Flex BV and Holding structure

Legal entity

A BV (private limited company) is a legal entity. Besides the BV, there are other legal entities in the Netherlands, such as associations, cooperatives, mutual insurance companies, public limited companies, and foundations.

A BV (private limited company) is a company with capital divided into shares. This allows you to limit your liability. A BV is a private limited company. Therefore, BV stands for private limited company. A BV is an independent bearer of rights and obligations. It can therefore participate in legal transactions, just like a natural person. Just like people like you and me.

This means you, as a private individual, can enter into a contract yourself, for example, a lease agreement. But a private limited company (BV) can do the same. In that case, the BV itself is liable for the obligations under that agreement. Not the board or you as a director. Not even with your own assets, but only with the shares you hold in that BV. Your liability is therefore limited.

The limitation of your personal liability makes a BV so suitable for entrepreneurship. Creditors of a BV cannot recover their debts from the entrepreneur's personal assets. Unlike a sole proprietorship or a general partnership (VOF), the assets of your BV and your personal assets are therefore separate. All your personal assets, such as your home, car, and the balance in your bank and/or securities account, are protected by a BV—unless there is evidence of improper management. This security is a key reason why entrepreneurs often choose the BV legal structure.

Notarial deed of incorporation

Incorporation is always effected by a notarial deed of incorporation. This deed also contains the articles of association drawn up by the notary. These are the internal rules of the private limited company.

Our firm has dozens of highly sophisticated and fully up-to-date model articles of association for all kinds of private limited companies (BVs). These include holding companies, operating companies, special purpose vehicles (SPVs), project companies, joint venture companies, director-major shareholder companies (DGAs), healthcare companies, savings companies, and pension companies. And many more types of BVs with a wide range of conceivable variables. Sometimes, truly customized solutions are required.

Articles of association

What does the BV's articles of association contain?

Name

The articles of association contain the name of the private limited company (BV). A good name is recognizable, prevents confusion, is memorable, and clarifies what you offer. A suitable company name gives your business the right image. However, the name must comply with certain rules.

Seat

The articles of association of a private limited company (BV) specify a statutory seat. The statutory seat is the BV's formal place of residence. This must be a municipality in the Netherlands. The BV can, however, conduct its business elsewhere.

Shares and capital

The company's capital is divided into shares. These shares are held by the shareholder(s). These are the founders, or those to whom shares are issued or transferred.

There are different types of shares: ordinary shares, priority shares, preference shares, letter shares, and since 2012, with the introduction of the Flex BV, also non-voting shares and non-profit shares. Voting rights—control—are then decoupled from the right to profit, the dividend.

The latter can also be achieved by certifying shares. With certification, shares are transferred for administration purposes to a foundation administration office (Stak), which in turn issues share certificates. These certificates entitle the certificate holder to dividends. Voting rights are vested in (the board of) the Stak.

Shares can be paid for in cash or in kind. You can establish a Flex BV with capital as low as €0.01.

Contribution on shares

It is possible that when a BV is established, no cash payment is made on the shares, but that a sole proprietorship is converted into a BV with an asset and liability contribution.

This method is the most common way to convert a sole proprietorship into a private limited company (BV). It's also the simplest and cheapest. After the conversion, the business risks of the owner of the existing sole proprietorship or the owners of a general partnership are transferred to the new BV.

In this conversion, all assets and liabilities (possessions and debts) of the general partnership or sole proprietorship are transferred to the new private limited company (BV). Transferring all assets and debts is often done for a symbolic amount of €1. Because there is a difference between the symbolic amount and the actual value of the assets and debts, you, as a shareholder, acquire a claim against the BV. However, you should be aware that the tax authorities are monitoring the situation. If there are so-called hidden reserves, such as goodwill or a capital gain in your business premises, you must pay income tax on them.

