, the terms are often confused. Yet there are clear differences in role and expertise:

• Bookkeeper: focuses on daily administration, VAT returns and sometimes the annual accounts. Useful for ongoing work, less so for complex structural questions.
• Accountant: checks and analyzes figures, prepares annual accounts and prepares tax returns. Good at overview and compliance, but not always at advice on business forms. Also pay close attention to the difference between an accountant-administration consultant (AA) and a registered accountant (RA). An audit report from an RA is only mandatory once your company complies meets the criteria of a medium-sized company. Until then, in many cases you are better off with an AA.
• Tax specialist or advisor: has knowledge of tax law and corporate structures. Focuses on advice in advance: what is the smartest route, how do you avoid double taxation or wrong timing?

The latter role is crucial for the transition to a BV. A short consultation can prevent you from discovering months later that your tax situation is less favorable or that your notarial deed needs to be adjusted.

The right time to seek advice

A good time to call in a specialist is as soon as you notice that your profit is increasing structurally or that you private risks want to limit. These are signals that a BV could be interesting. Do not wait until the end of the financial year or until after the incorporation; then the advice is mainly repair work.

Book in advance, among other things:

• Which date is most favorable for the tax transition
• Or one silent input (without direct taxation) is possible
• How you want to arrange future investments and profit distribution

Many specialists offer a one-off intake or second opinion. That is often sufficient to determine whether and when a BV suits you.

After the advice: what do you do yourself and what do you outsource?

Have you received the advice and decided to take the step? Then the notary comes into the picture for the incorporation. The specialist can look at the draft deed or the tax contribution statement. Your bookkeeper or accountant will then take over the annual work: administration, declarations and annual accounts.

So it is not a matter of either-or, but of order. First good advice, then implementation. This way you build a healthy structure without surprises.

Checklist: engage a specialist when transferring to e.g

• Your profit increases structurally or you want to limit risks
• You are considering a BV but you don’t know whether it pays off from a tax perspective
• You want to protect private assets
• You want to combine the switch with investments or new shareholders
• You want to be sure that the transition is properly arranged legally and fiscally

Are you checking multiple points? Then calling a specialist is wise. One good consultation will save you a lot of time and money later.

Learn more

You often hear about tax reasons for converting your sole proprietorship into a private limited company. But there are even more reasons why you would want this. And did you know that from a profit of approximately € 120,000, a BV is often more interesting from a tax perspective than a sole proprietorship? This is because you often pay less tax. We’ll tell you more about it what is the tipping point for converting your sole proprietorship into a private limited company?how you can calculate that for your own figures and more background on these tax percentages and rates.