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The rights, obligations, and structure of the Dutch private limited company (BV)

Updated on 4 September 2023

When we register Dutch companies for foreign entrepreneurs, by far the largest number of legal entities established are Dutch BVs. This is also known as a private limited company in foreign countries. The reasons why this is such a popular legal entity are many, such as the lack of personal liability for any debts you make with the company and the fact that you can pay yourself dividends, which can often be more profitable in terms of taxes. In general, if you anticipate generating at least 200,000 euros annually, the Dutch BV is the most profitable choice for you. Since the Dutch BV is a legal entity with a certain structure dictated by law, there are aspects you should inform yourself about. For example, what are the rights and obligations and the division of tasks among the formal (and informal) bodies within a private company? In this article, we give a brief overview, providing you with enough information to become acquainted with the way a Dutch BV is set up. If you want to start a Dutch business in the near future, Intercompany Solutions can assist you with the establishment of a Dutch BV in just a few business days.

What is a Dutch BV?

A Dutch BV is one of the many legal entities you can choose for your business in the Netherlands. We cover the entirety of legal entities in this article, should you be interested in knowing more about all of these to make an informed decision. As mentioned briefly before, a Dutch BV is comparable to a private limited company. In short, this means we are talking about a legal entity with a share capital divided into shares. These shares are registered and are not freely transferable. Also, the liability of all shareholders is limited to the amount with which they participate in the company. The directors and those who determine the policy of the company may, under certain circumstances, be held liable for the debts of the company with their private assets. The limited liability of shareholders can disappear when banks let them sign privately for loans.[1] An interesting statement in the Netherlands is that "one BV does not qualify as a BV”.

You may have already heard this statement in the company of other entrepreneurs or from an advisor. It is not unusual for entrepreneurs to set up a second Dutch BV. The second BV then qualifies as a holding company., whereas the first BV is a so-called 'work BV’, which is like the operating company. The operating company is involved in all daily business activities, and the holding company is like a parent company. These types of structures are set up to spread risks, be more flexible, or for tax reasons. An example is when you want to sell (a part of) your company. In such cases, entrepreneurs often sell the operating company. You only sell the shares of the operating company, after which you can then park the sales profit of the operating company tax-free in your holding company. Another example entails the cashing out of profits. Imagine there are two shareholders with different private situations and spending patterns. One shareholder prefers to park their share of the profit from the operating company tax-free in their holding company. The other shareholder wants to dispose of their share of the profits immediately and takes the income tax for granted. You can also spread risks by establishing a holding structure. All property, equipment, or your accrued pension are on the balance sheet of the holding company, whilst only the daily activities of your company are in the operating BV. As a result, you do not have to put all your capital in the same place.[2]

What is the basic structure of a Dutch BV?

Taking the abovementioned information into account, the optimal legal structure for entrepreneurs choosing the BV as a legal entity consists of at least two private limited companies that ‘hang together’. The founder or entrepreneur does not hold the shares in the actual company, the operating company, directly, but through a holding company or management BV. It is a structure in which there is one BV in which you are a full shareholder. This is the holding company. You own the shares of this holding company. That holding company actually does nothing more than keep the shares in another operating BV that is therefore ‘underneath’ it. In this structure, you are therefore a 100 percent shareholder in your own holding company. And that holding company is then a 100 percent shareholder in the operating company. In the operating company, the daily business activities of your company are carried out, driven by account and risk. This is the legal entity that enters into agreements, provides services, and makes or delivers products. You can simultaneously have multiple operating companies that all fall under one holding company. This can be very interesting when you want to establish multiple businesses while still allowing for some coherence between them.

The board of directors

Every BV has at least one director (DGA in Dutch) or a board of directors. The board of a BV has the task of managing the legal entity. This includes conducting day-to-day management and determining the company’s strategy, including main tasks such as keeping the business running. Every legal entity has an organizational board. The tasks and powers of the board are approximately the same for all legal entities. The most important power is that it may act on behalf of the legal entity. For example, concluding purchase contracts, purchasing company assets, and hiring employees. A legal entity cannot do this itself because it is really only a construction on paper. The board thus does all this on behalf of the company. It is similar to a power of attorney. Usually the founders are also the (first) statutory directors, but that is not always the case: new directors can also join the company at a later stage. However, there must always be at least one director at the time of establishment. This director is then appointed in the deed of incorporation. Any possible future directors can also take preparatory actions before the establishment of the company. Directors can be legal entities or natural persons. As stated above, the board is charged with managing the companysince its interests are paramount. If there are several directors, an internal division of tasks can take place. However, the principle of collegial management also applies: each director is responsible for the entire management. This is particularly true regarding the financial policy of the company.

