ABSTRACT
In the Netherlands the Flex BV Act entered into force on 1 October 2012. This new Act was necessary to ensure that the rules for private limited liability companies (Besloten Vennootschappen) became simpler, more flexible and in line with the wishes that existed in practice. Many rules were perceived as rigid and unnecessarily burdensome. The new regulation provided shareholders the opportunity to regulate their mutual relationships and create more room to adapt the structure of the company. The new BV form should also ensure a more competitiveness on an international level and become more attractive as a country of residence for national and international companies. Finally, the Flex BV Act offered the opportunity to resolve various bottlenecks and ambiguities in the old private limited liability Act.
Key Words: Flex-BV, Capital Contribution, Deposit Obligation, Distribution and Balance Sheet Test, Statutory Obligations, Dispute Settlement.
INTRODUCTION
The Flex BV stems from two Acts: The Simplification and Flexibility of BV Act (hereinafter: "Flex BV Act") and the Implementation Act the Simplification and Flexibility of BV (hereinafter: "Flex BV Implementation Act") and entered into force on 1 October 2012.
The Flex BV Act had to put an end to the rigid and unnecessary legal rules. The old BV Act created unnecessarily high costs for the entrepreneurs. The requirements of the practice were met by introducing more flexible rules. An attempt was made to resolve the bottlenecks and ambiguities in the old BV Act by means of the new regulation. The new regulation had to offer entrepreneurs more room to organize their businesses form. The new legal form had to become more competitive and the Netherlands should serve as a country of residence for national and international companies.
The changes introduced by the Flex BV Act and why the choice of a Flex BV has become more attractive and simpler for both national and international entrepreneurs will be discussed below for each section.
I. NO MINIMUM CAPITAL REQUIREMENT
The capital protection rules for the BV have been radically revised in the new regulation. A minimum capital requirement of 18,000 euros for the establishment of a private limited company is no longer valid. The abolition of the minimum capital means that a BV can be set up with a very small capital, for example one share with a nominal value of 0.01 eurocent1.
II. NO OBLIGATION TO INCLUDE SHARE CAPITAL IN ARTICLES OF ASSOCIATION
A company can choose to include or exclude a share capital shares in the articles of association state the number of shares2. If a company chooses in its articles of association to include a share capital, article 2:231a of the Dutch Civil Code applies. If no capital share is included in the articles of association, shares may be issued without restriction.
III. NO MINIMUM DEPOSIT REQUIREMENT
In the new regulation it is possible to agree that the entire payment obligation will not be paid when the share is taken, but will be fulfilled at a later time. Therefore, there are no liability regarding the issued capital at the time of incorporation or the joint and several liability of the directors regarding to the failure to comply with the minimum payment obligation on time3.
IV. NO BANK STATEMENT OR AUDITOR'S REPORT REQUIREMENT
The new regulation makes it possible to pay shares in cash without bank statement or to pay shares other than in cash without the auditor's report requirement4. In the case of contribution in kind, a description of what is contributed, signed by the founder (s), is still required. Only the reference date for the description and the valuation has been changed from a maximum of five months to a maximum of six months before the contribution. The description must be available for inspection by (future) shareholders and persons entitled to attend meetings5.
V. INTRODUCTION OF DISTRIBUTION TEST AND LIMITED BALANCE SHEET TEST
The protection of creditors is centered around the distribution test in all forms of distribution to shareholders and the associated liability regime for directors and shareholders. The extensive balance sheet test used to apply. The new regulation adopted the limited balance sheet test and distribution test. The profit made does not automatically accrue to the shareholders. The general meeting of shareholders is authorized to resolve on the appropriation of profit and to determine distributions, insofar as equity exceeds reserves which must be held by law or the articles of association.
Balance sheet test means that distributions from profit or reserves are only permitted to the extent that shareholders' equity exceeds the reserves that must be maintained by law or by the articles of association6. This test does not apply if the BV has no legal or statutory reserves. The Articles of Association may provide otherwise.
The distribution test means that the board must assess whether the BV will still be able to continue to pay its due and payable debts after the distribution has been made7. It is not permitted to have a distribution take place if the BV cannot continue to pay its due and payable debts after the distribution. The distribution test applies for all situations in which the company has capital distributes: upon distribution of profit or reserves, upon repayment on shares in the context of a capital reduction and upon purchase of own shares otherwise then free of charge.
In the event that an irresponsible distribution takes place with the consent of the directors, the directors are personally bound to the company for the deficit that has arisen as a result of the distribution, unless the director proves that he is not to blame. Directors are jointly and severally bound to the company for the amount of the distributions if they make distributions, while they knew or should reasonably have foreseen that the company would no longer be able to continue to pay its due and payable debts after the distributions.
The person who received the payment while he knew or should reasonably have foreseen that the company would not be able to continue to pay its due and payable debts after the distribution is obliged to pay compensation with the legal interest from the day of the payment8. Distribution decisions taken in violation of the balance sheet test are void9.
