21 September 2026
Entrepreneurs can be active in different ways. They can be a director or director-major shareholder (DGA) of a private limited company, a self-employed entrepreneur operating through a sole proprietorship, or a partner within a general partnership (VOF).
A private limited company is an independent legal entity. A sole proprietorship and a general partnership are not. The consequences this has for the entrepreneur’s liability are discussed here.
In this context, the sole proprietorship and the general partnership are discussed together. The main difference between the two is that a sole proprietorship has one liable entrepreneur, whereas a general partnership involves several partners, each of whom runs the risk for the joint debts. This text also assumes that the general partnership does not have segregated assets. In addition, internal agreements between the partners play a larger role within a general partnership, for example regarding powers, profit sharing and withdrawal.
A DGA of a private limited company generally enjoys a significant degree of asset protection.
Under article 2:3 of the Dutch Civil Code, the private limited company is an independent holder of rights and obligations, in other words, a legal entity with its own assets. Creditors of the company can therefore initially only recover from the company’s assets and not directly from the DGA’s private assets.
However, that protection is not absolute. A DGA can be held personally liable if they have provided a personal guarantee, joint and several liability, or security. Personal liability can also arise in cases of improper management, fraud or preferential payments. In insolvency situations, the director can also be held liable under article 2:248 of the Dutch Civil Code where there has been manifest improper management that was an important cause of the insolvency.
There must always be a clear distinction between the private limited company and the DGA’s private assets. Mixing funds, inadequate administration or withdrawing assets without a business basis can weaken the protection.
Good governance, sound administration and timely legal and tax advice are therefore essential.
In short, the private limited company offers strong but not unlimited protection of private assets. The degree of protection depends on careful conduct, clear structures and avoiding personal guarantees.
The position of an entrepreneur running a sole proprietorship or being a partner in a general partnership is different.
In these cases, there is legally no separation between business assets and private assets. The sole proprietorship and the general partnership are not legal entities. As a result, business creditors can in principle recover from the entrepreneur’s or partners’ entire assets.
That does not mean, however, that an entrepreneur in a sole proprietorship or general partnership cannot protect their private assets at all. Protection lies mainly in limiting liability risks, structuring assets and taking legal and tax measures in good time.
The most effective route is often to place risky activities in a private limited company, because a private limited company has legal personality and is in principle liable in its own right. The disadvantages are: higher incorporation, administration and advisory costs, stricter formalities, less tax simplicity and possible tax settlement upon contribution or transfer of the business.
A practical measure is to limit liability through contractual arrangements. Entrepreneurs would be wise to use clear terms and conditions, include liability limitations where this is legally permissible, and document agreements carefully. Insurance also plays an important role, such as general business liability insurance, professional liability insurance and legal expenses insurance. In practice, this does not prevent every recovery risk, but it can limit the financial impact of a dispute.
In addition, it is important for the entrepreneur to act carefully with regard to duties to inform, warn and exercise due care. Many liability issues arise not simply from the existence of a business, but from breach, negligence or an unlawful act. For example, if an entrepreneur fails to warn properly about known risks or makes contractual promises that they cannot fulfil, the risk of personal liability increases.
For entrepreneurs who are married or in a registered partnership, matrimonial property law may also be relevant. By means of a prenuptial agreement, it may be possible to prevent business risks from directly affecting the marital community of property.
This does not protect against the entrepreneur’s personal creditors, but it may help prevent the partner’s assets from being unintentionally drawn into business claims. Especially where a business carries increasing risk or there are private assets, a notarial review of the asset structure is sensible.
One source of legal debate is asset transfers made in the run-up to a suspension of payments, insolvency or a general debt crisis within the business.
If an entrepreneur transfers assets away in those circumstances, makes gifts or transfers goods below market value, this may amount to so-called fraudulent preference. Creditors, but also a trustee, may have the option to void legal acts that were performed without obligation and that prejudice creditors. Asset planning should therefore always take place in a timely, transparent and businesslike manner. Anyone who only starts to “protect” assets once a claim is looming runs a real risk of the transaction being set aside.
An entrepreneur in a sole proprietorship or general partnership cannot shield their private assets as completely as a DGA in a private limited company. The key to asset protection is therefore prevention: managing risks, limiting liability, keeping private and business matters strictly separate in the administration, obtaining timely legal advice and, where necessary, changing the legal structure. In many cases, conversion to a private limited company is the clearest and most structural solution. This does not remove every risk, but it does create a far stronger separation between the business and private assets.
Please feel free to contact us if you have any questions about these topics.
No. For example, in cases of improper management, personal guarantees or fraud, you can still be held personally liable.
In certain situations, they can help shield your partner’s assets better, but they do not prevent you from remaining personally liable for business debts.
A private limited company usually offers more protection of private assets, but that protection is not unlimited and comes with additional costs and rules.
Yes, that risk exists. In a sole proprietorship, there is no legal separation between private assets and business assets.
Yes, you can. Many entrepreneurs choose this when the business grows or the risks increase.