The appointment, suspension, and dismissal of directors

The board is appointed by the general meeting of shareholders (AGM). The articles of association may stipulate that the appointment of directors must be made by a certain group of shareholders. However, each shareholder must be able to vote on the appointment of at least one director. Those who are authorized to appoint are, in principle, also entitled to suspend and dismiss directors. The main exception is that the director can be dismissed at any time. The law does not limit the grounds for dismissal. The reason for dismissal can therefore be, for example, dysfunction, culpable behavior, or financial-economic circumstances, but even that is not strictly necessary. If the company relationship between the director and the BV is terminated as a result of such a dismissal, the employment relationship will also be terminated as a result. In contrast, any regular employee has dismissal protection in the form of a preventive review by the Dutch UWV or the subdistrict court, but the director lacks that protection.

The dismissal decision

When a director is about to be dismissed, specific rules apply to decision-making by the AGM. These rules can be found in the company's articles of association. There are some main rules, though. Firstly, both the shareholders and the director need to be summoned to the meeting, and this needs to be done in an acceptable amount of time. Secondly, the convocation needs to explicitly state that the proposed decision to resign will be discussed and voted on. And lastly, the director needs to be offered the opportunity to provide their vision regarding the dismissal decision, both as a director and as an employee. If these rules are not complied with, the decision is invalid.

What to do in situations ofconflict of interest

There are also situations in which there is a personal conflict of interest. In such situations, a director is not allowed to participate in the deliberations and decision-making within the board. If no management decision can be taken as a result, the supervisory board must take the decision. If there is no supervisory board or if all members of the supervisory board also have a conflict of interest, the AGM must take the decision. In the latter case, the articles of association may also provide for a solution. The purpose of Article 2:256 of the Dutch Civil Code is to prevent the director of a company from being guided in his actions mainly by his personal interests instead of solely the interests of the company, in which he has to serve as a director. The purpose of the provision is therefore, first and foremost, to protect the interests of the company by denying the director the power to represent them. This happens in the case of the presence of a personal interest or because of his involvement in another interest that is not parallel to that of the legal entity, and thus, he is not to be considered capable of safeguarding the interests of the company and its affiliated undertaking in a manner that can be expected of an honest and unbiased director. If you have a question about conflicting interests in corporate law, you can ask our team about such matters for expert advice.

In such cases, the first important factor is that it must be clear that there is a conflict of interest. Taking into account the far-reaching consequences of a successful appeal to the Dutch Civil Code, it is not acceptable to suffice with the mere possibility of a conflict of interest without this appeal being made concrete as described above. It is not in the interest of trade, and it is not in line with the spirit of Article 2:256 of the Dutch Civil Code that a legal act of the company could subsequently be annulled by invoking this provision without it being demonstrated that the underlying decision-making of the director concerned was actually unsound because of an impermissible confluence of conflicting interests. The question of whether a conflict of interest exists can only be answered in the light of all the relevant circumstances of the particular case.

Payment of dividendsby board decision

One of the main benefits of owning a Dutch BV is the possibility of paying yourself dividends as a shareholder, as opposed to a salary (or complementing it) when you are a director. We have outlined this subject more extensively in this article. Paying dividends entails paying out (part of) the profits to the shareholder(s). This radiates confidence to shareholders and attracts investors as well. Moreover, it is often more tax-efficient compared to a regular salary. However, a private limited company cannot simply pay dividends. In order to protect the creditors of private limited companies, profit distributions are bound by legal rules. The rules for paying dividends are laid down in Article 2:216 of the Dutch Civil Code (BW). The profits can either be reserved for future expenses, or distributed to the shareholders. Do you choose to distribute at least part of the profits to shareholders? Then only the general meeting of shareholders (AGM) may determine this distribution. The AGM may only take a decision to distribute profits if the equity of the Dutch BV exceeds the statutory reserves. A profit distribution can therefore only apply to that part of the equity that is larger than the statutory reserves. The AGM must check whether this is the case, before taking a decision.

Also note that the decision by the AGM has no consequences as long as the board of directors has not approved it. The board may refuse this approval only if it knows, or should reasonably foresee, that the company cannot continue to pay its payable debts after the dividend payment. Directors must therefore, before making a distribution, check whether the distribution is justified and if it does not jeopardize the continuity of the company. This is called the benefit or liquidity test. In the event of a violation of this test, directors are jointly and severally obligated to compensate the company for any possible shortfall caused by the distribution. Please note that a shareholder should know or have reasonably foreseen that the test has not been met when the dividend is paid. Only then can a director recover the funds from the shareholder, up to a maximum of the dividend payment received by the shareholder. If the shareholder cannot foresee that the test hasn’t been met, they cannot be held accountable.

