CORPORATE LAW: Establishing a BV or an NV in The Netherlands

How to make the choice between a BV and an NV?

The sole proprietor of a company or a partner in a joint venture is held personally liable for any obligations incurred in the course of the running of that company.  Turning your business into a Private Limited Liability Company (BV) or a Public Limited Liability Company (NV) means eliminating personal liability.  The exemption from personal liability is regarded in the Netherlands as the main motivator for establishing a BV or an NV.  A second important reason for choosing to establish a BV or an NV is the ease of transferring ownership of these type of companies, which also promotes continuity.  In case of the death of one of the major shareholders for instance, instead of having to separate or divide the company, only the shares are transferred.  Note that the transfer of shares may be subject to some restrictions.  A third advantage of a Private or Public Limited Liability Company is that, unlike joint ventures, it has a well-defined legal structure, particularly concerning the division of responsibilities and the policymaking process.   Private and Public Limited Liability Companies are particularly suited for forming a business group (Concern).  A common reason to prefer an NV to a BV is that these legal forms permit the issuing of bearer shares.  Bearer shares allow shareholders to remain anonymous, provided they do not participate in shareholders meetings.  Anonymity may sometimes be desirable.  Traditionally, listed Public Limited Companies also issued bearer shares.  However, today’s stock exchange transactions are conducted through a securities giro account system.  The Securities Giro Transfer Act permits the transfer of registered shares through the system.  Finally, tax and social law considerations might play a role in the decision.  In many cases, these considerations may be the deciding factors.

What are the incorporation requirements under Dutch law?

Dutch law prescribes three requirements: 1) a deed of incorporation, 2) a notarial act, 3) capital subscription.  Until July 1, 2011, there was one further requirement, acquiring a certificate of no-objection issued by the Minister of Justice.  The Minister could only refuse issuing this certificate in cases where, due to the intentions or antecedents of the persons who would determine or co-determine the company’s policies, there was a risk of the company being used for illicit purposes or a risk of the company’s activities being to the detriment of its creditors.  Investigation of the antecedents of the policymakers or co-policymakers regularly delayed the incorporation of companies and was in practice circumvented by the use of frontmen, or existing ‘empty’ companies or foreign companies.  Therefore, the Legal Entities Supervision Act replaced this so-called preventive investigation with permanent supervision of legal entities and the persons behind them.  This permanent supervision applies to not only Public and Private Limited Liability Companies, but to all legal entities, including foreign companies with offices in the Netherlands.

An explanation of the three incorporation requirements.

1^st Requirement: deed of incorporation One or more founders may participate in incorporating a company, which must be recorded in a notarial deed.  It is customary, though not mandatory, for each founder to participate in the equity.  If more than one person is involved in incorporating the company, an agreement between the founders to establish the company usually precedes the deed of incorporation. This agreement should not be confused with the deed of incorporation.  The validity of the deed of incorporation is not dependent on the validity of any preceding agreements.

2^nd Requirement: notarial acts Dutch law requires notarisation of the deed of incorporation.  The deed must be executed in the Dutch language.  The founders must either appear in person before the notary, or be represented by written proxy.  The deed of incorporation includes The Articles of Association containing the statutes of the company, that is to say the rules that will govern it, according to the statement of the appearing parties.

In its typical format, this document contains the following information:

– a statement from the appearing parties of their intent to incorporate a BV or an NV, – the statutes, which must at least include

a) the name, official seat and corporate purposes of the company b) the amount of equity c) a provision for the event that the management board fails or is unable to perform its duties

The official seat must be in The Netherlands.  It is customary to denote a municipality as official seat.  Although it is not necessary, the municipality denoted could be the one where the offices of the company are located.

3d Requirement: Capital subscription Subscription to the capital is customary, though not mandatory for a founder. Persons granted shares at the incorporation of the company must sign the deed of incorporation, alongside with the founders.  As of October 1, 2012, due to a new law entitled ‘Flex BV’, minimum capital has been eliminated.  Whereas before, the minimum capital of a BV was € 18.000,–, according to this legislation a BV can be incorporated with a capital of € 10.000 or € 1.000, and even of € 1 of 0.1 Eurocent suffices.  It depends on the founder’s wishes.  However, the minimum capital of an NV remains € 45.000,–.

Directors’ Obligations

Directors are each responsible for the inclusion of the company in the Trade Register.  The obligation to register applies only to Dutch Private of Public Limited Liability Companies.  It does not apply to foreign companies.  However, should a foreign company have offices in the Netherlands, then it must be registered.  Under Dutch law, commercial registration is not a precondition for the emergence of the company as a legal entity.  In practice, it is common for a founder to act on behalf of the company to be formed, in anticipation of its incorporation.  Such transactions are binding for the corporation, provided they are ratified explicitly or implicitly following the incorporation.  Until ratification, those acting on behalf of the corporation to be formed are personally liable.  Should the corporation ratify the transactions but fail to fulfil the obligations thereof, the person or persons who acted on behalf of the corporation bear joint and several liability for damages suffered by the other party as a consequence, provided they knew or could be reasonable expected to know that the corporation would be unable to fulfil its obligations.

Conclusion In comparison with sole proprietorship or partnership, the main advantages of Private and Public Limited Liability Companies are the elimination of personal liability, ease of ownership transfer and a well-defined legal structure.  In practice, tax and social law considerations are the deciding factors in choosing to incorporate a BV or an NV.

Should you have any questions regarding the above, please do not hesitate to contact us.[1]