Types of Dutch Business Entities
The five main types of legal entities that can be set up in the Netherlands are:
Sole Trader (Individual Business Owner)
General partnership (VoF);
Limited partnership (CV);
Private limited company (BV)
Public limited company (NV)
(Individual Business Owner)
A sole trader (Eenmanszaak) is the only owner of a business, though there may be employees. Income tax is paid on profits made. Sole traders can be personally liable for business obligations, as can their spouse. This kind of sole proprietorship is also referred to as ZZP (zelfstandig zonder personeel – ‘self-employed without staff’). Although the ZZP form is not a legal entity, the term is commonly used.
(Vennootschaap Onder Firma, VOF)
A general partnership is a business run by more than one person. Partnership agreements will determine contributions, liability and entitlement. For tax purposes, each partner is usually considered a self-employed entrepreneur, and income tax is payable on profits. All partners (and their spouses) are jointly, personally liable for business debts and obligations, though a marriage contract can protect spousal assets.
(Commanditaire Vennootschaap, CV)
A limited partnership is a business run by more than one person. It has two kinds of partners: active and limited. The limited partner tends to be the financial backer for the company, and often enters into a partnership with a sole trader who needs financial backing. The limited partner tends to allow the active partner to make the day-to-day decisions and is only at legally at risk of losing their financial investment if they are not involved in managing the company in any way. Limited partners are not required to register with the Trade Register.
Active partners are liable to third parties and personal assets (including those of a spouse) are not protected from creditors (though a marriage contract can protect spousal assets). It is highly recommended to enter into a partnership agreement when becoming a partner, in order to clarify the duration of the partnership, contribution expectations, profit split, among other things.
For tax purposes, an active partner is usually considered to be a self-employed entrepreneur and is required to pay income tax on their share of profits. A limited partner who has only provided financial backing for the company is not considered a self-employed entrepreneur, and instead has joint entitlement.
Partnerships are generally created between certain professionals, such as attorneys and GPs. For tax purposes the partners are considered self-employed entrepreneurs (ZZPers). Partners are liable for business (financial) obligations individually and spouses can also be liable, though a marriage contract can limit liability.
Private Limited Liability Company
(Besloten Vennootschaap, BV)
A BV is a private limited liability company and is considered to be a legal entity, which limits the risks to the owner(s). Shareholders are only liable for their own capital contribution. To start a private company (BV), at least €18,000 in paid-in capital (not necessarily cash) is required. Shares are allocated based on the capital, and for tax purposes, any person owning more than five percent of shares has a “substantial interest” in the company and is liable for taxes on capital gains or dividends paid. It is necessary for owners to obtain a background check for fraud or bankruptcy from the Ministry of Justice. BVs are often considered to be the best way for a foreign company to establish a subsidiary in the Netherlands.
Company information and proof of incorporation in a foreign country (if applicable) must be filed annually with the Chamber of Commerce (KvK).
Directors of companies registered outside of the Netherlands are legally liable for the actions of the company until all legal requirements are completed.
Public Limited Liability Company
(Naamloze Vennootschaap, NV)
May be a subsidiary of a foreign company. An NV is owned by shareholders and shares may be traded on the public stock market, though shares are not held in any private person’s name. Therefore owners may choose to remain unidentified. NVs may only be formed if it has at least €45,000 in paid-in capital. It is not a common type of business structure.
A company incorporated in a foreign country may engage in business in the Netherlands through a branch office. Easier to establish than a subsidiary, a branch, unlike a subsidiary, is not considered a separate legal entity, so the associated foreign head office is liable for branch obligations.
Operating a branch does not require government approval, but the branch and the branch manager must register with the local Chamber of Commerce Trade Register. The foreign company must also provide the Chamber of Commerce with:
The articles of incorporation (in Dutch, French, German or English) as well as bylaws
The annual report, including accounting details, as governed by the laws of the country of incorporation (may be in Dutch, French, German or English)
An extract from the trade register or document of registration in the country of incorporation, not more than one month old
Information regarding the registered office, the law under which the company is incorporated and (to be submitted annually) a report on the share capital IF the company is incorporated outside of the EU/EEA.
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