Expertise - Corporate Structuring
If you are thinking about setting up a new Dutch business or corporation, then it is wise to consider the way in which you would like to organize your company. Every business has a few main components, such as a director and shareholders. But corporate structuring is about more than just the fulfillment of certain roles, since it also defines the way in which you execute your daily business activities. Intercompany Solutions can assist you with your business structure, helping you along the way to create a stable company with solid foundations. A well-thought-out company structure also makes it easier to adhere to applicable Dutch (financial) laws and regulations, aiding you to establish an effective corporate compliance program.
Corporate structuring: the basics
In essence, the corporate structure of any company refers to the way in which the teams and people within it are organized. This can often be seen clearly in a corporate organizational chart, which describes the different roles everyone carries out. There are always several factors that might determine whether a business will fail or succeed, but corporate structuring actually plays quite a large role in this context. A company that is well-structured is often better able to achieve goals and ambitions, thus making it possible to maximize potential profits.
Be mindful about the fact, that every corporate structure varies slightly per company. This is due to the fact that it depends on several unique factors such as the industry the company operates in, and the type of the business. A lot of larger corporations therefore create corporate organizational charts. These charts outline the structure of the company in detail, which ensures that all roles and responsibilities are clearly defined. We will outline on this page what the essential basics and key elements of company structuring are, and why a stable organizational structure is so important for your company. Intercompany Solutions can assist you during every step of the way, making it possible for you to organize your company well and provide you with a firm starting point.
Why start a business in the Netherlands?
The Netherlands offers many interesting opportunities for foreign investors and potential business owners. For example, the small yet influential country has been a gateway to the entirety of Europe for multiple centuries. Due to this, many well-known international corporations have already established branch or representative offices in the Netherlands. Also, many new entrepreneurs seek to start a Dutch business for this very reason. We offer advice to foreign based entrepreneurs and companies who wish to start a business here, making it easier for you to become acquainted with the Dutch landscape. Each business is unique, but all foreign businesses have in common that they need to learn about Dutch laws, regulations and tax obligations in order to succeed. Intercompany Solutions helps you with finding best practice solutions for your corporate structure, and we also help you to set up, execute and maintain your company structure.
What is corporate structuring?
Corporate structuring is all about mapping the different roles and components within a company. A corporate structure basically defines the way any type of business is run, making it possible to assign roles to competent people who know what they are doing. If the corporate organizational structure is mapped out well, then it defines the different roles and teams within a company, and the way these roles intermesh and collaborate. One of the main reasons corporate structuring is necessary, is due to corporate governance. In the past, many businesses were both owned and run by families throughout the centuries. In these times, this is no longer the case, which means you will need to assign roles to people that aren’t related to you whatsoever. In general, there is a separation between the owner of the company and the management. Many companies have also implemented a two-tier company structure, to be able to protect the interests of stock- or/and stakeholders.
The importance of a solid corporate structure
Once, company owners and managers had the same role, but that was mostly due to companies being family businesses. Since that chain broke, corporations have been actively employing people from every imaginable background and sector. Even though we would all like to manage our own company, that is really only possible when one owns a sole proprietorship. But once your business takes off the ground, you will deal with an increased level of demand and supply and, thus, you will have to trust other people to run (parts of) your business. Whilst that might seem scary at first thought, trusting other people might work out well in the long run. Therefore, a solid corporate organizational structure is of the essence to establish governance of an honest and trustworthy nature, because it allows both managers and owners to work together.
Next to that, when you document all the positions in the corporate structure of your company, it aids you to make sure all operations of your company run smoothly. When you have insight into all the separate roles within your company, then you are much better positioned to achieve certain company goals, grow your company in a stable way, and you will also be able to attract investors more easily. There are 3 key reasons why a corporate organizational structure will propel your company forward, which we will outline below.
1. Better communication within your company
One of the main components of every successful corporation is to be able to communicate well. Clear communication will lead to clear and agreed upon decisions, whereas miscommunication can cause a whole plethora of internal and external problems. If you map out a good organizational structure, then everyone in your business will know with whom they need to share information on a structural basis.
