Is buying a shelf company a good alternative for establishing a new Dutch BV?
If you are thinking about starting a Dutch company, chances are high that you are opting for a Dutch BV, which is the equivalent of a private limited company. A Dutch BV has many benefits, such as a relatively low corporate tax rate and the fact that you will not be personally held liable for any debts you make with your company. Thus, many starting entrepreneurs choose to establish a Dutch BV for their new business. But how do you actually establish a Dutch BV? Is it always necessary to establish an entirely new business, or can you also buy someone else’s (empty) company, also known as a shelf company? In practice, you can do both. You can buy an already existing and thriving company, an inactive company or start a BV yourself. We will discuss all three options in this article, to make it possible for you to contemplate which possibility suits your needs and wants best. We will also outline the pro’s and cons of each option. Afterwards, we will also let you know how you can take care of the process practically, and how Intercompany Solutions can assist you with the endeavor.
What is a Dutch BV?
A Dutch BV is a certain type of legal entity. A legal entity is basically the specific company type you choose, when you become an entrepreneur. Next to a BV, there are various other Dutch legal entities, such as the sole proprietorship, a cooperation, a NV and a foundation. All these legal entities have their own unique characteristics, which are somewhat tailored to the type of business you want to establish. For example, a foundation is a good choice when you want to start a charity, since you generally won’t be making any profits. A sole proprietorship is a good option for starting freelancers, who don’t expect to make a large profit during the first years of business and will probably also not hire personnel. A Dutch BV, however, is actually suitable in most cases, and is therefore one of the most chosen legal entities to date. With a Dutch BV, you can set up a holding structure, which enables you to distribute your workload and profits over several companies. One of the main benefits of a BV is the fact, that you will not be personally liable for debts you make with your company, as we already mentioned briefly above. This makes it easier for you to take on more challenging projects and risks. A large number of successful Dutch businesses are a BV, which makes it a logical choice for starting entrepreneurs.
Reasons why a Dutch BV is a good choice for starting entrepreneurs
Next to not being liable for company debts, there are more benefits to owning a Dutch BV. The current corporate income tax rates are quite low, which makes it a profitable choice. Also, you can pay yourself dividends with a Dutch BV, which can sometimes be more beneficial than paying yourself a salary. The current highest personal income tax rate is 49.5%. When you generate more profit in a certain period and would like to pay yourself an extra bonus, it can therefore be more profitable to pay yourself dividends instead of salary, as the amount of taxes levied will be lower. This can literally save you tens of thousands of euros, which makes it a very popular possibility. Another massive benefit of a Dutch BV, is the possibility of attracting investors by offering them shares in your company. Once your company is doing well, you will both profit from this agreement. Next to that, a Dutch BV provides your company with a professional appearance. Oftentimes, customers and third parties tend to respect someone with a private limited company, since it generally means you make a substantial amount of profit. If you believe you won’t be able to generate this amount during the first years of your business establishment, then we advise you to start a sole proprietorship instead. Once you cross the minimum revenue line, you can always convert your sole proprietorship into a Dutch BV during a later stage.
Buying an already existing company
As we already explained, there are multiple ways to acquire a Dutch BV. If you already own a company, or you are able to invest some money, it is generally possible to buy an already existing Dutch BV. This can either be done by acquiring the company entirely, or merging with an existing BV. The main difference is that acquisition will make you the new owner of the company, whereas mergers will often result in shared ownership. You can read more about mergers and acquisitions in this article. If you plan on taking over another company, you should be very thorough with your investigation of said company. At the very least, you should research factors such as the profits the company has made during the past years, the owners of the company and their background, possible illegal activities that have taken place, possible partnerships and also the current financial situation of the company. We strongly advise hiring a responsible partner to assist you with the acquisition process, for you to be sure about the credibility of the company. The upside of buying an existing company is the fact, that the business itself is already running. By acquiring a business, the management changes, but the daily business activities can go on seamlessly, until you decide you want to change things. Once you are the owner, you can steer the company according to your own preferences.
Buying an inactive BV: a shelf company
Another option is acquiring a so-called ‘empty’ BV, which is commonly known as a shelf company. The name is derived from ‘shelving’: when you temporarily don’t use something, you put it on the proverbial shelf, where it rests until someone decides to use it again. This means, that a shelf company is currently not doing any business at all, it simply exists without any activities taking place whatsoever. This company may have been involved in previous business transactions, but this is certainly not always the case. So it involves a BV that no longer has debts or assets and in which no activities take place. As a result, no more assets will arise in the BV in the future. At most, the BV will still receive some debts, e.g. the invoice from the accountant for drawing up and filing the annual accounts. Next to that, an owner of an empty BV can choose to dissolve the BV. As a result, it ceases to exist. The owner also has the option to sell the shares. He then has no more costs and receives a purchase price for the shares. This is where you, as a potential buyer, come into the picture.