Silent conversion of a sole proprietorship to a private limited company

In a silent conversion, the sole proprietorship is transferred entirely to the private limited company (BV) without the business being discontinued. There is no tax settlement for the sole proprietorship, and the owner of the sole proprietorship becomes the founder of the BV. Therefore, there is no potential shareholder claim. The new BV starts with a balance sheet equal to the closing balance of the sole proprietorship or general partnership.

If you submit a request to the Tax Authorities before October 1 of the current year, the silent conversion can take effect on January 1.

Noisy conversion of sole proprietorship to BV

With a smooth conversion, the sole proprietorship is discontinued. As with a conversion with a contribution of assets and liabilities, there is no settlement. The private limited company (BV) takes over the assets and liabilities of the sole proprietorship. Note: If you want to sell your business within three years, you must use a smooth conversion. With a silent conversion, you cannot dispose of the shares for a period of three years.

A contribution description is always required for contributions in kind. The founder, in consultation with their accountant, must submit this to us. A deed of contribution must also be executed upon the contribution.

Blocking arrangement

You can't simply sell shares in a private limited company (BV). This is only permitted with the approval of the shareholders. A BV often has a blocking arrangement for this purpose. Therefore, the BV has a private nature.

Organs | general meeting, board, supervisory board

A private limited company (BV) has several bodies. These bodies include, at a minimum, the general meeting of shareholders (GMS) and the board of directors. Shareholders have economic and controlling rights. They are entitled to the company's profits and can appoint and dismiss directors. The board of directors represents the company. The board of directors can be a natural person or a legal entity. The first directors are appointed in the deed of incorporation.

Sometimes a private limited company (BV) has other bodies, such as a supervisory board (SB). A SB is not mandatory.

Representation

The BV is represented by the board of directors or by members of the board. A director may hold the power of representation independently or jointly with one or more other directors. The board's authority is unlimited and unconditional.

Who is authorized to represent a private limited company (BV) can be found in the Trade Register of the Chamber of Commerce. The Trade Register can also specify whether a director is authorized independently or only jointly with another director to bind the BV to legal acts. A BV can only object to a restriction of its representative authority in the articles of association against a third party if the restriction is registered in the Trade Register of the Chamber of Commerce.

Advantages

Setting up a BV has many advantages:

• There is no personal liability for the BV's debts, except in the case of improper management.
• Better tax treatment. The lower corporate tax rate of 16.5% or 25% and income tax on the minimum director-major shareholder salary. So, if you make a profit of more than €80,000, you're better off with a private limited company (BV).
• Better asset protection.
• No (own) money needed.
• Professional presentation and therefore a better image to the market.
• Interesting for investors, sellers, buyers, and financiers. You can issue, transfer, and pledge shares.

A private limited company (BV) has few disadvantages. However, you do need to consider the incorporation costs, governance, and compliance; additional administration is involved. For example, you must submit annual financial statements to the Chamber of Commerce every year.

Holding structure

You might consider setting up a holding structure right away.

A holding company is a regular private limited company (BV) that holds shares in the company where its activities and operations take place. This BV is also called an operating company or operating company. With a simple holding structure, you, as a natural person, hold 100% of the shares in the (personal) holding company. The holding company, in turn, holds the shares in the operating company.

It's highly recommended to establish a holding company alongside your private limited company for several reasons. For example, a holding company offers numerous tax advantages. The holding company also allows you to easily safeguard the assets accumulated in the operating company within the holding company itself. This way, you avoid the risk of losing valuable assets, such as trademark rights or a successful website, in the event of bankruptcy.