2. Easier to reach company goals
When a team works well together, goals are much easier accomplished. A smart corporate structure enables your employees and managers to achieve goals in an efficient manner, assuring everyone’s best talents are coming to the forefront. When everyone knows exactly what their tasks and responsibilities are, people can work together to ensure projects and goals are finished successfully. This, in turn, allows your company to continually grow.
3. Clarity regarding the reporting relationships in your company
Every solid corporate organizational structure needs to outline the way in which different employees and teams work together on a daily basis. This ensures that everyone knows what their exact responsibility within the company is, and whom they can go to if they experience setbacks or issues. This also eliminates any confusion about responsibility and accountability.
Types of corporate structures explained
Corporate structures can roughly be divided into four main types, which are prevalent worldwide. The best structure for you to choose highly depends on your ambitions, the region you would like to operate in and the way you want to do business in general.
1. Functional Structure
The functional structure is generally the most common type of organizational structure within companies and corporations. In essence, the nature of the work that needs to be done dictates the positions to be filled within the company. New employees are sought out by looking for related expertise and skills to fill a certain position. This leads to departments that work well together, since everyone has a clear view of their jobs and responsibilities. A functional corporate structure enables fast-paced movement of information, as well as efficient decision-making processes. When your company is based in one location and has different departments, then it generally falls under a functional corporate structure.
2. Divisional Structure
A divisional structure is often tied to a certain region, in which there is a possibility to meet specific demands of clients or the market you operate in. For example, it might be cheaper and more efficient to produce certain products in a specific region, because there is an ample amount of natural resources within that region. A lot of larger corporations have divided their bases of operation throughout the world, in order to be able to cater to their clients needs in the most effective ways. Companies that set up branch offices can be categorized as businesses with a divisional structure.
3. Matrix Structure
When a company’s structure can be categorized as a matrix structure, it basically means the corporation has characteristics of both a functional and divisional structure. These structures often overlap, hence there is no clear distinction between the two structures. In general, larger corporations choose a matrix structure where the exact categorization depends on factors such as geography, efficiency and quality assurance. This structure offers a lot of autonomy when it comes to the execution of daily business activities, but it can also be costly to maintain. Nonetheless, larger corporations can benefit from a matrix structure due to its flexibility and high adaptability.
4. Hybrid Structure
A hybrid structure is also a mix of divisional and functional structures. The main difference with a matrix structure is the fact, that the departments within the company can be addressed as both functional and divisional. I.e. there is more autonomy regarding the structure you can choose for each department. The way these choices are made depends largely on the specific needs and requirements of each department and branch office(s). Many large corporations choose this type of structure, due to its flexibility and endless opportunities. If you want to know more about the best type of corporate structure for your company, you can always contact Intercompany Solutions for in-depth information related to your personal goals and ambitions.
A typical corporate structure consists of 3 main components
Even though there are several types of corporate structures, in general, every corporate structure should consist of three components. This is the actual core of the structure, around which different decisions can be made regarding the specific type of the corporate structure you want to implement. There is no ‘one-size-fits-all’ solution or structure, as this greatly depends on ends on information regarding your business. The three components that are common in almost all businesses and large corporations, are a board of directors, corporate officers and shareholders.
1. A board of directors
The director or board of directors is the entity that is tasked with governing the company. If you aim to make profits with your company, the board of directors represents the shareholders of your company. In the case of a non-profit company, the board is responsible for acting in the best interests of its stakeholders. These can be communities, donors, and the people or institutions that are served by the company. One of the main tasks of any board is to hire the people that will manage the company, such as corporate officers. The performance of such leadership roles is also reviewed by the board, as well as proper compensation. When a corporate officer is not carrying out his or her responsibilities well, the board can vote to install a replacement.