Administrative liability and improper governance

Internal directors' liability refers to the liability of the director towards the BV. Sometimes, directors can take matters into their own hands and carry out actions that are not in line with the future of the company. In such cases, it can happen that a company sues its director(s). This is often done on the basis of Article 2:9 of the Dutch Civil Code. This article stipulates that a director is obliged to perform his duties properly. If a director performs his duties improperly, he may be personally liable to the BV for the consequences thereof. A number of examples from case law include taking certain financial risks with far-reaching consequences, acting in violation of the law or statutes, and failingto comply with the accounting or publication obligation. When assessing whether there is a case of improper administration, a judge looks at all the circumstances of the case. For example, the court looks at the activities of the BV and the normal risks that arise from these activities. The division of tasks within the board can also play a role. After careful consideration, the judge assesses whether the director has fulfilled the responsibility and care that can generally be expected from a director. In the event of improper management, a director may be liable to the company in private if they can be accused of a sufficiently serious accusation. It is then necessary to consider what a reasonably competent and reasonably acting director would have done in the same situation.

All the separate circumstances of the case play a role in assessing whether the director is guilty of serious misconduct. The following circumstances are important in such cases:

  • the risks arising in general due to certain actions
  • the nature of the activities carried out by the B.V.
  • the division of tasks within the board
  • any guidelines applicable to the board
  • the information available to the director
  • the information that ought to have been available to the director
  • the responsibility and care expected of a director who is up to the task and performs it scrupulously

A serious accusation exists, for example, if the director has acted in violation of statutory provisions that aim to protect the BV. The director may still plead facts and circumstances on the basis of which it can be held that he is not seriously at fault. This can be tricky since the information at hand needs to be considered completely and accurately. A director may also be personally liable to third parties, such as creditors of the company. The criteria that apply are about the same, but in that case, there is also the question of whether the director can be blamed personally. In the event of bankruptcy, a late filing of the annual accounts or failure to comply with the statutory administrative obligation leads to a legally irrefutable presumption that there is a apparent improper performance of duties and that this is an important cause of the bankruptcy (the latter is rebuttable by an addressable director). The director can escape internal directors' liability by demonstrating two factors:

  • They are not to blame for their actions
  • They have not been negligent in taking measures to avert the consequences

In principle, the director will have to intervene if he observes that another director is guilty of improper management. Directors can check each other’s ways of doing business that way, in order to ensure that no director misuses his or her position within the company for personal means to an end.

The general meeting of shareholders (AGM)

Another important body within the Dutch BV is the general meeting of shareholders (AGM). As we already mentioned above, the AGM is, amongst other things, responsible for the appointment of directors. The AGM is one of the mandatory bodies of a Dutch BV, and as such, it has important rights and obligations. The AGM essentially has all the power that the board of directors does not have, creating a balanced way in making important decisions that is not too centralized.

Some tasks of the AGM include the following:

  • Appointing and dismissing the board of directors
  • Determining the destination of the dividend
  • Amending the articles of association
  • Dissolving the legal entity by means of a dissolution decree

As you can see, the AGM holds quite some power to make very important decisions for the company. These rights and obligations are set out in the law and in the articles of association as well. Therefore, the AGM ultimately has power over the Dutch BV. The board of directors is also obliged to provide the AGM with all relevant information. By the way, do not confuse the AGM with the shareholders' meeting. The shareholders' meeting is the actual meeting at which decisions are voted on and, for example, when the annual accounts are adopted. That particular meeting should take place at least once a year. Next to that, shareholders can be legal entities or natural persons. In principle, the AGM is entitled to all decision-making powers that have not been granted to the boards or any other body within the BV. Unlike directors and supervisory directors (and therefore also non-executive directors), a shareholder does not have to focus on the interests of the company. Shareholders may actually put their own interests first, provided they behave reasonably and fairly. The board and the supervisory board must provide the AGM at all times with all requested information, unless a compelling interest of the company opposes this. Furthermore, the AGM can also give instructions to the board. The board must follow these instructions, unless they are contrary to the interests of the company. This may also include interests such as those of employees and creditors.

Decision-making by the AGM

The decision-making process of the AGM is subject to strict laws and regulations. For example, decisions are taken within the AGM by a simple majority of votes, unless the law or the articles of association require a larger majority for certain decisions. In some cases, more voting rights may be granted to certain shares. In addition, it is possible to stipulate in the articles of association that certain shares are not subject to voting rights. So some shareholders might hold voting rights, while others might have fewer voting rights or even none at all. It is also possible to stipulate in the articles of association that certain shares do not have a right to profit. Please note, though, that a share can never be without both voting and profit rights, there is always one right attached to a share.

