Converting a sole proprietorship, vof or partnership into a BV, can be noisy or silent. The reason for this difference is that the conversion is viewed for tax purposes as discontinuing 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.
With silent conversion, there is no need to settle, provided certain conditions are met. These include:
- the shareholders of the BV are the same and, in principle, in the same proportion as the beneficiaries of the sole proprietorship, vof or partnership;
- the conversion must take place with effect from the beginning of the sole proprietorship's financial year;
- retroactive effect is permitted of up to 15 months, provided that the intention to convert has been registered with the tax authorities within nine months of the date to which retroactivity is to be applied;
- the company continues on the same book values as applied within the sole proprietorship;
- after conversion, no shareholders may join or leave the company for three years.
A disadvantage is that the acquisition price of the shares is equal to the book value of the sole proprietorship. This means that the tax not paid upon conversion will still have to be paid eventually.
For more information on noisy or silent conversion, please contact us. We will be happy to help.
