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Editorial

Forming a company in the Netherlands

November 2011 - Corporate & Commercial. Legal Developments by Russell Advocaten .

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The Netherlands and Dutch law The Netherlands is a perfect business location for foreign entrepreneurs (2,000 subsidiaries in Amsterdam, 140,000 jobs). It is the gateway to densely populated Western Europe and has a well-developed logistic and technical infrastructure.

The highly skilled, multilingual and flexible work force, its favourable tax regulations for businesses, its stable political climate and its high standard of living makes the Netherlands the ideal place to start a business.

Dutch law is based on the continental European civil law tradition and is - the Netherlands being a founding member of the European Union - highly influenced by the laws of the European Union. This means that the law is mostly written, but one should not underestimate the relevance of case law. Since the Dutch Civil Code dates from 1992 and is updated frequently with new case law, the Dutch law has an advanced legal system.

Russell Advocaten

Russell Advocaten is located in Amsterdam. Amsterdam is the financial heart and capital city of the Netherlands and reflects the international character of the Dutch economy. We are a full service firm, provide prompt, high-quality legal services and are able to render advice on a broad range of fields. Our main areas of law are: corporate law, business formation and reorganization, real estate and lease law, labour/employment law and (commercial) litigation.

Russell Advocaten maintains good, long-standing and intensive contacts with a diverse group of clients, such as domestic and foreign (stock listed) companies, local and national authorities, and foreign embassies and consulates. We provide these clients with our all-round legal assistance for their day-to-day business in the Netherlands. This means that we do not only offer them our expertise and assistance during the establishment of their entity but also if the entity encounters any (legal) issues when it is in full operation. As we are entrepreneurs ourselves, Russell Advocaten is pre-eminently equipped to act as a sparring partner for (foreign) entrepreneurs.


These qualities, combined with our dedication to both our clients and our work, give us the opportunity to exceed other firms. Russell Advocaten has been awarded the 2011 World Finance Award for Best Employment and Best Real Estate firm in the Netherlands. For many years Russell Advocaten has been recognised in several fields by The European Legal 500.

Incorporating a Dutch entity

The most important legal entities constituted under Dutch Law for international commercial trade are the Besloten Vennootschap ("B.V.": private company with limited liability) and the Naamloze Vennootschap ("N.V."; public limited company). In general they share basic characteristics, but there are also important differences between them:

1. a B.V. can only issue registered shares, whereas a N.V. can issue both registered and bearer shares;

2. the articles of association of a B.V. must contain share transfer restrictions, while this is not compulsory for a N.V.;

3. the minimum share capital for a B.V. is € 18,000, the minimum share capital for a N.V. is € 45,000;

4. only a N.V. can be listed at the Euronext stock exchange in Amsterdam.


The incorporation procedure of a B.V. or a N.V. requires the involvement of a Dutch civil law notary, which can be provided by Russell Advocaten. Together with the founders of a company, the notary will draft a deed of incorporation (articles of association) in the Dutch language. The (minimum) costs for these deeds are approximately € 1,350 - € 1,750 (excluding 19% V.A.T. and dues) for a standard entity. The articles of association contain, among others, the name of the company, the company's registered office address, the authorised capital of the company, and - in case of a B.V. - share transfer restrictions.

In addition, a declaration of no-objection needs to be obtained from the Ministry of Justice. The costs for this declaration are approximately € 100. The declaration will be provided as soon as the credentials of the founders (e.g. legalised passport copies, legalised deed of incorporation of the foreign parent company) have been verified. It normally will take seven working days to obtain the declaration, but it could be a time consuming process if the credentials of the founders are hard to trace.

It is also recommended to conduct a trade name search in order to find out whether the intended company name or a similar name has already been registered at the Chamber of Commerce. Because of intellectual property regulations, prior registrations of a similar trade name could result in an objection to use the company name. After execution of the deed of incorporation, the company must be registered at the Dutch Chamber of Commerce, which finalises the incorporation procedure. The Chamber of Commerce will charge an annual fee of € 120 (minimum).

Structure of a Dutch entity; Board of Directors and General Meeting

Each B.V. and N.V. has a Board of Directors (minimal 1 director). There are no legal restrictions as to who can become a managing director on the Board (i.e. Dutch residency or nationality is not required). The articles of association may contain specific requirements about the eligibility of possible directors. Each managing director has to be registered at the Chamber of Commerce.

The Board of Directors is charged with the management of the company and represents the company. Unless the articles of association or law provide otherwise, the power to represent the company is unlimited and each individual managing director is authorised to represent the company. Usually, the articles also prescribe that certain major management decisions (including the appointment of managing directors) are subject to the prior approval of the General Meeting of Shareholders or - in case of a two-tier management board - the Supervisory Board. Directors usually are appointed and dismissed by the General Meeting.

Supervisory Board

Dutch corporate law is known for its two-tier management system. Non-executive board members can take a seat in a separate body, the Supervisory Board. Although B.V.'s and N.V.'s are only obliged in specific cases to install a Supervisory Board, many entities do have one. The Supervisory Board oversees and advises the Board of Directors independently and actively. The Supervisory Board is usually appointed by the General Meeting.