The supervisory board

Another body of the Dutch BV is the Supervisory Board (SvB). The difference between the board (of directors) and the AGM, however, is that the SvB is not a mandatory body, so you can choose whether you install this body or not. For larger corporations, it is advisable to have a SvB for practical management purposes, amongst others. The SvB is a body of the BV that has a supervisory function over the policy of the management board and the general course of affairs in the company and its affiliated companies. Members of the SvB are named commissioners. Only natural persons are allowed to be commissioners, and therefore legal entities cannot be commissioners, which differs from shareholders, since shareholders can also be legal entities. So you can buy shares of another company with your own business, but you cannot be a commissioner in the SvB by representing your business. The SvB has the task of supervising the policy of the board and the general course of affairs within the company. To achieve this, the SvB gives both solicited and unsolicited advice to the board. This is not just about supervision but also about the general line of the policy to be pursued in the longer term. The commissioners have the freedom to carry out their duties as they see fit and in an independent manner. In doing so, they must also keep in mind the interests of the company.

In principle, it is not mandatory to set up a SvB when you own a BV. This is different if there is a structural company, which we will discuss in a later paragraph. In addition, it may also be mandatory in certain sectoral regulations, such as for banks and insurers, in line with the Anti-Money Laundering and Terrorist Financing Act (Dutch: Wwft), which we have covered extensively in this article. Any appointment of commissioners is only possible if there is a statutory basis for it. However, it is possible that the court appoints a commissioner as a special and final provision in the inquiry procedure, for which such a basis is not required. If one opts for an optional institution of the SvB, this body must therefore be included in the articles of association at the time of the formation of the company, or at a later stage by an amendment to the articles of association. This can be done, for example, by creating the body directly in the articles of association or by making it subject to a resolution of a company body such as the AGM.

The board is obliged to continually provide the SvB with information necessary for the performance of its task. If there is reason to do so, the SvB is obliged to actively obtain information itself. The SvB is also appointed by the AGM. The articles of association of the company may stipulate that the appointment of a commissioner must be made by a certain group of shareholders. Those authorized to appoint are, in principle, also entitled to suspend and dismiss the same commissioners. In situations of personal conflict of interest, a SvB member must refrain from participating in the deliberations and decision-making within the SvB. If no decision can be taken as a result, since all commissioners must abstain, the AGM must take the decision. In the latter case, the articles of association may also provide for a solution. Just like a director, a SvB member can also be personally liable to the company in certain cases. This is possibly the case if there is imputably inadequate supervision of the board, for which the commissioner can sufficiently be blamed. Just like a director, a supervisory board member can also be liable to third parties, such as a liquidator or creditors of the company. Here too, approximately the same criteria apply as in the case of private liability towards the company.

The "one-tier board"

It is possible to opt for a so-called "monastic model of governance”, which is also called a "one tier board" structure. This means that the board is composed in such a way that, in addition to one or more executive directors, one or more non-executive directors also serve. These non-executive directors actually replace a SvBsince they have the same rights and obligations as supervisory directors. The same appointment and dismissal rules therefore apply to non-executive directors as to supervisory directors. The same liability regime also applies to supervisory directors. The advantage of this arrangement is that there is no need to set up a separate supervisory body. The disadvantage may be that, ultimately, there is less clarity about the division of powers and responsibilities. Due to the principle of collective liability for directors, keep in mind that non-executive directors will sooner be held liable for improper performance of duties than supervisory directors.

The works council

The Dutch law stipulates that every company with more than 50 employees should have its own works council (Dutch: Ondernemingsraad). This should also include temporary agency workers and hired workers, who have been working for the company for a period of at least 24 months. Amongst other things, the works council guards the interests of the staff in a company or organization, is allowed to contribute ideas on business, economic, and social issues, and can influence business operations through advice or approval. In its own unique way, this body also contributes to the proper functioning of the company.[3] According to the law, the works council has a twofold task:

  • Consulting with the management in the interest of the company as a whole
  • Representing the interests of the company's employees.

Under Dutch law, the works council has five types of powers, namely the right to information, consultation and initiative, advice, co-decision, and decision. In essence, the obligation to set up a works council rests on the business owner, who is not necessarily the company itself. It is either a natural person or a legal person who maintains a business. If the entrepreneur does not comply with this obligation, any interested party (such as an employee) has the possibility of requesting that the subdistrict court determine that the entrepreneur complies with his obligation to set up a works council. If you don’t set up a works council, you need to take into account that there are several consequences involved. For example, there may be delays in processing an application for collective redundancies at the Dutch UWV, and employees may oppose the introduction of certain schemes, because the works council didn’t have the chance to agree on them. On the other hand, keep in mind that the establishment of a works council certainly has advantages. For example, positive advice or approval from the works council about a certain topic or idea ensures more support and often facilitates quick and efficient decision-making.

