An unnecessary entrepreneurial risk

Many entrepreneurs focus their energy on product development, customers, and growth. This is understandable: without these factors, there will be no revenue and no future prospects. Yet, the notary is often only called in when the first investor arrives or problems arise within the shareholder base. Then it turns out the legal foundation is inadequate, resulting in delays, additional costs, or even personal liability.

What's striking is that the same mistakes often arise. These are matters that could have been arranged relatively easily early on, but which suddenly turn out to be major obstacles later on. Below are five of the most common mistakes entrepreneurs make by not hiring a notary, or hiring one too late – and the potential damage that results.

TO WAIT

A common problem is waiting too long to establish a private limited company. Many businesses start as sole proprietorships or general partnerships and remain active in that legal form, even when they already have substantial turnover, contracts, and employees. As long as the private limited company (BV) is not established, the entrepreneurs are personally liable for obligations and debts. This means that a claim or bankruptcy can have a direct impact on personal assets. Transferring contracts, assets, and employees to a private limited company can also be complicated and costly later on, while also forgoing tax benefits. Timely incorporation through a notary prevents these risks and ensures a solid legal foundation.

DEED

A second mistake often occurs during the phase in which entrepreneurs attract investors. Term sheets are signed, money is sometimes already transferred, but the necessary notarial deed of share issuance is missing. Without a notarial deed, a share issuance is legally invalid, and the investor is effectively left empty-handed. This undermines trust, causes delays, and can even derail a carefully prepared deal. Moreover, for larger investments, the articles of association almost always need to be amended, for example, to introduce preferred shares, special control rights, or protective structures. If these are only arranged in the final phase, it leads to additional legal and administrative burden, and often to disappointment for investors.

REWARDS

Employee benefits also frequently go wrong. A growing number of startups and scale-ups want to retain their employees by granting shares or options. This is a valuable tool, but only if the legal structure is sound. In practice, it often happens that promises are made, but there's no share pool, no authorization for share issuance, or no foundation trust office (STAK). The consequence is that the agreements prove unworkable, or employees are saddled with a false sense of security. This leads to frustration and can even lead to talent leaving. Moreover, it's a red flag for investors if the cap table turns out to be messy or opaque. A notary can ensure a clear structure and enforceable arrangements, ensuring that promises are actually kept.

ENTRY

A fourth problem arises with the entry and exit of shareholders. Entrepreneurs agree among themselves that someone will acquire a stake or be bought out, and this is formalized in a contract or even verbally. However, with a private limited company (BV), the transfer of shares can only take place via a notarial deed. Without this deed, the transfer is invalid. This leads to major problems during a subsequent financing round or sale of the company. Potential investors or buyers lose interest when it becomes clear that the ownership structure is unclear. The damage can range from lengthy legal proceedings to the complete failure of a transaction.

GOVERNANCE

Finally, there are the more hidden risks: governance agreements, leaver arrangements, and the transfer of intellectual property. Entrepreneurs often establish agreements among themselves in a side letter or email, for example, regarding what happens if a founder leaves, or regarding the transfer of copyrights and technology. Without statutory anchoring, such agreements are often unenforceable. A departed founder can therefore retain their shares and continue to exert influence, which can hinder the company. Even more serious is the situation where it turns out that the intellectual property does not belong to the BV, but to a founder or freelancer. During due diligence, this can be a direct reason for investors to withdraw. Fixing it afterward is often expensive, time-consuming, and sometimes even impossible.

CONCLUSION

The common thread in all these examples is that entrepreneurs underestimate these risks. The damage is often far greater than anticipated. Personal liability, lost tax benefits, disappointed employees, and failed investment rounds are common. Calling in a notary when the problems have already arisen usually means repairs under time pressure and at high costs.

In a sense, it's cheaper to engage a notary early rather than later. To keep notary costs manageable, it helps to view the notary not as a final step, but as a strategic partner from the outset. Whether establishing a private limited company (BV), involving investors, setting up employee stock options, or recording agreements between shareholders: the sooner the notary is involved, the stronger and more reliable the company's legal foundation will be. This not only avoids risks but also gives investors, employees, and partners confidence that the company is ready for the next phase of growth.

This opinion piece previously appeared on Ondernemersbelang: www.ondernemersbelang.nl/nieuws/een-onnodig-ondernemersrisico/