Dutch limited liability company ( BV )

Transcription

1 Dutch limited liability company ( BV ) General Besloten vennootschap met beperkte aansprakelijkheid (usually abbreviated BV in the Netherlands) is the Dutch version of a private limited liability company. The company is owned by shareholders, and the company's shares are privately registered but can be freely transferable. The phrase means "secluded partnership" or private company with limited liability and it is the most common form of limited company in the Netherlands. A Dutch BV may be created by one or more individuals or legal entities, Dutch or foreign, with a minimum paid in capital of 0,01. A deed of incorporation is executed and filed. The deed must be at least in Dutch. Translations into other languages are possible. It must contain details of the incorporators, and of the initial Members of the board, their amounts of participation and payments of the initial capital. Legal requirements Dutch Civil Code (article 2:9) The general 'duty of care' provision for directors of a BV is as registered in article 2:9 of the Dutch Civil Code which explains that each director is liable to the legal entity for the proper performance of his duties. The director is charged with all management duties not specifically assigned to one or more directors by or pursuant to the law or the articles of association. Each director is responsible for the general course of business. He shall be fully liable in respect of all improper management, unless, taking into account the duties assigned to others, no blame can be attributed to him and he has not been negligent in taking measures to avert the consequences of the improper management Because a legal entity itself is a bearer of rights, the legal entity is liable for its own debts with its own assets. Consequently, the directors are, in principle, not liable for the debts of the company. But a successful invocation of directors liability (according to article 2:9 Dutch Civil Code) breaks this 'veil' of the legal entity and thus nuances the exclusive liability of the legal entity. Dutch Civil Code (article 2:248) Article 2:248 of the Dutch Civil Code states that when a company is declared bankrupt, each director shall be jointly and severally liable to the bankruptcy for the amount of the company s debts that cannot be satisfied out of the liquidation of its assets, if the directors have manifestly performed their duties improperly and it may be assumed that these actions constituted an important cause of the bankruptcy.

2 The law automatically prescribes that the directors have performed their duties improperly in the following circumstances: - The directors have not filed the company s accounts with the Dutch chamber of commerce within 13 months of the end of the financial year - The accounts of the company have not been kept in accordance with good accounting practices and do not provide a true insight into the financial position of the company. In such cases the burden of proof is shifted to the directors, who must then prove that their failure to file the company accounts or administrate the accounts properly did not constitute an important cause of bankruptcy. In such cases it can be extremely difficult for the directors to avoid liability. Company bylaws / Articles of Association The Articles of Association in the Netherlands are important documents that govern the functioning of the company, based upon domestic legislation (amongst others the Dutch Civil Code). When establishing a BV in the Netherlands the BV needs to execute and file the Deed of Incorporation with the Chamber of Commerce. This deed contains important information about the company incorporators, board members and financial details. The incorporation deed also contains the company s Articles of Association. The Articles of Association can be viewed as the company s constitution: a document that defines the purpose of the company, the kind of business it will develop, the duties and responsibilities of its directors and the powers that lay in the hands of the company s shareholders. Some of the basic information included in the Articles of Association is: - The complete name of the company - The city where the company is registered - The purpose of the company - The division in shares and the nominal value per share - Special provisions for share transfer - The powers of the directors, shareholders and company members and their voting rights - Special provisions for altering the Articles of Association, etc. The Articles of Association can also contain the by-laws of the company (the rules by which the company organizes itself), various internal regulations and many administrative issues. The Articles of Association can be amended following a proposal made by the management board that was previously approved by the supervisory board. The General Meeting of Shareholders decides to apply an amendment if it is approved by a majority of votes. One-tier / two-tier board A Dutch BV can opt for the one-tier board which is an alternative management model to the two-tier board. In the one-tier board company, the managers (i.e. the executive directors) and the supervisors (i.e. the non-executive directors) are members of a single management body, the one-tier board. In a two-tier board, the executive directors and the supervisors are split up into two separate company bodies, namely the executive board and the supervisory board. 2