Participation of employees

An entrepreneur who has 50 or more employees is obliged to establish a works council. The employees can participate in the decision-making process of the company through this works council. According to the law it has, depending on the subject at issue, the following rights: 1. the right to render advice, 2. the right of approval and 3. the right of information, consultation and initiative.

Liability at BV/NV

As mentioned above, the completion of the incorporation could take several weeks. In the meantime the company can already do business. The B.V. or N.V. has to be registered at the Chamber of Commerce as a B.V. or a N.V. in the stage of incorporation. After completion of the incorporation, the B.V. and N.V. can ratify all transactions realised during the incorporation period. As long as a ratification has not taken place, founders or directors are bound jointly and severally to these transactions on behalf of the B.V. or the N.V.

After finalising the incorporation, the shareholders are only liable for their share in the company. The managing directors are in principle not liable for debts of the company. They will be liable, however, if serious negligence by the managing directors has been proven.

Possible other options for entrepreneurs

As an alternative to incorporate a Dutch entity, a foreign entrepreneur could also establish a branch office in the Netherlands. In this case it is not necessary to incorporate a Dutch legal entity. A branch office can also be established as a British Ltd, a German GmbH or a Delaware Corporation. For entities outside of the European Economic Area (the 27 countries of the European Union plus Norway, Iceland and Liechtenstein) there are specific regulations to meet the levels of Dutch corporate law. Among others, they also need to file their annual financial reports (with approval of an accountant) and meet the minimum capital requirements. All branch offices have to be registered at the Chamber of Commerce.

Furthermore, it is possible to enter the Dutch market by appointing a distributor, an agent or a franchisee:

A distributor is a separate entity which will buy goods or services from the foreign entrepreneur and will sell them at its own risk to clients in the Netherlands. The foreign entrepreneur will only agree upon a distribution agreement with the distributor.

A foreign company can also choose to appoint an agent in the Netherlands. This agent will mediate between the foreign company and possible new clients in the Netherlands. The agent will normally receive a commission for each new client he gains for the entrepreneur. If the entrepreneur agrees with the new client, there will be a contract between these parties.

Lastly, one can choose for a franchise agreement with a company based in the Netherlands. This company will be allowed to use the image of the foreign franchisor to sell the products or goods in the Netherlands. The foreign entrepreneur will receive a compensation from the Dutch company, while this company bears the economic risk.

Russell Advocaten has a lot of experience in these areas of the law. It is our daily business to advise (foreign) companies in sectors in which these issues are common, e.g. in retail, fashion, aviation and IT.

Other important issues

As a foreign employer in the Netherlands, it is important to know that there are many legal provisions that protect the interests of the employee both Dutch and foreign. There are, among others, provisions regarding holidays, minimum wages, working hours and employment of disabled employees. Dutch law is unique for its preventive dismissal assessment. Russell Advocaten is highly experienced in rendering legal advice on labour law issues, particularly for foreign companies.

In the Netherlands, employees are protected if the company they work for is transferred to another company. If a foreign entrepreneur is acquiring a Dutch entity, one should bear in mind that in principle all rights and obligations deriving from the labour agreements will be transferred to the acquiring company.

The Dutch Merger Code of the Social and Economic Council ('SER') provides a specific merger 'law' to protect the interests of employees during mergers. The Code is applicable to all mergers involving an entity established in the Netherlands and an entity that has at least 50 employees. The merging parties will have to consult their employees in case of a merger.

Furthermore, foreign entrepreneurs should take notice of the Dutch Corporate Governance Code (known as Code Frijns, formerly known as Code Tabaksblat). This Code stipulates the principles of good governance in the Netherlands, such as regulations on bonus systems, mergers and financial statements. Although the Code is in principle only applicable on stock listed Dutch companies, recent case law shows that courts also apply the Code on non-listed Dutch companies.

Moreover, a foreign entrepreneur might want to lease business accommodation in the Netherlands. This means that one has to deal with Dutch lease law. Generally, the lease period is five years with an option to renew the lease for another term of five years. At this stage it is impossible to provide all the specific legal lease pitfalls. Therefore, we would advise foreign entrepreneurs who would like to lease in the Netherlands to contact us.

If a foreign entrepreneur decides not to lease accommodation in the Netherlands, a trust office could provide the entity with the required postal address. Russell Advocaten cooperates with several high quality trust offices. This makes it possible to directly forward the client's request and provide him with our prompt service.

Concluding remarks

Although Dutch law can sometimes be far-reaching, the Netherlands is an appealing place to conduct business, particularly with a qualified lawyer steering you through the rules and regulations of Dutch law. Russell Advocaten is pre-eminently equipped to do so and it is our day-to-day business to assist all new foreign entrepreneurs to successfully enter the Dutch market. This is the reason why many (foreign) companies have already set up their business in the Netherlands with our assistance.


Contact details

Reinier W.L. Russell (managing partner)

Russell Advocaten

P.O. Box 87400

1080 JK Amsterdam

The Netherlands

T +31 20 301 55 55

E reinier.russell@russell.nl

 


For more information please visit www.russell.nl

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