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Sole Proprietorship
Sole Proprietorship
A sole proprietorship (eenmanszaak in Dutch) is a form of business in which there is no distinction between the business assets and personal assets. As the owner of a one-man/woman business, you will be personally liable for all obligations of the business.
In the case of a marriage. A marriage contract (prenuptial agreement) is important and should be considered if a separation of assets between spouses is desired. A marriage contract has to be effectuated through a notarial deed. Sole proprietorships are best suited for individuals that are freelancers (zelfstandige zonder personeel – ZZP’er) or small business owners.
Key Characteristics
- Sole proprietorships are straightforward to set up. Consequently, many new businesses use this organizational form.
- The principal limitation of a sole proprietorship is that there is no separation between the company and the owner—the company can have only one owner. If there are other investors, they cannot hold an ownership stake in the company
- The owner has unlimited personal liability for any of the company’s debts. That is, if the company defaults on any debt payment, the lender can (and will) require the owner to repay the loan from personal assets. An owner who cannot afford to repay the loan must declare personal bankruptcy.
- The life of a sole proprietorship is limited to the life of the owner. It is also difficult to transfer ownership of a sole proprietorship.
- For most businesses, the disadvantages of a sole proprietorship outweigh the advantages. As soon as the firm reaches the point at which it can borrow without the owner agreeing to be personally liable, the owners typically convert the business into a form that limits the owner’s liability..