Dutch Capital: Full Flexibility

Dutch Capital: Full Flexibility

The Dutch limited liability company (called a BV) is often used in international structures. In this article you will get to know about the main characteristics of the capital of a BV. The Dutch Civil Code does not contain many restrictions in the use of capital since an amendment in the year 2012. The articles related to the public limited company (called a NV) were not updated, which make that much of the following will not apply to this legal form.

How can a BV be funded with capital?

At incorporation of a BV, at least one share shall be issued. By law there are no limitations in regard the nominal value per share or capital. Stamp duties do not exist in the Netherlands.It is not mandatory to pay in share capital immediately after issuance, though from a liability perspective it is not advisableto issue shares without paying them up. In case of a bankruptcy of the BV shareholders can be requested to pay up all shares.

Above the shares’ nominal value share premium can be paid. To do this, a notarial deed is not required. An agreement between the shareholder and BV plus a shareholder’s resolution is sufficient. Note that a share premium repayment is possible though only in case that there are no profit reserves and no profits expected for the coming three years. Otherwise there is a risk of having to pay dividend withholding tax. Check this with your Dutch accountant and tax advisor. As an alternative to share premium repayment, share premium can be converted into share capital and the nominal value of shares can be decreased, allowing a tax neutral repayment. A conversion of share premium and change of nominal value require notarial deeds.

What kinds of shares can a Dutch company issue?

Priority shares, referent shares, tracking stocks and non-voting shares can all be issued by a Dutch company. Also, combinations of the characteristics of these types of shares can be created by means of letter shares.

Priority shares have decision-making powers with regard to one or more subjects mentioned in the articles of association. Priority shares usually have no profit entitlement.

Preference shares are characterized by the fact that the sharesyield a fixed return that is not linked to the operating result (but can be linked to market interest, for example). The return on these shares is paid out before the return on the normal shares.

Tracking stocks are shares that only entitle the holder to the profits made with certain activities or subsidiary of the company.

Non-voting rights do not entitle to vote, though allow shareholders to benefit from profits. It can be used as a tool for estate planning or to have investors or employees participate in the company.

The shares of a Dutch company can be denominated in any kind of foreign currency. This can be handy in case your company’s cash flows will be mainly in foreign currency. It is allowed to have an authorised capital, though no mandatory.

Can a Dutch company purchase its own shares?

A BV can purchase its own shares. Also, it can cancel such shares. Under Dutch law a capital protection scheme exists for purchase of own shares. This same scheme is also applicable to dividend distributions and share premium repayments. The purchase of shares as such is not subject to a maximum, except that at least one share with voting rights shall be with a shareholder. The management board is to perform two tests. The company may not acquire its own shares for payment if (i) the shareholders’ equity and reserves do not allow, or (ii) if the management board knows whether it should be reasonably foreseeable that the company will not be able to continue paying its due debts after the acquisition.

Its flexibility makes that the BV can be used under many different circumstances. It for sure contributes to the fact that it is the most popular legal form in the Netherlands.

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