How to set up a company in the Netherlands

Practical Guide

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Which corporate form is recommended for setting up a sole shareholder subsidiary company in the Netherlands and why?

Most common and recommended form for a sole shareholder subsidiary company in the Netherlands is the private company with limited liability, the “Besloten Vennootschap met beperkte aansprakelijkheid” of briefly “BV”.

The BV is flexible, cheap and easy to establish. It only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a legal entity, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and also the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

What are the requirements for capital and ownership of quotas or shares by foreign companies in the Netherlands?

There is no restriction with regard to quotas or number of shares by foreign companies in the Netherlands. There is no minimum capital. The initial capital of the BV may therefor amount to EUR 0,01 or EUR 1. Payment on shares issued upon incorporation can be done as a cash deposit to the BV.

The articles of association of the BV can provide that the transferability of shares is not restricted. However, the articles of association can also provide for a share transfer restriction in the form of an approval requirement or an offer requirement.

What are the requirements for the corporate governance of the company in the Netherlands?

The corporate seat of the BV must be in the Netherlands.

The BV must have a management board consisting of one or more managing directors. The first managing directors are appointed by means of the deed of incorporation. The BV has flexibility to install a supervisory board maintained in a One Tier Board or a Two-Tier Board with managing directors and supervisory directors represented in one respectively two separated corporate bodies.

There is no requirement as to either nationality or residence of the members of the management board or supervisory board, nor any requirements as to their number. Legal entities cannot act as supervisory director but may act as managing director.

The articles of association can provide that managing directors can represent the BV acting solely or acting jointly (e.g. with one other managing director). The representation authority is unlimited and unrestricted.

The management board has autonomy and is responsible for the course of business of the BV. Directors must always act in the best interest of the corporation.

The articles of association may provide that the management board should follow concrete instructions of the (general meeting of) shareholders. The management board is generally obliged to follow these instructions, unless they go against the best interest of the corporation, the latter must prevail at all times. Instructions may, under circumstances, be wrongful towards creditors of the BV (e.g. unfair preference of holding company above corporate interests of subsidiary).

What are the legal requirements a foreign company should comply with when incorporating a subsidiary in the Netherlands?

There are little requirements on transactions entered into between a BV and a founder or shareholder. If transactions between the founder or a shareholder and the BV are not at arm's length, the creditors of the BV are protected by general Dutch law regarding managing directors' liability and fraudulent transfers.

The civil-law notary who executes the deed of incorporation, as well as other legal and financial advisors, are required to comply with anti-money laundering laws. For this purpose, they are obliged to identify all parties to the notarial deed of incorporation and the ultimate beneficial owner(s) ("UBO") of those parties. Under the same regulations the civil-law notary and advisors are obliged to report any unusual transactions possibly related to money laundering or terrorist financing to the public authorities.

What is the process for the incorporation of the subsidiary in the Netherlands?

The BV has to be incorporated by means of a notarial deed. Execution of the deed of incorporation can be done on the basis of one or more powers of attorney or by the incorporator(s) appearing in person before the civil law notary.

After incorporation of the BV it will have to be registered in the Dutch Trade Register. The first managing directors and the supervisory board (if any) of the BV will also have to be registered.

The notarial deed of incorporation must contain the articles of association of the BV. The articles of association contain the name, the seat and the purpose (objective) of the BV. The name of the BV starts or ends with the words "Besloten Vennootschap” or abbreviated to "BV".

What are the usual challenges for foreign companies setting up a subsidiary in the Netherlands?

Liability in establishment phase

The managing directors are each, in addition to the BV, joint and several liable for any juridical act performed during their directorship through which the BV has been committed (bound) in the period prior to the moment on which the application for the initial registration in the Trade Register was lodged.

It is possible to perform juridical acts in the name of the BV which still has to be formed (incorporated), e.g. enter into lease agreements. From such juridical acts, however, can only arise rights and obligations for the BV when it has ratified these juridical acts after its incorporation. The incorporators, i.e. the persons who have performed a juridical act in the name of a still to be formed BV, are jointly and severally liable for that act until the BV has ratified it after its incorporation.

Rights and risks shareholders

The shareholders are free to act as they wish. However, shareholders with more influence on the course of business are bound by more standards as to their behavior and responsibilities. A shareholder who effectively operates as policymaker of the BV, as in direct involvement and factual replacement of management, may face liability in case of bankruptcy ‘as if he were director’, provided that the policy was manifestly improper.

The general meeting of shareholders is authorised to determine the profit allocation and distribution of dividend. Equity capital must however exceed legal and statutory reserves, otherwise no distributions is allowed. The shareholders’ resolution to make a distribution requires prior approval of the management board. Without the board’s approval, the resolution does not sort effect. The management board can (and may only) refuse its approval if it knows or should reasonably foresee that, after making the distribution, the BV will be unable to continue to pay its due and payable debts.

If, after making a distribution, the BV is unable to pay its due and payable debts, the directors who at the time of the distribution knew or should reasonably have foreseen that this would happen, are jointly and severally liable towards the BV for compensation of the shortfall resulting from the distribution.

A party who receives a distribution, e.g. the foreign shareholder, while he knows or should foresee that the BV will be unable to pay its due and payable debts after making the distribution is liable towards the BV for compensation of the shortfall resulting from the distribution.

Director’s liability

Each director is responsible towards the BV for a proper performance of the tasks assigned to him. The director is responsible for the general conduct of affairs. He is liable for the full consequences of an improper performance of duties, unless, also in regard of the tasks assigned to the other directors, he is not gravely to blame for it and he neither has been negligent in taking measures to avert the consequences of that improper performance of duties.

Prejudice to the creditors of the BV leads to the director’s personal liability is when the managing director enters into obligations on behalf of the BV knowing, or having reason to know, that the BV would not (within a reasonable time) be able to fulfil its obligations and would not have assets against which the creditor could take recourse.

In the event of a bankruptcy of the BV, each managing director is jointly and severally liable for the amount of the deficit in the bankruptcy, if the management board has performed its duties clearly improperly and it is likely that this is a major cause of the bankruptcy. The burden of proof lies on the managing directors in case the BV did not file its annual accounts within eleven months of the end of the financial year, or the financial records of the BV have not been kept properly.

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