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Rules governing incorporation of a limited company in the Netherlands simplified from 1 October 2012

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Rules governing incorporation of a limited company in the Netherlands simplified from 1 October 2012

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Entrepreneurs who want to do business in the Netherlands often opt for a limited company, officially called a private limited liability company or in Dutch "besloten vennootschap met beperkte aansprakelijkheid, abbreviated to "B.V.”. The fact that the company involves limited liability for the shareholders is one of the main reasons why this type of legal entity is popular.

However, the rules governing the incorporation and the on-going business were always very strict. There were several barriers which had to be overcome before a company could be incorporated. Besides that EU legislation made it possible to use foreign entities, which were set up in another EU country, to do business in the Netherlands whereby the Dutch incorporation rules could be avoided.

On 15 December 2009, the bill for the Act on the Simplification and Flexibilisation of the B.V. (also referred to as the "Flex Act") was passed by the lower chamber of the Dutch Parliament. The bill, which was first submitted on 31 May 2007, was (finally) approved by the upper chamber on 30 June 2012. The Flex Act entered into force on 1 October 2012.

Easier incorporation

The requirement of a minimum share capital of € 18.000,- is abolished. This means that any capital amount is possible, even 1 Eurocent. The mandatory capital contribution statements drawn up by the bank (cash contributions) disappeared as well. This will speed up the establishment of the company since it is no longer required that a bank account is opened before the limited company can be set up. The same applies to the mandatory audit in case of a contribution in kind. It has also become possible for the B.V. to offer financial assistance to third parties for the purchase of shares in the company’s own capital.

Better protection of creditors

An important reason to abolish the € 18,000 minimum capital is that this amount is, in many cases, not related to the size of the company’s business in terms of its turnover and balance sheets, and often bears no relevance when it comes to creditor protection. The focus has therefore changed to the payment of dividend to shareholders. In order to protect creditors, the B.V. will not be entitled to pay dividends if it is clear that the B.V. will not be able to continue paying its debts after the dividend has been paid. Directors and shareholders that have acted negligently can be held liable in person. This will be monitored for a period of a year after payment of the dividend.

More freedom of organization and decision-making

Companies are given more freedom with regard to the organization of their structure. There are much more possibilities to derogate from the law in the articles of associations. It is for example possible to issue shares without voting rights or shares that do not entitle the holder to any profit. The articles can also determine that each shareholder may appoint a director. It is easier to pass resolutions without a meeting being held and it is possible to hold shareholder meetings outside the Netherlands.

Abolishment of restriction of share transfers

The old law governing B.V.'s provided for mandatory restrictions on the transfer of shares in a B.V. These restrictions safeguarded the private character of the B.V. One of these rules was that a shareholder who intended to sell his shares first had to offer his shares to the other shareholders. Under the Flex Act, the share transfer restrictions are no longer mandatory. The transferability of shares may be free or can for example be entirely excluded in the articles of association for a specific period of time.

Conclusion - questions

The overall point of view is that the legislative changes form a solid basis for a more flexible B.V. and, as a result, the B.V. can compete with any comparable foreign flexible entity. Above the most important changes have been mentioned, but there are more changes which can benefit you or your company too. If you have any questions about (the incorporation of) a B.V. in the Netherlands, do not hesitate to contact Expatax. We can also review your current articles of association and inform you where changes can be made with respect to the new rules.

Expatax B.V

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