3 In a one-tier board, the non-executive directors receive more information sooner, and they are directly involved in the decision-making process. This enables them to have a greater influence and to take action when necessary. A one-tier board can be a good option for enterprises that have a foreign parent company. The construction means that the people whose task it is to supervise and advise are much closer to the executives whose job it is to actually run the company on a day-to-day basis. For example: if the management of the foreign shareholding is made up of locals, the one-tier board makes the parent company of the group more closely involved in decisions that are important for the group as a whole. A non-executive director has greater responsibility than a supervisory director. A supervisory director supervises at a distance, whereas a non-executive director actually takes a seat and participates in meetings of the executive board. All the directors executive and non-executive are responsible as a body for the way the management performs its duties and for decisions that it adopts. The principle of collective management also means that all the directors executive and non-executive are jointly and severally liable vis-à-vis the legal entity as regards to improper management. The liability of a director can be limited by specifying the division of duties between the directors in the company s articles of association or in a set of regulations. Dividend payments The general meeting of shareholders will determine a possible profit distribution. This resolution can only be carried out if the management grants permission. The management may only refuse approval if it knows or anticipates in reason that the BV cannot continue paying claimable debts after the profit distribution. In that connection the management must look ahead about one year. If it appears afterwards that the management wrongly granted its approval, the managing directors will be liable for the deficit that has been caused by the distribution, increased by the statutory interest from the day of distribution. The shareholder who knew or should have known that the BV could get into difficulties after the distribution may also be held liable. This shareholder must then make up the deficit, to at most the amount of the distribution received by him, increased by the statutory interest from the day of distribution. Before the BV proceeds to the distribution of profit, a distribution test must be carried out. Not only in the event of distribution of (interim-) dividend, but also in the event of other forms of distribution to shareholders the distribution test plays a part (think of the BV s purchase, cancellation or redemption of its own shares) This distribution test has 2 aspects: - First of all it must be tested whether the BV s equity after distribution is larger than the reserves that must be maintained by law or under the articles of association. The company may choose on the basis of which document the equity and reserves will be determined and/or the distribution will be assessed. It is obvious that the distribution of profit in the context of the adoption of the annual accounts will be determined on the basis of the latest adopted annual accounts. A separate statement of assets and liabilities is usually not necessary 3

4 - It must also be tested whether after distribution the BV can continue to pay its claimable debts. Liquidity, solvency and profitability may play a part in the assessment whether a distribution to the shareholders is justified. Chamber of Commerce In essence every BV has the ongoing obligation to keep and maintain an administration, to register for tax purposes and to file periodical tax returns. The administration forms the basis for the preparation of the annual financial statements according to Dutch GAAP. Within five months after the end of the financial year the annual accounts should be presented to the management board. This term can be extended with six months due to certain circumstances. After the management board has reviewed and agreed upon the annual accounts, the management board can approve the annual accounts by signing. The entire management board needs to sign the annual accounts in order to approve these, unless there are very special reasons that one of the board members is not able to sign. After approval of the annual accounts, the General Meeting of Shareholders must adopt the annual accounts within two months. Upon adoption of the annual accounts, the General Meeting of Shareholders will grant discharge to the management board for their performance in the respective financial year. Within eight days after adoption of the annual accounts by the General Meeting of Shareholders, an abbreviated version of the financial statements must be filed with the Dutch Chamber of Commerce for publication in the Trade Register. The annual accounts must be deposited with the Dutch Chamber of Commerce ultimately within 13 months after closing the financial year of the BV. The Trade Register is accessible by the public. Annual General Meeting The main rule that at least one physical meeting must be held on an annual basis, lapsed in 2012 when the new Flex BV was introduced to the Dutch Civil Code. However, the new rules do stipulate that, if no physical meeting is held during a financial year, at least one shareholder resolution must be adopted in writing in that period. Generally, this single resolution will concern the adoption of the company's annual accounts and related matters. If each shareholder is also a director of the company, the signing of the annual accounts by the directors and the members of the supervisory board (if any) will constitute a resolution of the general meeting to adopt those accounts, satisfying the requirement to have at least one physical general meeting or to adopt at least one written shareholder resolution. However, the adoption of the annual accounts in this manner does require that: - All other persons with meeting rights have been given the opportunity to take note of the annual accounts - All such persons have given their consent to adopt the annual accounts in this manner - The company's articles of association do not prohibit the adoption of the annual accounts in this manner. 4