Shareholders' agreement

If there are more than two shareholders, it's wise to document how they interact—in addition to what the law and the articles of association stipulate. This is especially true if you're good friends. We document how you interact in a shareholders' agreement. This requires a tailored approach. What do the shareholders intend to arrange with each other? What is the duration of the agreement? How do you handle a change of control? How do you handle an exit? Do you want a drag-along and a tag-along? Do you combine this with a right of first refusal or a come-along? What do you do in the event of a deadlock? How do you determine the value of the shares? For which shareholders' meetings do you require unanimity? What agreements do you agree on regarding financing requirements? What does your dividend policy look like? Do you want a non-compete and non-solicitation clause? Should a chain clause and penalty clause be included? Should rights be transferable or not? How do you avoid being saddled with shareholders you can't handle? We're happy to guide you through this maze of questions and considerations in a structured manner. We know the pitfalls and want to protect you from them.

Managing Director Major Shareholder (DGA) and salary

If you start a private limited company (BV), you quickly become a managing director (DGA). According to the Dutch Tax and Customs Administration, the managing director must, in principle, pay themselves a salary of €47,000. This isn't necessary if the money isn't (yet) available, for example, if you're a newcomer. We can advise you on this.

Holding structure

You might consider setting up a holding structure right away.

A holding company is a regular private limited company (BV) that holds shares in the company where its activities and operations take place. This BV is also called an operating company or operating company. With a simple holding structure, you, as a natural person, hold 100% of the shares in the (personal) holding company. The holding company, in turn, holds the shares in the operating company.

It's highly recommended to establish a holding company alongside your private limited company for several reasons. For example, a holding company offers numerous tax advantages. The holding company also allows you to easily safeguard the assets accumulated in the operating company within the holding company itself. This way, you avoid the risk of losing valuable assets, such as trademark rights or a successful website, in the event of bankruptcy.

To the notary

A civil-law notary is always involved in establishing a private limited company (BV). We've already discussed this. But do you really need to visit the notary in person? The individuals establishing a BV must personally identify themselves. This is to prevent abuse. You can also grant us a power of attorney. This is useful if not all the founders are available at the same time.

You might be wondering what a notary actually does and whether it can be done cheaper. We understand your concerns. We're consumers ourselves. We also personally weigh the price against quality, service, and goodwill. We recognize the need to manage your budget for notarial services and that what we charge should represent value for money. We can offer you peace of mind, reliability, and security at a low cost because we are state-of-the-art and have well-organized processes. For more information, please visit: What does a notary actually do for what I pay them?

Shareholder register

When a private limited company (BV) is incorporated, the notary creates a digital shareholder register and stores it in your My Notary File. You can print it yourself or leave it there. The shareholder register is a document that includes details of the BV's shareholder, the date of incorporation, and its share capital. It's not uncommon for the shareholder register to be lost, resulting in confusion about the BV's shareholders. This is important, for example, when selling shares and determining the share ratio.

Registration with the Chamber of Commerce

The BV must be registered in the Chamber of Commerce's trade register. We can do this for you. We'll also provide you with an extract proving the registration. You'll receive the Chamber of Commerce invoice directly from the Chamber at your BV's address.

Compliance

The government has a policy aimed at preventing money laundering and terrorist financing. This includes all forms of fraud (such as bankruptcy fraud and tax fraud) and bribes (corruption). Therefore, almost all service providers, including us as civil-law notaries, are legally obligated to conduct client due diligence when providing certain services, monitor clients, investigate the origin of the funds used, and report unusual transactions to a national reporting center. These obligations are stipulated in the Money Laundering and Terrorism Financing (Prevention) Act (Wwft). Therefore, based on legal guidelines, we must verify who establishes the private limited company (BV), where the money comes from, who the Ultimate Beneficial Owner (UBO) is, and whether a Politically Exposed Person (PEP) is involved. We also register the UBO in the Chamber of Commerce trade register and, of course, provide you with an extract.

Contact

Would you like more advice on this topic? Visit us or give us a call. An initial (phone) consultation is free. To schedule an in-office meeting or a video call, please call +31 (0)10 44 53 777. We look forward to seeing you.



This article should not be considered legal advice. MAES Notarissen takes the utmost care in the content of its articles, but accepts no liability for any incompleteness or inaccuracy of an article, nor for any consequences thereof.