Some other duties of a board of directors include (but are not limited to):
- Monitoring the financial position and performances of the company
- Setting a solid strategy and goals for the company with key stakeholders and figures in the company
- Participation in all board meetings
- Making sure the company meets all compliance and legal requirements
- Possibly also serving on committees
There are typically three types of directors within a board:
- The board chair
- Inside directors
- Outside directors
The board chair is the leader of the entire board of directors. In some organizations and larger corporations, the board chair is also referred to as the president of the board. Inside directors are people who are actively involved in the company, such as managers and shareholders. Outside directors are people or investors from outside the company, who are in the board of directors. In larger corporations, the board is outlined in an organizational chart.
2. Corporate officers
Next to the board of directors, corporate officers also play a large role in any corporate structure. They are chosen by the board of directors and often referred to as the management team of a company. The corporate officers are, amongst other things, responsible for the company’s daily business activities. The most well-known is the role of CEO, but nowadays most large companies have several corporate officers, each role tailored to a specific department or expertise.
In general, the following roles can be distinguished:
- Chief Executive Officer (CEO)
- Chief Financial Officer (CFO)
- Chief Operations Officer (COO)
- Chief Technology Officer (CTO)
- Chief Information Officer (CIO)
CEO: The CEO is the ‘main manager’ of every organization, and is therefore responsible for all the operations of a company. The CEO essentially makes sure the business runs smoothly and is responsible for the execution of board decisions. In some cases, the CEU is also the board chair/presidents.
CFO: The CFO is mainly responsible for all financial affairs within the company. This includes tasks such as the analysis of financial data, monitoring all company costs, preparing various budgets for different departments and projects and, of course, also all external and internal financial reporting.
COO: The role of the COO is somewhat comparable to that of the CEO, but the COO handles more practical and hands-on business affairs in general. This encompasses departments such as sales, marketing, human resources and production, if you intend to produce anything. Most daily business operations fall under the scope of the COO.
CTO: Since technology became a big part of our existence, many larger corporations hire a chief technology officer. This executive is mainly in charge of a company's technological needs, and often is head of research and development. A CTO can report to a CIO, but in some cases also directly to the CEO.
CIO: Everything that revolves around information and computer technologies falls under the scope of the CIO. The chief information officer makes analyses about possible technologies and whether implementing these would benefit the company. The CIO also implements new software and hardware to implement business processes.
If you intend to own a public limited liability company, then your corporate structure will also include shareholders. Shareholders are those who own a part of your company in shares, but these are not necessarily always people. Shares can also be owned by companies and institutions. The amount of shareholders a company can have, is determined by the company entity structure. Some companies can have a maximum number of shareholders, whilst other companies can have an unlimited amount of shareholders. Shareholders are generally not personally liable for the company.
When you have shareholders in your company, then they have the ability to vote on issues such as:
- Any changes to the company’s articles of association or bylaws
- Shareholders can vote on mergers with other companies
- They can also vote who is included in the board of directors
- The way assets are disposed of
A corporate organizational chart
If you want to map out all the roles in your company, it might be a good idea to create a corporate organizational chart, which is often also named a corporate org chart. This is a chart that shows very clearly how your company is structured, including all different components. It should also show in which way these components are related to each other and how they complement each other. When you create a corporate org chart, you essentially ensure that everyone within the company is on the same page regarding your corporate structure. Of course, it can be challenging to create a corporate org chart from scratch when you start a Dutch company. In such cases, Intercompany Solutions can assist you, as well as with many other tasks related to corporate structuring.
Intercompany Solutions can help you define your corporate organizational structure
The multidisciplinary team of Intercompany Solutions has many years of extensive experience in setting up and structuring businesses in the Netherlands. We offer our services to companies from every sector. It doesn’t matter whether you are a start-up or already established corporation; our experts can assist you with all issues concerning taxation, the Dutch law, payroll services, human resources and accounting. Because our primary service consists of the establishment of companies in the Netherlands, we know exactly which corporate structure would fit your company best.
When your company has a solid corporate structure, your business is much better positioned to achieve certain goals and grow naturally. The most important part is to choose a corporate structure that fits your goals and ambitions, and works for your company. Intercompany Solutions can help you with managing the roles and responsibilities within your company, which will also help you with your recruiting efforts. Intercompany Solutions can help you simplify your corporate structure as well, making sure everyone within your company has access to important information and documents.