Legal forms for business in the Netherlands: personally liable or not?
Legal forms for business in the Netherlands: personally liable or not?
Doing business in the Netherlands means choosing the best legal form for your activities. Various options are available: some legal forms have legal personality, and others don’t. Using a legal form without legal personality means you are personally liable for any debts. And choosing a form with legal personality means, in principle, that the legal entity is liable for the debts.
We have set out here the legal forms most commonly chosen in the Netherlands.
Go to:
• Sole trader
• General partnership
• Limited partnership
• Professional partnership
• Private limited company
• Public limited company
• Limited liability partnership
Legal forms without legal personality
Sole trader
One of the most common ways to operate is as a sole trader. This is relatively quick and easy to arrange. You just need to register at the Chamber of Commerce and apply for a VAT identification/turnover tax number from the tax authorities. As a sole trader, you are personally liable for any debts incurred by the business. You have to file an income tax return and, providing you meet certain conditions, are eligible for the starter’s allowance (in your first three years), the allowance for self-employed contractors and the SME profit exemption.
General partnership (vof)
A general partnership (vof) may be a good option for setting up a business in the Netherlands with another person. To set up a general partnership, you first need to register at the Chamber of Commerce. The benefits of operating as a sole trader are also available to general partnerships. Providing you meet certain conditions, you are eligible for the allowance for self-employed contractors and the SME profit exemption. And in the first three years you are also eligible for the starter’s allowance. The partners in a vof are personally liable for any partnership debts.
Because you and the other partners are personally liable for any business debts, you are recommended to decide beforehand how much each of you will contribute and how you will share in the profits. And then to record your agreements in writing.
Limited partnership (cv)
A limited partnership (cv) can be an option if you want to start a business but don’t have enough financial resources. A limited (or silent) partner will provide funding, while the managing partners are responsible for managing the business. Unlike shareholders in a private limited company (BV), the limited partner is not actively involved in running the business. As a limited partnership does not have legal personality, the managing partners are personally liable for its debts. You are recommended, therefore, to draw up a contract beforehand, stating exactly what has been agreed.
Managing partners in a limited partnership and who meet certain conditions are eligible for the allowance for self-employed contractors, the SME profit exemption and, in the first three years, the starter’s allowance. These are all deductible in their income tax return.
A limited partner is not involved in running the business and so is not personally liable for its debts. But a limited partner can lose the capital contributed. Limited partners are eligible for various tax benefits, including discretionary depreciation and the investment allowance. But they are not eligible for other tax benefits available to entrepreneurs.
Professional partnership (maatschap).
Independent medical or legal professionals (who are not employees) often choose to set up a professional partnership (maatschap). Each partner pays in a contribution. This can be in money, goods or work. Like other partnerships, a professional partnership does not have legal personality. Natural persons in a professional partnership are all personally liable to an equal extent in the event of debts. All the partners have to register at the Chamber of Commerce. Just like for a vof or cv, you are recommended to agree beforehand (and record in writing) what you will contribute, how you will collaborate and how you will share in the profits.
Partners in a professional partnership file an income tax return and, providing they meet certain conditions, are eligible for the allowance for self-employed contractors and the SME profit exemption. In the first three years they are also eligible for the starter’s allowance.
Legal forms with legal personality
Private limited company (BV)
A private limited company (BV) is an entity with legal personality. This means, in principle, that its directors are not personally liable for the business debts. A private limited company’s capital is divided into shares, which are owned by shareholders. Just like other businesses, a private limited company has to be listed in the Trade Register at the Chamber of Commerce. You also have to arrange for a civil-law notary to issue a deed of incorporation, including the company’s Articles of Association. Your administrative responsibilities include preparing an annual report and financial statements and filing them at the Chamber of Commerce. You can find more information on private limited companies here.
Public limited company (NV)
Just like a BV, a public limited company (NV) has shareholders. The main difference is that the shares of an NV can be freely traded on a stock exchange. In principle, its directors are not personally liable for the company’s debts. Shareholders in an NV can have various powers, including the right to take decisions on certain matters and to appoint and dismiss directors.
To set up an NV, you need starting capital of at least €45,000 and a deed of incorporation, including Articles of Association, drawn up by a notary. You also have to prepare an annual report and financial statements and file them at the Chamber of Commerce.
Limited liability partnership
A limited liability partnership (LLP) is an English legal form somewhere between a general partnership (vof) or professional partnership (maatschap) and a private limited company (BV). An LLP has legal personality and limits the liability of some or all the partners. This legal form is from English law, but is fully recognized in the Netherlands.
Setting up an LLP has to be arranged through a solicitor in the United Kingdom. You can then register the LLP at the Chamber of Commerce in the Netherlands. Since Brexit, LLPs in the Netherlands have been governed by the Companies Formally Registered Abroad Act [Wet op Formeel Buitenlandse Vennootschappen]. This means the partners have to submit certain information to the Chamber of Commerce. You can find more information on this at the Chamber of Commerce.
The other options for businesses in the Netherlands are to operate through a cooperative association (coöperatieve vereniging), an association (vereniging) or a foundation (stichting).
Feel free to contact us for advice on starting a business in the Netherlands and the various legal forms available. We will be pleased to help.