VI. FINANCIAL SUPPORT BY THIRD PARTIES
In the old regulation it was forbidden to provide a BV with financial support to prospective shareholders with a view to taking shares. In other words, the company provided security to finance its own takeover10. The legislation for financial support to third parties has lapsed11. By removing this prohibition, BV can now in principle financially support the acquisition of shares by third parties in its capital, provide a price guarantee or otherwise provide security.
VII. NO MANDATORY TRANSFER RESTRICTIONS
In the old regulation, the free transferability of shares was limited to a group of persons referred to by law. For any other transfer, the articles of association had to contain a blocking regulation. The mandatory blocking regulation has lapsed12. Companies can opt for the offering regulation applicable under the law, for a statutory limitation or exclusion of the transferability of shares or have the option of stipulating in the articles of association that no restrictions at all apply to the transferability of shares. Companies that opt for a statutory blocking regulation are given more scope to design that regulation as they see fit. In the latter case, the shares are freely transferable.
VIII. ISSUE OF NON-VOTING AND NON-PROFIT SHARES
Due to the changes in the new regulation BV can also issue non-voting shares13 or issue shares with no or only a limited right to share in the profit or reserves of the company. Such rules may particularly benefit joint ventures and family businesses. The holders of non-voting shares have meeting rights, profit rights14, to request inquiry under certain conditions15 and to claim for annulment of a decision16. If shareholders with voting rights wish to take a decision outside of a meeting, they need the consent of all those entitled to attend meetings, including those of holders of non-voting shares. The advantages of non-voting shares occur in the first place in situations in which the BV wishes to grant financial advantage without giving the opportunity to control the BV by means of voting rights or in case the BV wishes to allow employees to participate by means of shares without having voting rights.
The holders of shares of a specific type or designation with no or only a limited right to share in the profit or reserves of the company17 have only the voting right. The advantage of non-profit shares is when for example the father wants to hand over the family business to his children. However, the father no longer wants to be entitled to the profit of the company. By giving the father no-profit shares, he still influences the company through voting rights.
IX. REGULATION FOR THE PURCHASE OF OWN SHARES EASED
The regulation that the repurchase of own shares up to a maximum of 50% of the issued capital was permitted has been deleted. In addition, the previous legal conditions that the articles of association permit the acquisition and that an authorization for acquisition has been granted by the general meeting or another body designated for that purpose has lapsed. Instead of the system of authorization by the general meeting, it has been determined that the board decides on the acquisition of shares in the capital of the company18. All shares, except for one share with voting rights, may be repurchased. This share must be held by someone other than the BV itself or one of its subsidiaries19. In order to protect the company's creditors only the acquisition of fully paid-up shares is permitted and the BV may not repurchase its own shares if the shareholders' equity, less the acquisition price, is less than the reserves that must be maintained by law or the articles of association. The board decides on the basis of a liquidity and a balance sheet test. If the management board knows or should reasonably foresee that the company will not be able to continue to pay its due and payable debts after the repurchase of own shares, then the board members are jointly or severally liable to the company to compensate the deficit incurred by the repurchase of own shares has arisen. For the decision of the management board there is no longer authorization from the general meeting of shareholders required. It is possible to exclude or limit the acquisition by the company of its own shares in the articles of association20.
If, after an acquisition, the company cannot continue to pay its due and payable debts other than for no consideration, the directors who knew this at the time of the acquisition or should reasonably have foreseen this, are jointly and severally liable to the company to compensate the deficit incurred by the acquisition has arisen, with the statutory interest from the day of the acquisition.
X. CONTRIBUTION OF CAPITAL IN OTHER CURRENCIES POSSIBLE
It has been made possible to denominate the amount of the authorized capital, the issued capital and the paid-up part thereof, as well as the nominal amount of the shares in a foreign currency21. The possibility is limited to one foreign currency. It is not allowed to use two different currencies.
XI. ANNUAL SHAREHOLDERS MEETING
In the Flex BV Act changes have been made and the rules are simplified regarding the Annual shareholders meeting. Now it is possible to hold at least one general meeting or at least once outside a meeting during each financial year22. The Shareholders' meeting can be held abroad when this is stated in the articles of association23. The annual accounts can be adopted in a general meeting but also by written resolution. Adoption of the annual accounts does not automatically constitute a discharge; a separate provision in the same resolution is required to discharge the management board.
In the case of the shareholder-managed BV, the signing of the annual accounts by all management board members and supervisory directors is considered to be the adoption of the annual accounts and the signature also as discharge if all other persons entitled to attend the meeting have been given the opportunity to inspect the annual accounts drawn up and have agreed to this manner of adoption.
It is easier to request in writing a general meeting as one or more holders of shares who alone or jointly represent at least one hundredth (1%) of the issued capital24. The convocation and voting can also be done by e-mail if the articles of association allow this25.
