Setting up a Dutch private limited company (BV)
With Brexit being an irreversible occurrence by January 31, 2020, your business interests with mainland Europe deserve to continue like ‘business as usual’. To preserve your company’s footprint within the EU, it’s worth considering setting up a Dutch company within your corporate structure and moving your European business to the Netherlands.
Assuming your company is currently being run as a company limited by shares (“Ltd”) in the UK, the most comparable legal form in the Netherlands is a private limited company (‘besloten vennootschap met beperkte aansprakelijkheid”, abbreviated: “B.V.”).
Why choose a Dutch “B.V.”
Generally speaking, the entrepreneurial risk rests with the BV, rather than the persons that manage it. Of course, when managing the BV, you will have to make sure that business is conducted properly. However, in case of a deficit, the debts will be for the account of the BV. Generally, the shareholders and/or directors will have no personal liability and there is no legal obligation to uphold a positive equity.
The BV is well known for its flexibility of setting up and structuring of, for example, profit rights, voting powers, management, control and the relatively light legal requirements. The BV’s equity is divided into shares. Shares can be held by one or more shareholders, these being natural persons or legal entities. There are no requirements with regard to a minimum amount of share capital. A BV can be incorporated with one or more shares with a par value of at least one eurocent (€ 0,01). It is also possible to use a currency other than euros (GPB for instance).
The BV’s articles of association, in combination with rules of Dutch corporate law, form the basis for company policy and its practical implementation. It contains the statutory name and seat (in the Netherlands) of the BV, a general description of the BV’s objects and its share capital. As mentioned, there is much variety possible in dividing profit rights and voting powers.
Management structure of a BV
The management of a BV is generally formed by one or more directors. The power to represent the BV lies with the board of directors, or one or more, acting jointly or solely authorized.
The board members are appointed and dismissed by the general meeting of shareholders. As such, the general meeting of shareholders is the supreme body of the BV. Still, the day-to-day management rests with the board of directors.
A BV can have a commissioners board whose purpose is to monitor good governance by the board of directors. If the BV has no commissioners board, the general meeting of shareholders has these powers.
Dividend distribution in a BV
In the absence of the minimum capital requirement in the BV, creditors may be faced with limited security. To prevent the creditors from dealing with a BV with empty pockets, the distribution test was introduced.
Upon any distribution of funds whether this involves repayment of capital or a profit distribution, the management board must first check whether the distribution is not at the expense of the interests of creditors. This is a two-stage approach. The equity test must ensure that the shareholders’ equity of the BV is larger than the statutory reserves or the reserves that must be kept according to the articles of association. The distribution test is performed to check if the BV can continue to pay its debts payable after the distribution. If a dividend distribution is made without proper performance of this two-stage test, both management and shareholders run the risk of having to repay the amount of the deficit for which they are personally liable Board members need to consider this with due care.
Annual compliance obligations for a BV
The BV is responsible to maintain correct and up-to-date information in the Dutch Trade Register. Next to this, the UBO-register will enter into force in 2020, requiring the BV to register its ultimate beneficial owners.
The BV is required to keep its financial administration up-to-date and to draft its annual accounts yearly within 5 months (or when an extension is granted by the shareholders meeting within 11 months). The board is responsible for publishing the annual accounts in a timely manner (within 12 months after the end of the financial year). If the BV fails to uphold these obligations, it is sanctioned and runs the risk of a fine and (much more importantly) the directors run the risk of personal liability in case of the BV’s bankruptcy. Please bear in mind that these compliance obligations should normally not be a major challenge.
An attractive alternative to the UK limited company is incorporating a Dutch BV. Please feel free to contact us if you need further information on the requirements and set-up procedures.