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Legal system

Doing business via a legal entity

There are several ways to operate a business in the Netherlands via a legal entity. A distinction can be made between entities with legal personality (corporate entities) and entities without legal personality (non-corporate entities). It is also possible to perform business activities through a branch office of a foreign legal entity. Below we discuss the main legal entities used by foreign investors and companies expanding their businesses to the Netherlands.

The bv and nv

Under Dutch law, two types of limited liability companies can be distinguished:

  • bv (‘besloten vennootschap’, a private limited liability company); and
  • nv (‘naamloze vennootschap’, a public limited liability company).

Both the bv and the nv are entities with legal personality and a capital divided in shares. They can be used for the same business purposes, which should be included in their articles of association. The bv is the more flexible legal entity form of the two. Consequently, the bv is the most frequently used corporate entity form in the Netherlands. Due to its flexible character, the bv is highly popular as a holding company in (international) group structures and as an operational company.

Incorporation of a bv or nv:

  • In general, an establishment permit is not required to start a business in the Netherlands. This may be different for certain regulated sectors. An example is the food sector, where an environmental permit may be required, or the financial sector, where licences to operate are required.
  • Incorporation of a bv or nv requires a notarial deed of incorporation, to be executed by a Dutch civil law notary. Execution of the notarial deed of incorporation can be done on the basis of powers of attorney to avoid unnecessary travelling or delays.
  • There are no minimum capital requirements for the bv; an nv should be incorporated with a capital of at least 45,000 euro.
  • Incorporation of an nv, requires a statement by a bank or an auditor, confirming that the minimum share capital has been paid up. This statement must be obtained prior to incorporation. There is no such requirement for a bv.
  • The articles of association should contain the name, corporate seat and objects of the bv/nv. The name of the bv/nv must be unique to the extent that it does not cause confusion with the names of other companies or brand names.
  • A bv or nv must be registered with the trade register of the Dutch Chamber of Commerce. The trade register holds publicly available information of the company, such as the registered address of the company, names of board members and the articles of association.
  • A bv or nv can already conduct business while it is in the process of being incorporated. However, for the bv this possibility lost most of its interest as the incorporation of a bv requires only few formalities and can be carried out very quickly and easily.

The cooperative

The Dutch cooperative (‘coöperatie’) was historically used mainly in the agricultural sector. Over the last few decades, this legal entity form has been reinvented as a holding company in international group structures, among others due to its corporate flexibility. A cooperative is a special type of association. Similar to the nv and bv, it is an entity with legal personality, governed by its articles of association.

Participants in a cooperative are members (instead of shareholders) and a minimum of two members is required to incorporate a cooperative. By law, the purpose of a cooperative should be to ‘provide for physical needs’ of its members. When used in holding structures, it is customary that the purpose of a cooperative is to make profits through investments. The members’ entitlement to the cooperative’s profits is usually (pro rata) related to their respective contributions. Members can be individuals, partnerships or legal entities. Member liability can be unlimited to the entire deficit in a bankruptcy situation, limited to a certain maximum amount or excluded in the articles of association. In general, a cooperative is a very flexible legal entity form with no minimum capital requirements and a less regulated governance structure.

Incorporation of a cooperative: 

  • A cooperative is incorporated by a notarial deed of incorporation by a Dutch civil-law notary. 
  • No bank statement or auditor’s statement is required for the incorporation of a cooperative.
  • Dutch law requires that a cooperative is incorporated by at least two incorporators, which, unless the deed of incorporation explicitly states otherwise, will become members of the cooperative. 
  • The word “coöperatief” must be included in the official name of the cooperative as well as one of the following abbreviations: WA (‘wettelijke aansprakelijkheid’, full statutory liability); BA (‘beperkte aansprakelijkheid’, liability limited to a certain amount) or UA (‘uitsluiting van aansprakelijkheid’, exclusion of liability), which indicates the extent of potential liability of its members. 
  • A cooperative must be registered with the trade register of the Dutch Chamber of Commerce.
The bv The nv

A bv is a private company comparable to the ‘limited liability company’ (Ltd.) in the United Kingdom or the ‘Gesellschaft mit beschränkter Haftung’ (GmbH) in Germany. The legislation applicable to a bv makes it very flexible and ‘user friendly’. The main characteristics of a bv under the current rules are:

An nv is a public company comparable to the ‘public limited company’ (plc.) in the United Kingdom or ‘Aktiengesellschaft’ (AG) in Germany. In general, an nv is more strictly regulated and mainly used to incorporate companies that are very large and/or will be listed on a stock exchange. The main characteristics of the nv are:

Shares

  • No minimum share capital required. The founders determine the issued capital (at least one voting share) and required paid-up capital. The issued capital and paid-up capital at the moment of incorporation will be documented in the notarial deed of incorporation.
  • Different types of shares can be created which provides the possibility to vary with regard to (among others) voting rights and profit sharing rights. It is even possible to issue non-voting shares.
  • Shares with no rights to profit or liquidation proceeds must always have voting rights.
  • The articles of association may (i.e. not mandatory) contain transfer restrictions related to the transfer of shares.

