Converting a sole proprietorship, vof or partnership into a BV is often more involved than people think. One reason is that a sole proprietorship, vof or partnership is not a legal entity while a BV is. Another reason is that such a conversion is seen for tax purposes as ceasing the sole proprietorship and starting something new. Ceasing in the tax sense means that, in principle, the cessation profit has to be settled. This profit is the difference between the book value and the fair market value, plus goodwill.
There are certain tax facilities, with conditions attached. When converting, it is therefore important to consider the tax consequences. After that, we can look at how the conversion should be shaped. This can be done by:
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setting up a BV, with the shares being paid up by contribution of the company. This can be either noisy (noisy conversion = settlement) or silent (silent conversion = no settlement);
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setting up a BV in cash, after which the activities of the sole proprietorship are transferred (this is the simplest, but it requires settlement with the tax authorities).
When converting a sole proprietorship into a BV, a conversion into a holding company with operating company is generally chosen. Only such a structure can take full advantage of the benefits of doing business through a BV structure, such as limited liability, tax deferral and more investment potential.
For more information on converting a sole proprietorship into a BV, please contact us. We will be happy to help.
