The law of the Netherlands Antilles (part of the Kingdom of the Netherlands) is in full swing. The Netherlands Antilles government on a continuing basis is striving to introduce legislation and regulatory regimes in order to enhance its ability to attract quality business, and enable the country to maintain its reputation of pursuing high standards and integrity. Recent examples are the Act on the Private Fund Foundation (1998), a new Civil Code (2001), the Act on the Supervision of Trust Companies (2002) and the Act on the Supervision of Investment Institutions and Administrators (2003).
On March 1, 2004 the new act on corporate law (Book 2 Civil Code; the "Act") became effective. This article outlines the provisions and significance of the Act. The Act governs the NV (‘public limited liability company’) and BV (‘private limited liability company’), which are briefly described in this article. The Act also governs associations and foundations, which are not discussed in this article.
2. The Antillean NV and BV
Contrary to what one might expect, the Antillean NV and BV do not resemble the Dutch NV and BV. They are completely new, contemporary and revolutionary entities with unprecedented possibilities. The main object of the legislator was flexibility and maximum freedom of organization and presentation. Accordingly, the Act contains few mandatory provisions, such as provisions relating to the interests of creditors and minority shareholders.
The Antillean NV or BV can be established in a form that resembles what a foreign shareholder encounters in his own legal system: the NV or BV can, for example, be organized like a Dutch NV, a Delaware corporation, a BVI company or a German GmbH. The motto is: "You request, we provide". The chameleonic possibilities of the NV and BV contribute to their attractiveness. It should be noted, however, that a BV cannot issue bearer shares and that an NV can only issue bearer shares too, which consequently may be converted into bearer shares.
3. Corporate law aspects (in brief)
The Act shows a bold new approach to Netherlands Antilles corporate law as such. One striking aspect is that this legislation gives shareholders far more freedom to organize their company than in the past:
- shareholders of an NV or BV may choose between the English/American one-board system and the traditional continental European two-tier system;
- there may be voting and non-voting shares; and
- there may be par value shares or non-par value shares.
4. Formation and articles of association
For the formation of an NV or BV and for any amendment of articles of association a notarial deed is required. However, the formation can take place quickly (within hours if necessary) and without many other formalities. The founders of the NV or BV determine the choice of the language in which the deed is drawn up, as long as the civil-law notary understands the language in question. In practice, many deeds will be drawn up in English. With respect to a license to establish a business, a management permit, an exchange permit and the obligation to have a local representative, the rules have not been changed.
For the formation, a ‘certificate of no objection’ is no longer required. There will be a monitoring committee, however, consisting of experts who will scrutinize deeds that have already been executed and give possible recommendations for legislation on the basis of their findings.
Although not unusual in the past, the Act now expressly allows all kinds of contractual provisions between shareholders mutually or between shareholders and the company to be included in the articles of association. This will be particularly useful for mutual investment funds, joint venture relationships and family companies.
5. Capital structure
Concepts like registered, subscribed and contributed capital do not occur in the Act. Therefore, no minimum capital is required, unless such a requirement is included in the articles of association. There can be voting shares, non-voting shares and shares with restricted voting rights. Shares can have a par value. If shares have a par value, this may differ per category of shares. Also, the par value can be expressed in one or more foreign currencies.
There are only two formal restrictions: the equity of the NV or BV may not be negative when establishing the company and one share with full voting rights that participates in the profit must be placed with the founder or a third party, or two shares, one of which has full voting rights and one that shares in the profit, as the case may be (hereinafter: a share with "full value").
Possible types of shares are, among others, ordinary shares, preferred shares, cumulative preferred shares and priority shares.
6. Right to share in the profits
It is not necessary to give all shares a right to share in the profits. If shares have a par value, it is obvious that the right to share in the profits is related to that value. If there are shares with different par values, the articles of association will have to contain a provision dealing with each right to share in the profits. Besides shareholders, others may also be entitled to the profits, for example holders of profit-sharing certificates.
The general main rule is that the General Meeting of Shareholders will decide on distribution or withholding of profit and making other distributions from the equity, and that every shareholder has a right to an equal amount. However, the articles of association may provide otherwise. The Explanatory Memorandum to the Act explicitly states that a company may deal with these matters at its own discretion, as long as the requirement of one share of "full value" has been met. Instead of the Meeting of Shareholders, for example, the Board of Directors or the Supervisory Board can be appointed as the authorized body concerning a decision for "distribution or withholding".
The Act stipulates that the articles of association of the NV or BV can provide for distribution, completely or partially, by a body specifically appointed for that purpose, for example the Supervisory Board. Furthermore, there is no obligation to provide for distribution rules themselves in the articles of association. Sometimes this can be desirable: groups with twin-shares, joint-venture relationships and family companies can be considered, or cases in which not all shares need to be treated equally. The Act does not contain any standard for the body that decides on the distribution.
7. Management and supervision
Except for restrictions in the articles of association, the Board of Directors is responsible for the management of the NV or BV and is authorized to represent it. The Board may consist of natural persons and/or legal entities.
The Board of the NV or BV can be organized as one-tier board or as two-tier board. In the first case (the Anglo-Saxon system) there is a Board of Directors and an Executive Board, without any personnel union being required. One or more members of the Board of Directors can also be members of the Executive Board, provided they form a minority on the Board of Directors. The Executive Board is responsible for managing the company, and also for the representation of the company, with the exception of the restrictions in the articles of association. The two-tier management structure is the traditional system in the Netherlands and the Netherlands Antilles, in which case supervision of the Board is conducted by a Supervisory Board.