Shares

  • Minimum share capital of 45,000 euro required.
  • Different types of shares are possible.
  • All shareholders have voting rights and profit rights. By creating depositary receipts for shares, it is possible to separate the voting rights attached to shares and the economic (profit sharing) rights.
  • The articles of association may include share transfer restrictions.

Governance

  • Annual general meeting (GM) for shareholders (in principle, also for shareholders without voting rights) and other holders of meeting rights, if any.
  • Both a one-tier board (consisting of executive directors and non-executive directors) and a two-tier board (managing directors and supervisory directors are separated in two boards) are possible.
  • A supervisory board is generally optional. However, large companies may be subject to the so-called ‘Large Company Regime’. In that case, a supervisory board is mandatory and it will have special powers. For example the right to appoint and dismiss executive directors. Depending on the situation at hand (e.g. majority of the employees is working outside the Netherlands), the Large Company Regime may be less restrictive.
  • The articles of association may grant shareholders the right to give specific instructions to the management board.

Governance

  • Annual general meeting (GM) for shareholders (in some cases, depositary receipt holders may also attend the meeting).
  • Both a one-tier board (consisting of executive directors and non-executive directors) and a two-tier board (managing directors and supervisory directors are separated in two boards) are possible.
  • A supervisory board is generally optional. However, large companies may be subject to the so-called ‘Large Company Regime’. In that case, a supervisory board is mandatory and it will have special powers. For example the right to appoint and dismiss the managing / executive directors. Depending on the situation at hand (e.g. majority of the employees is working outside the Netherlands), the Large Company Regime may be less restrictive.
  • The articles of association may grant shareholders limited possibilities to give instructions (only general guidelines) to the management board.

Allocation of profits

  • The GM decides on profit distribution, based on the company’s accounts prepared by the management board, unless otherwise provided in the articles of association.
  • Depending on the outcome of a balance sheet test and a liquidity test, the management board may refuse to approve distribution of profits, if an intended distribution is detrimental to the continuity of the company.
  • No other capital and creditor protection rules apply.
  • It is possible (and very easy) to make interim distributions.

Allocation of profits

  • The GM decides on profit distribution, based on the company’s accounts prepared by the management board.
  • Distributions are limited by formal rules on capital preservation and creditor protection.

Non-corporate entities

The two most common forms of Dutch partnerships are the general partnership (‘vennootschap onder firma’ or, abbreviated, ‘vof’) and the limited partnership (‘commanditaire vennootschap’ or, abbreviated, ‘cv’). Both partnerships should be formed by two or more partners (‘vennoten’) who may be either individuals or legal entities. The legal requirements for entering into a partnership are limited, a partnership agreement is sufficient. There is a very high level of flexibility with respect to the partnership agreement. A Dutch partnership does not have legal personality, meaning that it cannot own assets in its own name. Legal title to assets is generally held by the general partner (‘beherend vennoot’) or by all partners jointly. One or more partners (in case of a vof) or the general partner(s) (in case of a cv) can enter into legal acts (such as agreements with third parties) for and on behalf of the partnership. Although depending on the exact design, a Dutch partnership is usually transparent for Dutch tax purposes.

All partners in a vof are jointly and severally liable for all obligations of the partnership. Liability of a general partner (‘beherend vennoot’) in a cv is unlimited, whereas liability of limited partners (‘commanditaire vennoten’) is limited to the amount of their capital contribution as long as such limited partners do not perform acts of management and/or representation of the partnership.

Branch

Another possibility to conduct business activities in the Netherlands is to create a Dutch branch of a foreign legal entity. Setting up a branch does not require prior governmental approval. Establishment of a branch (only) requires the registration of the relevant foreign legal entity with the trade register of the Dutch Chamber of Commerce. 

A Dutch branch cannot be considered a legal entity which is separated from the relevant foreign legal entity. Consequently, the Dutch branch is governed by the rules and legislation applicable to the foreign legal entity. Depending on the nature and scope of the activities, the branch may qualify as a ‘permanent establishment’ for taxation matters. If so, the transactions and/or financial results of the branch may be taxable in the Netherlands.

What we can do for you?

A brief overview of services we provide: 

  • Advise you on the pro’s and con’s of the different legal entity forms through which you can do business in the Netherlands
  • Assist with the incorporation of a legal entity or with setting up a partnership or branch
  • Advise on the corporate governance structure 
  • Register the legal entity, partnership or branch with the trade register of the Dutch Chamber of Commerce
  • Drafting of (intra group) contractual arrangements
  • Assist you (on an ongoing basis) with annual compliance requirements, such as arranging the annual general meeting, adoption and filing of the annual accounts, etc.
  • Advise you on how Dutch entities can be relevant in international restructuring projects, for example in connection with pre-deal carve-outs, acquisitions, post-deal integrations, migrations, rationalisations, cash extractions or single entity projects

Taxation in the Netherlands

The Netherlands has an excellent fiscal climate. This is again supported by the global Paying Taxes study: PwC annually assesses the ease with which tax obligations can be met. Paying Taxes compares the tax burden and compliance obligations of 190 countries around the world.

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