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Private limited company, the Dutch 'BV'
If you're setting up a business, one option is to create a legal entity in the form of a 'private limited company', or in Dutch a besloten vennootschap (BV). The main advantage of a BV is that it's an autonomous entity. This means that the BV is generally speaking liable for any debts, rather than you as an individual. As a director, you're an employee of the BV and you act on its behalf. It's possible to set up a BV on your own or with other individuals and/or legal entities.
Structuring a private limited company
A private limited company's equity is divided into shares that are owned by shareholders. They also hold ultimate power, but the company directors run the business on a day-to-day basis. Sometimes a private limited company may appoint a supervisory board to monitor its board of directors.
In smaller private limited company's, the director is often also the only shareholder. In which case, he or she is then director and major shareholder (DMS), or in Dutch directeur en grootaandeelhouder (DGA).
Setting up a private limited company
Starting a private limited company, or changing your sole proprietorship into a private limited company, has grown a lot easier over the years. That is why private limited companies are also sometimes referred to as 'flex BV' in the Netherlands. But there are some steps you have to take. There are essentially four elements to setting up a private limited company:
- Incorporation (civil-law notary) by notarial deed (statutes);
- Deposit (min. €0.01 – cash or in kind);
- Registration in the KVK Commercial Register (Handelsregister) – usually carried out by a civil-law notary (you remain personally liable until the registration is complete);
- Registration at the Dutch Tax and Customs Administration - this also is usually taken care of by the civil-law notary.
Private limited company in formation
It's even possible to start trading before you've set up your private limited company. You may operate as a 'private limited company in formation' if your civil-law notary is still preparing your incorporation. In Dutch, this is a BV in oprichting, which is usually abbreviated as BV io.
Make sure you clearly state that you're acting on behalf of a 'BV io' when entering into any agreements with business partners. Sometimes sole proprietorships append 'BV io' to their name because they're in the process of incorporating their business. Be aware that you're entering into an agreement as a sole proprietorship or eenmanszaak when you sign a contract in this phase.
You can transfer contracts to your BV, once established, subject to agreement from the other party.
If you're planning to trade as a 'BV io', then you'll have to list your company in the Commercial Register. Your civil-law notary then has to certify that he or she is handling your incorporation on your behalf.
Running a private limited company, you're in theory not personally liable for your business's debts. However, banks generally ask that as a director and major shareholder you co-sign for loans as a private individual. In which case, you're then personally liable for repaying any loans.
You can also be held personally liable in the following instances if:
- You entered into overly ambitious agreements and knew (or could reasonably foresee) that the BV would be unable to fulfil its commitments.
- You failed to inform the Dutch Tax and Customs Administration in time that you were unable to pay your taxes and social security contributions.
- You were unable to pay your taxes and social security contributions as a result of mismanagement or negligence in the three years before reporting this to the Tax and Customs Administration.
- Your BV was declared bankrupt due to mismanagement or negligence in the three years leading up to this event. An example of 'mismanagement' is failure to file annual reports and accounts.
- You made payments that you knew could potentially jeopardize the BV's financial position.
As a shareholder, your liability is limited to the amount of your participation in the BV.
Sole proprietorship or private limited company?
If you're unsure about whether to do business as a sole proprietorship or a private limited company (BV), list the differences and determine what's most important to you in your situation. Taxes may be lower for a BV, but the annual costs may be higher.
Liability can also play an important role in opting for one legal form or the other.
The 'payment test' – withdrawing equity from a BV
Directors have to perform a 'payment test' (uitkeringstoets) if they plan to withdraw equity from their BV. Doing so is only permitted if there are sufficient funds in the BV. This helps safeguard the business's financial position and helps ensure that creditors will be paid. An example of such a withdrawal is the payment of a dividend to the BV's shareholders.
The BV's board of directors has to protect its creditors' interests by assessing whether the BV will still be able to meet its financial obligations (accounts payable) for a period of approximately one year after the withdrawal. If so, the board of directors has to formally approve the withdrawal. If not, the board of directors is not authorised to proceed.
Directors who in hindsight make improper withdrawals can be held jointly and severally liable.
Filing annual financial statements
Your BV has to draft and file its annual reports and accounts with the Chamber of Commerce (Kamer van Koophandel, KVK). The size of your company determines exactly which information you'll need to file.
Taxes and the private limited company
If you own at least 5% of your company's shares, then you have a 'substantial interest' (aanmerkelijk belang) and are referred to as a 'director and major shareholder' (directeur-grootaandeelhouder, DGA).
As a DGA, you'll have to pay income tax (inkomstenbelasting) on your salary and perhaps dividend tax (dividendbelasting). Paying yourself a salary from your BV is a relatively expensive option. A less expensive option (fiscally) is to pay out a dividend.
However, the Tax and Customs Administration (Belastingdienst) won't allow you to pay yourself an excessively low or zero salary. Your salary has to be in line with market levels, which is why the Belastingdienst has set a minimum annual salary of €45,000.
In Dutch, this is referred to as the gebruikelijkloonregeling or 'customary salary scheme' for directors and major shareholders.
Your BV will also have to pay corporation tax (vennootschapsbelasting, VPB) over its profits.
As a director and major shareholder (DGA), you're actually an employee of your private limited company for the purposes of social security, except in the following instances:
- You have 50% or more of the votes at the annual general meeting (AGM) (potentially including those of your spouse).
- You and your direct family members own two thirds or more of the shares.
- You cannot be removed from office against your will.
In which case, it's not mandatory to contribute to employee insurance schemes, but you will be permitted to pay voluntary contributions.
Please also refer to information for sole proprietorships.
Selling your business
If you want to sell your company, then you can either sell your shares or divest the business from the BV by selling off its equipment, inventory, etc. As a DGA, you'll have to pay income tax on the proceeds of the sale of your shares. If you divest your business, then you'll have to pay corporation tax on the profit.
If a shareholder in the divesting BV is itself a BV, then this holding company theoretically pays no tax on the proceeds if it owns 5% or more of the shares.
Holding and Annuity Private Limited Companies
A holding company is a private limited company (BV) that owns shares in another BV. You can structure BVs in this way to protect equity, e.g. profits or your pension provisions, from your business risk. You can set up an 'annuity private limited company' (stamrecht-bv) to hold severance pay.
The single-tier board
The regulatory role within a BV is often filled by a 'supervisory board' (Raad van Commissarissen). This division between directors and supervisors is called a 'two-tier board'. You can also opt for a single-tier board.
Statistics: private limited companies
Number of private limited companies.