XII. STATUTORY OBLIGATIONS
Articles of association can attach obligations to shareholders. It is possible that obligations of a contractual nature, towards the company or third parties or between shareholders, are attached to the shareholding, attach requirements to the shareholding, stipulate that in cases described in the articles of association, the shareholder is held to hold shares or part thereof to offer and transfer26. This will benefit partnerships such as joint ventures. Joint ventures can include all obligations and agreements in the articles of association instead of drawing up shareholders' agreements. This will not only save costs, but also offer joint ventures more freedom to set up and create their business structure.
The articles of association may provide that the management board must act in accordance with the instructions of another body of the company, unless these are contrary to the interests of the company and its affiliated enterprise27.
The articles of association may provide that directors are appointed by a meeting of holders of shares of a specific type or designation. Rules may be included in the articles of association that limit the circle of nominal persons by setting requirements that the directors must meet28. The legal quorum requirement that the votes must represent half of the issued capital has thus lapsed. The legal requirement that a binding nomination contains at least two persons for each place to be filled has also been removed. The new regulation stipulates that if the nomination contains one candidate for a place to be filled, a decision on the nomination will result in the nomination being appointed, unless the nomination is deprived of its binding character29.
XIII. IMPROVEMENT OF LEGAL DISPUTE SETTLEMENT
BVs that want to avoid going to court can choose to include a dispute settlement in the articles of association or a shareholders' agreement, whereby an arbitrator is appointed or otherwise deviates from the legal jurisdiction30. The dispute settlement offers shareholders a right to exit, if the continuation of their shareholding can no longer reasonably be required31. In addition, protection can be found in the right of inquiry and in the rules for nullity and voidability of decisions32. If one wishes to deviate from the main statutory rules in important parts, the law imposes additional requirements on decision-making by prescribing unanimity or stipulating that a regulation cannot be imposed on him against the will of a shareholder.
CONCLUSION
The Dutch legislator has made the legal form BV more attractive and simpler by means of the Flex BV Act. On the one hand, the changes have provided simpler rules such as the abolition of the minimum capital requirement, no accountancy and bank statement, no blocking regulation, allowing financial aid by third parties, making the purchase of own shares easier and on the other hand, there is more space to shape the structure of the company by offering the possibility to make a provision in the articles of association regarding the issue of non-voting rights shares and/or non-profit rights shares, the transfer of shares, statutory obligations and dispute settlement.
In addition, creditors are better protected by the introduction of a limited balance sheet test and distribution test and by increasing the responsibility of directors and shareholders in particular. Finally, it can be stated that the Netherlands is seen as an attractive country for foreign entrepreneurs. After all, many foreign entrepreneurs have set up the company in the Netherlands. This also seems to have achieved the legislator's aim to attract more foreign entrepreneurs with the introduction of Flex BV. Because the rules have also been simplified for Joint Venture BV, there has been an increase in the number of joint ventures established or to be set up by foreign entrepreneurs in the Netherlands.
Footnotes
1. Parliamentary documents II 2006/07, 31 058, no.3 (explanatory memorandum), p. 26.
2. Ibid, p.39.
3. Ibid, p. 40.
4. Ibid, p. 27.
5. Parliamentary documents II 2006/07, 31 058, no.3 (explanatory memorandum), p.61-62.
6. See article 2:216 paragraph 1 of the Dutch Civil Code (hereinafter 'DCC').
7. See article 2:216 paragraph 2 and 3 DCC.
8. See article 2:216 paragraph 3 DCC.
9. Article 2:14 paragraph 1 DCC.
10. See old article 2:207c of DCC.
11. Parliamentary documents II 2006/07, 31 058, no.3 (explanatory memorandum), p. 27.
12. Ibid, p. 49 and see also (old) article 2:195 DCC.
13. See article 2:228 paragraph 5 DCC.
14. See also article 2:227 paragraph 1 DCC and Parliamentary documents II 2006/07, 31 058, no. 3 (explanatory memorandum), p. 10-11.
15. See article 2:346 DCC.
16. See article 2:15 DCC.
17. See article 2:216 paragraph 7 DCC.
18. Parliamentary documents II 2006/07, 31 058, no.3 (explanatory memorandum), p. 64.
19. See article 2:175 paragaph 1 DCC.
20. Article 2:207 DCC.
21. Article 2:178 paragraph 2 DCC.
22. Article 2:218 DCC.
23. Article 2:226 paragraph 1 DCC.
24. Parliamentary documents II 2006/07, 31 058, no.3 (explanatory memorandum), p.76-77.
25. Article 2:223 paragraph 2 DCC.
26. Article 2:192 DCC.
27. Article 2:239 DCC.
28. See article 2:242 DCC and see also Parliamentary documents II 2006/07, 31 058, no. 3 (explanatory memorandum), p. 92.
29. Article 2:243 paragraph 3 DCC.
30. Article 2:337 paragraph 2 DCC.
31. Parliamentary documents II 2006/07, 31 058, no.3 (explanatory memorandum), p. 4. And see also article 2:336 paragraph 1 DCC.
32. See articles 2:345 and 2:356 DC
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