The advisory board

Starting entrepreneurs are usually not so concerned with this particular body, and it is only after the first few years that business owners sometimes feel the need to discuss and reflect on the content and quality of their work, preferably in a meeting of well-informed and experienced people. You can think of the advisory board as a group of confidants. The constant focus combined with the extremely hard work during the first period of entrepreneurship sometimes creates tunnel vision, resulting in entrepreneurs no longer seeing the big picture and overlooking simple solutions in front of them. In principle, the entrepreneur is never bound by anything in a consultation with an advisory board. If the advisory board is opposed to a certain decision, the entrepreneur can choose their own path without hindrance. So essentially, a company can choose to set up an advisory board. There are no decisions taken by an advisory board; at best, only recommendations are formulated. The establishment of an advisory board has the following advantages:

  • The entrepreneur has a sounding board to discuss ideas and inspiration with
  • Transparency and continuity of decision-making are promoted
  • More systematic attention is paid to the company's long-term vision and strategy
  • The balance between the interests of the company and the interests of the entrepreneur and any other shareholders is monitored and reflected upon

Unlike the SvB, an advisory board does not supervise the board of directors. The advisory board is primarily something like a think tank, where the main challenges of the company are discussed. The main focus is on discussing the strategy, mapping out possibilities, and creating a solid plan for the future. The advisory board will have to be convened with sufficient regularity to guarantee its continuity and the involvement of the advisors as well. It is advisable to consider the nature of the company when composing the board of advisors, meaning that you seek out individuals who are able to provide in-depth and specialized input tailored to your company’s niche, market, or industry. As already discussed, an advisory board is not a statutory body. This means that an advisory board can be set up without obligation in any way that an entrepreneur sees fit. In order to manage mutual expectations, it is wise to draw up a regulation that describes the agreements that apply with regard to an advisory board.

The structural regulation

In Dutch, this is called "structuurregeling". The two-tier structure is a statutory system introduced around 50 years ago to prevent boards of directors from acquiring too much power in situations where, given the spread of shareholdings, the shareholders were considered less able to do so. The essence of the structural regulation is that a large company is legally obliged to set up a SvB. The structural rules may be compulsory to apply to a company, but they may also be applied voluntarily by a company. A company is covered by the structural scheme if a number of size criteria are met. This is the case when a company:

  • Has equity that equals or exceeds €16 million
  • Has set up a works council
  • Employs at least 100 people in the Netherlands

If a company falls under the structural regime, the company itself is also called a structural company. The structural scheme is not mandatory for a group holding company when it is established in the Netherlands, but the majority of its employees work abroad. However, these multinationals can choose to apply the structural scheme voluntarily. And in some cases, there may be the mandatory application of a weakened structural regime. If these requirements are met, the company will be subject to various special obligations vis-à-vis normal private limited companies, including, in particular, a mandatory SvB that appoints and dismisses the board, and to whom certain major management decisions must also be submitted.

Intercompany Solutions can set up your Dutch BV in just a few business days

If you are serious about starting a company overseas, then the Netherlands is actually one of the most beneficial places to choose. The Dutch economy is still very stable compared to other nations worldwide, with a flourishing entrepreneurial sector that holds plenty of possibilities for expansion and innovation. Entrepreneurs from all over the world are welcomed here with open arms, making the business sector incredibly diverse. If you already own a foreign company and would like to expand to the Netherlands, then the Dutch BV is the best possible option for you, for example, as a branch office. We can advise you regarding the most optimal and effective way to establish your company in the Netherlands. With many years of experience in this field, we can provide you with results that are specifically tailored to your preferences and situation. Next to that, we can take care of the entire registration process in just a few business days, including possible extra services such as the opening of a Dutch bank account. Feel free to contact us anytime with any queries you might have, and we will make sure that all your questions are answered. If you would like to receive a free quote, contact us with your company details, and we will get back to you as soon as possible.

[1] https://www.cbs.nl/nl-nl/onze-diensten/methoden/begrippen/besloten-vennootschap--bv--

[2] https://www.kvk.nl/starten/de-besloten-vennootschap-bv/

[3] https://www.rijksoverheid.nl/onderwerpen/ondernemingsraad/vraag-en-antwoord/wat-doet-een-ondernemingsraad-or

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