5 Board meetings From a substance perspective it is of utmost importance that all board meetings, in which major decisions are made by the board, take place in the Netherlands. At least one board meeting should be physically held in the Netherlands, preferably more than one. Both Dutch and foreign board members should attend the board meeting in the Netherlands. Flex BV (incorporation) The Flex BV Act has taken effect in the Netherlands in It marks a major change to Dutch corporate law, and is expected to increase flexibility for limited liability companies, and make it easier to incorporate in the Netherlands. The new legislation simplifies the rules regarding the share capital of the BV, the shares, creditors protection, voting rights and profit entitlement. The new Act gives more flexibility to tailor the articles of association of the BV, and as such will fit the needs of the current practice. Among the major changes that are part of the Flex BV Act: - No required minimum capital, bank statement or auditor s statement, allowing for a faster, more streamlined incorporation process. Shares may be valued in Euros or a foreign currency - The inclusion of share transfer restrictions are no longer mandated in articles of association. Under the new legislation, there is more flexibility to tailor the articles of association to the needs of the specific company - The new rules cancel previous provisions that barred a BV and its subsidiaries from providing any form of security or granting of loans for the purpose of acquiring shares in the BVs capital by third parties - BVs may now establish shares with no voting rights, shares with multiple voting rights, or shares that are partially excluded from profit sharing and/or from distributions of reserves - Increased permissions for shareholders to include certain matters in the articles of association rather than in a shareholders agreement. Substance When filing the annual Corporate Income Tax return, Dutch BVs have to confirm in their tax return whether they have fulfilled certain substance requirements. The main substance requirements are: - At least 50% of the total number of the statutory directors with decision power is resident of the Netherlands - The directors resident of the Netherlands have the necessary professional skills to perform their activities - Qualified staff for properly executing and administering the transactions - Board decisions are taken in the Netherlands - Most important bank accounts are maintained in the Netherlands - Books are kept in the Netherlands - Office address in the Netherlands and not tax resident of another country 5

6 - Real risk with respect to back to back transactions, as meant in article 8c CITA - At least an amount of equity which is adequate considering the function. Corporate Governance Subject to certain (already existing) exceptions, the power to appoint, dismiss and suspend directors and members of the supervisory board will remain vested in the general meeting. However, under the new rules as per 2012, it became possible for a company's articles of association to stipulate that: - all or certain directors and/or members of the supervisory board are appointed by the meeting of shareholders of a certain class or designation, provided that each shareholder with voting rights can participate in the decision-making regarding the appointment of at least one director or member of the supervisory board, respectively; and/or - a corporate body (other than the general meeting) has the power to dismiss directors and/or members of the supervisory board. This additional flexibility, however, will be restricted (under circumstances) if the company is subject to what is known as the 'structure regime'. Except for the new rule that a one tier board is allowed to suspend an executive director at all times, the main rule on suspension of directors and members of the supervisory board will not change: the corporate body authorised to appoint a director or a member of the supervisory board, is also authorised to suspend him/her. Corporate Income Tax (CIT) A company incorporated under Dutch law or a foreign company tax resident in the Netherlands is required to file a CIT return annually. The Dutch Tax Authorities will issue a preliminary CIT assessment at the start of a financial year. For financial years that do not equal the calendar year, other timing considerations than those discussed below are relevant. A first preliminary corporate income tax assessment is normally issued in January. Generally, the taxable amount in this first assessment is based on the average of the two preceding years taxable income or on an estimation provided by the taxpayer. The payment date is mentioned in the assessment. Normally, these assessments must be paid within two months after the issue date of the assessment or in eleven instalments (i.e. February December). If a preliminary assessment is higher than the final assessment, the excess is refunded with interest. Such interest is taxable income. VAT The tax period is usually a quarter. However, the taxpayer may request the Dutch Tax Authorities to apply a monthly VAT return. If the taxpayer is in a refund position, this could lead to a cash flow advantage. The taxpayer may also request a yearly VAT return provided that some specific conditions are met. One of these conditions is that the balance of payable VAT does not exceed EUR 1,883. Returns are due by the last day of the month following the tax period to which they relate for companies established in the Netherlands. For foreign companies with only a VAT registration in the Netherlands, the returns are due by the last day of the second month following the tax period to which they relate. Taxable persons filing an annual return are automatically allowed to defer filing until 1 April of the following year. 6