There are some benefits to acquiring a shelf company. One of the main advantages of buying a shelf company, in the past, was the little amount of time that is needed to complete the process. In theory, a shelf company can be bought in just a single business day. Keep in mind that buying a shelf company still requires a notarial deed, but the process of acquisition is easier than the incorporation of an entirely new BV. Nonetheless, the transfer procedure itself has become almost as expensive and time-consuming as incorporating a new BV. This is due to increased KYC compliance requirements, due to which clearance and identification of all involved parties is required. Also, keep in mind, that shelf companies are generally sold with a premium. This makes acquiring a shelf company more expensive than the incorporation of a new BV, even if the timeframe is somewhat shorter. We would also like to note that all shelf companies have a legal, financial and also tax history. In many cases, shelf companies have been involved in previous business activities. You should therefore thoroughly research any possible shelf company you would like to buy, in order to know whether the company hasn’t been involved in any shady activities, or still has debts.
Risks of buying a shelf company
When you decide to set up a completely new Dutch BV, you know absolutely sure that the past of the company is entirely ‘clean’. Since you just established it, and, therefore, it has no past. But when you buy a shelf company, this is not always the case. The business activities that you initiate after the purchase of a shelf company run a risk, without you as an entrepreneur having to have done anything 'wrong' yourself. Perhaps a guarantee has been issued by the seller that the Dutch BV has no debts. But it is not entirely certain whether there are no obligations from the past. Remember, that a buyer of a shelf company cannot see whether there are still creditors, which might put you in a precarious position, as a creditor can still find the Dutch BV despite a name change via the registration number and the history registered with the trade register. This essentially means, that collecting an old debt can immediately mean the end of your company. That is a waste of all of your investments in the company, and the takeover of the shelf company itself. Guarantees given by the seller of the company are worth as much as that seller himself, meaning that if you don’t know the seller, you basically know nothing. Moreover, in order to implement guarantees, litigation must be carried out, which is costly.
This can be a very tricky story, all in all. As a buyer, you can require the seller to be liable for any debts they made in the past with the company. Nonetheless, you still have no guarantee that you will actually get the money back from the seller afterwards. One way to limit such risks, is to hire and instruct an accountant to examine the books of the shelf company. With an auditor's report, you can normally obtain a guarantee that everything is in order. However, keep in mind that this involves extra accounting costs on top of all other expenses. This makes buying a shelf company with no risks attached a rather costly way to start or continue a business. So in order to ‘save’ the notary costs that you would normally pay for establishing a new Dutch BV, you will probably have to make several other payments, that, when added up, are generally higher than the costs of starting a new company. Furthermore, the shares of the shelf company must be transferred by notarial deed, since that's what the law says. The notary costs for the establishment of a BV are hardly any higher than the costs for the acquisition of shares. In addition, after the transfer of the shares, the name and purpose of the company usually must be changed. This requires a separate deed of amendment of the articles of association. The buyer of the shares therefore needs to spend a lot more money, than if said buyer sets up a new BV.
Incorporating a new Dutch BV
In the past, it was considered costly to start a new BV, since there was a minimum capital requirement of 18,000 euros. In 2012, the incorporation procedure has been simplified, by abolishing these minimum capital requirements, but also the governmental consent procedure and the bank declaration. A Dutch BV can now be established with a subscribed capital of €1 or even €0.01. This led to a drastic decline in the need for shelf companies, which consequently made the entire market for such companies almost disappear. These type of companies are extremely scarce nowadays, the only need for such a company might arise out of a specific name or logo that you might want to use, but cannot whilst the company itself still exists. However, you could also consider coming up with a similar name or logo, that doesn’t infringe on any existing copyrights. Incorporating a new Dutch BV can actually be arranged in just a few business days, with significantly lower costs than you would have to spend on the acquisition of a shelf company. With this ‘new’ procedure, the establishment of a Dutch BV has become a lot simpler and therefore also faster. The Dutch Ministry of Justice does not have to carry out background checks on the persons of the founders, directors and shareholders anymore, which saves you an ample amount of time. A new BV can therefore be set up just as quickly as the shares of an existing BV are transferred.
Need advice? Intercompany Solutions can help you with company formation
We can understand that the choice between setting up an entirely new company and buying an already existing company can be tough. In some cases, a certain company might have a very positive image within a specific market, making it easier for you to immediately start doing business and benefit from the already built image. Nonetheless, you should also consider the fact that you might be burdened with debts you know nothing about. If you have a business idea and would like to implement this, the team at Intercompany Solutions can assist you with making the right choice. If you are an already established entrepreneur or investor, buying an already existing company might be a good bet. If you are starting your first company, however, the risks might simply be too high. It is very important to do solid research and come up with a business plan, that outlines all the costs and risks involved regarding starting a company. This business plan will provide you with a blueprint of all factors involved, which will make it easier for you to make a well-thought-out decision. In all cases, we can assist you with the entire process of business establishment, or company takeover. In general, this should not take more time than a few business days. Feel free to contact us with your query, we will try to respond as soon as possible with helpful advice and tips to make the process as smooth as possible. We can also take care of the process for you, if you so desire.