General partnership - VOF
For some small businesses a self proprietorship (in Dutch: Eenmanszaak) or a general partnership (in Dutch: VOF) can be considered. The setup is simple and affordable, but depending on the business the tax and liability is often less attractive. Below you will find a comparison of the three legal entities: sole proprietorship (eenmanszaak), general partnership (venootschap onder firma or vof) and private limited (BV).
The legal business partnership in the Netherlands is called a VOF. This a very easy to set up business form. It is not strictly a legal entity. This means that income in the partnership will be seen as personal income of the partners in the VOF.
This type of partnership is similar to a limited partnership. A vof is a partnership between two or more people, each of whom is jointly and severally liable for debt of the partnership.
This means that if one partner fails to pay their share of the debts, the other partners are liable for the entire amount. This makes the vof a jointly and severally liable partnership.
This is different than in the case of a BV. The BV is a Dutch limited liability company. A BV is a company that is owned by shareholders. The shareholders are not liable for the debts of the company. This means that the BV is not exposed to unlimited liability.
Because the VOF is much more exposed and founders are jointly and severally liable for the partnership’s debt, we strongly recommend partners to have a partnership contract in place.
Advantages of a eenmanszaak (sole proprietor) or vof (partnership)
Low-threshold. Registration at the Chamber of Commerce is cheap (€50 one-off) and no starting capital is required. Furthermore, you do not need an office, but you need at least an address. This may even be a residential address.
Flexible. Easy to start a business with several partners by drawing up a form-free partnership contract.
Tax advantages for small businesses. Although income tax that you will have to pay as a partner is higher than the corporate income tax rate in the BV, if the profit is relatively low it can make sense to have a partnership (liability is another issue). This is mostly due to a couple of tax benefits. In case you have a 50/50 percent partnership, each partner will have to add 50% of the profits to his personal income tax. Some of the tax benefits are the following: You can qualify for 'Zelfstandigenaftrek' (+/- €7000). On top of that, as a starter you will qualify for 'Startersaftrek', an additional discount of over €2000 during three out of the first five years of the partnership or sole proprietorship. MKB-winstvrijstelling takes 14% of your taxable profit (after you have deducted the 'Zelfstandigenaftrek' and the 'Startersaftrek'.
Disadvantages of a sole proprietorship or partnership
Liability. As the owner of a sole proprietorship you are personally liable for all matters of the company. In a partnership each partner is liable with his / her private assets for all debts of the VOF, regardless of whether the debts have been caused by this partner.
Not investor-friendly. A VOF does not have shares and therefore it will be difficult to attract outside investment in a general partnership. Investors will in any case prefer a BV entity.
Higher taxes. In many cases a sole proprietorship or a general partnership pays more taxes than a Dutch private limited (BV) company.
A national social security number (BSN) is required to set up a one-man company or general partnership. In practice you will need to be a resident to set up one of these business forms.