Dutch limited liability companies (called a Besloten Vennootschao or BV) are frequently used in international investments structures. In this article you can learn about the key characteristics of the capital of the Dutch BV. Since an amendment in the year 2012, the Civil Code in the Netherlands only contains a limited number of restrictions for the use of capital. The articles related to the public limited company (called a Naamloze Vennootschap or NV) have not been updated, which make that a large part of the following information will not apply to the NV.
How can a BV be funded by its shareholder?
At execution of the deed of incorporation of a BV, at least one share has to be issued. By law there are no restrictions in regard the nominal value each share can have or the size of the capital. Stamp duties are not levied in the Netherlands. It is not required to pay up the full share capital immediately after issuance. At the same time, it is not advisable to have shares issued without fully paying them in. When a BV gets into financial problems, its shareholders can be required to pay up all their shares.
Additional capital can be paid in above the nominal share value, called share premium. To make a share premium contribution, a notarial deed is not needed. A private deed signed by the shareholder and the BV in combination with a shareholder’s resolution will sufficient. Note that a share premium repayment by a BV is solely possible in case there are no profit reserves and no profits expected in the upcoming period of three years. Otherwise there is a risk for the BV of having to pay Dutch dividend withholding tax. You are advised to check any repayments with your Dutch bookkeeper or tax advisor. As alternative to a share premium redemption, existing share premium can be changed into share capital followed by a decrease of the nominal value of the BV’s shares. Such decrease allows a tax neutral repayment. Another option is to convert share premium into share capital and have the BV buy its own shares
What types of shares can a Dutch BV issue?
Also in regard the kind of shares there are not many limitations under Dutch law. Referent shares, priority shares, tracking stocks and non-voting shares are all possible for a Dutch BV. Also, the characteristics of types of shares can be combined by means of the creation of letter shares.
Priority shares provide decision-making authorities with regard to one or more key elements for the business recorded in the articles. Priority shares have in general entitlement to any profit.
Preference shares are entitling to a fixed return that is not related to the operational result (instead the return is for example linked to market interest). The return on preference shares is paid out before the distribution on the ordinary shares.
Tracking stocks are shares that permit its owner to the profits made with specific activities or participations of the business.
Non-voting rights do not give any voting rights. Such shares allow a holder to benefit from gains and can be used as a tool to set up an effective estate planning program. Another application can be the participation of investors or employees in a company.
The stocks of a Dutch BV can be denominated in the foreign currency of your choice. This can be practical in case your business’ cash flows will be for a large part in foreign currency. It is possible to have an authorised capital recorded in the articles, though it is not required.
Can a Dutch BV buyback its own stocks?
A BV can purchase its own stocks from its shareholders. Next thereto, it can cancel its shares. Under the Dutch civil code a capital protection scheme applies for the buyback of shares. Such requirements also apply to dividend payments and share premium redemptions. The buyback of shares as such is not subject to any limitation, except that one stock with voting rights shall remain in possession of a shareholder. The directors of the BV are to perform two evaluations. A Dutch BV may not acquire buy back its shares if (1) the shareholders’ equity and reserves do not permit, or (2) if the board members recognise that it should be reasonably foreseeable that the BV will not be able to continue paying its due debts after the buyback.
A BV can be registered at both a residential and business address in the Netherlands. The flexibility of a Dutch BV makes that it can be used under various circumstances. It for sure adds up to the fact that the majority of the entrepreneurs decides to use this type of entity.