Restrictions under the articles of association and legal restrictions of the representative authority can be invoked against third parties, the so-called external effect. In the so-called ‘guideline system’ in EU directives, and therefore implemented in the Netherlands, such external effect has been assigned to only a few specified restrictions of the representative authority.
Every Managing Director of the Antillean NV or BV is at all times authorized and, if requested, obliged to answer a third party whether a rule or requirement in the articles of association to which representation of the Company is subject has been met. With its statement (whether or not correct) that such a condition has been met, the possibility for the NV or BV to invoke overstepping the representative authority expires and thus the company can no longer nullify the transaction.
8. Liability members of the Board of Directors
The members of the Board of Directors are personal and severally liable towards the NV or BV for any loss caused by the improper performance of duties. Each member of the Board who proves that he cannot be blamed for such improper performance and that the activities concerned fall outside the scope of activities addressed to him, and that he has not been negligent in taking steps to avert the related consequences, is not liable. Therefore, a division of tasks among such members can influence the liability.
In the event of bankruptcy of an NV or BV which is significantly caused by mismanagement, each member of the Board of Directors is liable against the bankruptcy estate for the deficit. If the Board e.g. has not timely observed its obligation to keep accounts, there is a statutory presumption of clear mismanagement. Unless the members of the Board can prove that they cannot be blamed for not meeting such obligations, each member will be personal and severally liable for said deficit. It should be noted that any person or legal entity not being a member of the Board but nevertheless (contributing to) determining the policy of the Board, might face similar liability (policy makers).
9. Conversion, merger and division
The provisions concerning changing of corporation form (conversion), statutory merger and division (splitting) are revolutionary. The Antillean NV can be converted into a BV (and other legal entities as well) and vice versa. A foreign legal entity (of similar character) can be converted into an NV or BV, provided the law governing that foreign legal entity does not oppose such. The opposite is also possible, provided that, with that, under the laws of that foreign country the existence of the legal entity as a company is not terminated.
In the framework of a merger, the NV or BV can act as an acquiring company. Companies ceasing to exist can be a BV as well as an NV, but also a foreign legal entity, provided the law governing that foreign legal entity does not oppose such. The NV or BV can also merge with another legal entity (e.g. a foundation) and vice versa.
Regarding the concept of division, the new Act provides for both a split-off and spin-off. In the event of a split-off, all assets and liabilities of an NV or BV are transferred by operation of law to two or more companies while the NV or BV ceases to exist. In the event of a spin-off, all or part of the assets and liabilities of an NV or BV are transferred by operation of law to one or more companies in exchange for shares in the acquirer(s). The concept of division mirrors the procedure for the statutory merger.
10. Freedom of organization
Freedom of organization with regard to the articles of association is the key concept in the case of the Antillean NV or BV. Anything is possible, unless the law or public order and common decency oppose such.
What – apart from the above on this matter - can the articles of association of the NV or BV contain? Just a few points are mentioned below:
- the company can issue shares and determine in the articles of association that they lapse after a certain period of time under the obligation for the company to repay the shareholder;
- the company can issue shares on which there is a fixed annual distribution, irrespective of the fact whether a profit has been made or not (loan shares; after all, the payment does not have to be made from the profit);
- the company can issue shares which are not transferable;
- it is possible to determine that (for example) the Board of Directors will appoint the new Managing Directors;
- it can be determined in the articles of association that a certain number of shareholders or a specific shareholder has to vote in favor of a resolution if it is to be adopted;
- in the articles of association, arbitral provisions can be included for, inter alia, disputes between shareholders, and concerning the validity of decision-making.
11. Member-managed limited liability company
The Act also introduces the member-managed limited liability company. This form of the BV does not have a separate Board of Directors. The shareholders together will act as such Board, making the decision process much easier. In a shareholders’ agreement, the shareholders may determine e.g. how they manage the company and their remuneration.
The member-managed company is a legal entity with limited liability for the shareholders. However, it can be given such a form that it resembles a limited partnership (‘commanditaire vennootschap’), a general partnership (‘vennootschap onder firma) or a private partnership (‘maatschap’), which themselves are no legal entities but based on an agreement and the members of which are fully and severally liable.
12. Reporting requirements
Each year, within eight months after the lap of the fiscal year, financial statements have to be drawn up: a balance sheet, a profit and loss statement and an explanatory note. Such statements have to be presented to the annual Meeting of Shareholders for adoption. The statements must be in accordance with generally accepted standards. There is no obligation to appoint an (external) auditor. There are no filing or publication require
ments. Except for members of the Board and supervisory directors (if any), the shareholders are entitled to review said statements during a two year period.
The Act introduces the so-called large NV. If an NV meets certain criteria, relating to the number of employees employed by the NV, the value of its assets and its net turnover, it will be subject to a special regime. For example, the financial statements of a large NV must be in accordance with the standards laid down by the International Accounting Standards Board. The statements must be reviewed by an external auditor and must be available at the offices of the large NV for inspection by shareholders and (certain) interested parties during a two year period. A BV or regular NV may voluntarily opt for applicability of the special regime.
13. Purposes of the NV and BV
For which purposes are the NV and BV intended? For:
- group finance and investment activities;
- (international) joint-ventures;
- mutual funds;
- "plain-vanilla" (local) activities; and
- structured finance, e.g. securitization and lease.
Partners Curaçao office:
Karel Frielink (attorney):
Xandra Kleine-van Dijk (tax adviser)
Martijn Welten (attorney):
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.