Changes to corporate law in 2010

Dutch corporate law needs to be modernised to make it more appealing at an international level. The Dutch Lower House adopted five legislative proposals in December 2009 that are meant to contribute to this modernisation. These proposals will be discussed in this article.

Wet personenvennootschappen (Partnerships Act)

The alliances that come under the term personenvennootschappen, namely maatschappen (partnerships), vennootschappen onder firma or VOFs (general partnerships) and commanditaire vennootschappen (limited partnerships), have no corporate personality under current law. However, on the introduction of the Partnerships Act a distinction will be made. Non-public partnerships, public partnerships and limited partnerships will not have corporate personality; incorporated public partnerships and incorporated public limited partnerships, abbreviated in Dutch as OVRs and CVRs, will have corporate personality in the future.

The stille maatschappen that currently exist will become stille vennootschappen (non-public partnerships); openbare maatschappen and VOFs will become openbare vennootschappen (public partnerships), and CVs will remain commanditaire vennootschappen (limited partnerships). It is advisable to check whether the new legal form and the consequences involved are desirable or whether it is better to opt for a different type of arrangement.

Stille vennootschappen are similar to the current stille maatschappen (non-public partnerships). The partners are not liable beyond their own share and the partnership does not act towards third parties under a common name.

The new Partnerships Act will have drastic consequences for the partners in a public partnership. At present they are equally liable, but under the new Act they will be jointly and severally liable for the debts as a whole.

Corporate personality is optional. It is possible to opt for corporate personality when an OVR or a CVR is established, or at a later stage. An OVR or a CVR can also relinquish its corporate personality after a period of time and these changes must be recorded in a notarial deed. An OVR or a CVR can acquire property in its own name and can enter into agreements. This offers advantages for the continuity of the business, with the partnership continuing to exist as individual partners join or retire.

The choice in favour of corporate personality has no effect on the liability of the partners in a public or limited partnership: they are all jointly and severally liable for the debts as a whole. Moreover, all partnerships, regardless of whether they have corporate personality, are transparent for tax purposes, and the partnership’s profit or loss for income tax and corporate tax purposes is imputed to the partners. It may therefore be wise to convert the OVR or CVR into a BV (private limited liability company), in which different liability rules apply. However, careful considerations should be made as such a conversion also has tax consequences.

Each public partnership and each limited partnership is deemed to conduct a business and must therefore be registered in the Trade Register of the Chamber of Commerce. A transitional period of six months will apply to the current public partnerships (openbare maatschappen) that are not yet registered. The registration must be arranged within that period but non-public partnerships are not required to register.

Greater flexibility in private limited company law

Experience has shown that the supervision exercised by the Ministry of Justice over a company’s incorporation, or when amendments are made to its articles of association, is not effective in avoiding abuse of legal entities. Under the new law the Ministerial Statement of No Objection will therefore be abolished.

The Ministry of Justice will organise its supervision differently, and will expand it to include foundations and associations, co-operatives and mutual insurance associations, as well as various European legal forms. Partnerships that have corporate personality under the Partnerships Act will also come under its supervision. The legal entities will be supervised throughout their existence.

The requirement for a minimum capital of €18,000 that applies to BVs will be abolished. In line with that development, the capital contribution statement by the bank required on incorporation will also be abolished. Since it will no longer be necessary to wait for the Ministry of Justice or the bank in future, it will be possible to incorporate a BV much more quickly.

At present, a BV’s articles of association must include share transfer restrictions to guarantee the company’s limited nature. That will no longer be necessary in future. It will even be possible to not include any share transfer restrictions whatsoever in the articles of incorporation.

Under the new law it will be possible to exclude certain shares from the profit. There will also be the opportunity to exclude certain shares from the right to vote or for the articles of incorporation to provide that certain shares entitle the holder to more votes.

Various capital maintenance rules will also be omitted from the law. Those rules, intended to protect creditors and shareholders of the company, have proven inadequate in practice and involve high costs.

The nachgründung regulations will be abolished, as well as the ban on assisting other parties to acquire shares in the BV’s capital. The capital reduction procedure will be abolished – this currently takes a great deal of time due to the two-month objection period for a BV’s creditors.

The shareholders’ power to dispose of the profit may in future also be granted to other company bodies. However, the resolution to distribute profit must, in all cases, be approved by the board.

However, the protection of creditors will not be relinquished just like that: it will be replaced by personal liability of the board. In the future, the board may not co-operate in the purchase of its own shares, distribution of profit or reduction of capital if it may harm the interests of creditors. All of this depends on the BV’s financial position, whereby the board must look ahead one year. If the board knew or ought to have known that the BV is unable to pay its debts, the directors will, in principle, be jointly and severally liable. Moreover, if the BV is declared bankrupt within a period of one year, the shareholders must repay the amount that they have received, unless they are not to blame.

Legislative proposal on management and supervision

After the legislative proposal on management and supervision have been introduced it will also be possible, as is already the case in several Anglo-Saxon countries, for a Dutch NV (public limited liability company) or BV to have one single body of executive directors and supervisory directors, known as the ‘one-tier board’. That board will then consist of executive directors and non-executive directors. As in the case of the current supervisory board, non-executive directors must always be individuals. An executive director may not be chairman of the board, make nominations for the appointment of directors or determine the remuneration of an executive director.

In the future, a director who has a direct or indirect personal interest that conflicts with the company’s interest may not participate in consultations or decision-making. If, as a result, no board resolution can be adopted, the resolution will be made by the supervisory board instead or, if no supervisory board has been set up, by the general meeting of shareholders. Similar regulations will apply to the supervisory board, whereby, if a resolution of the supervisory board cannot be adopted, the resolution will be agreed by the general meeting of shareholders.

Under the current legislative proposal the directors of companies that meet several quantitative requirements may hold no more than two supervisory positions at other companies that meet those requirements. A maximum of five other supervisory positions will apply to supervisory directors at those companies. It is unclear, however, whether non-executive directors in the one-tier board model previously referred to will fall under the arrangement for directors or supervisory directors.

Companies that meet certain criteria must aim for a minimum of 30% female directors and supervisory directors. Any failure to meet that condition must be explained in the annual report. However, this rule will cease to apply on 1 January 2016.

After the legislative proposal has been introduced, the relationship between a listed company and its director will not be regarded as an employment contract. A transitional rule will apply, however, which provides that the regulation does not apply to employment contracts concluded before the act entered into force. It is expected that this provision will be circumvented by having the director enter the employment of a sub-holding company or operating company of the listed company.

Right to speak of an NV’s Works Council

Under this legislative proposal, an NV’s works council will be given the right to inform the general meeting of shareholders of its opinion on certain resolutions. This applies to important board resolutions, resolutions to appoint, suspend or remove directors and supervisory directors, and resolutions regarding the remuneration policy. This right to speak will enable the works council to explain its position in more detail at the general meeting. This legislative proposal will apply to both listed and unlisted public limited liability companies.

Act implementing the Shareholders Directive

Shareholders’ rights will be amended by the implementation of a European directive (no 2007/36/EC) on the exercise of certain rights of shareholders in (listed) companies, in particular the provisions of Book 2 of the Dutch Civil Code related to the general meetings of listed companies and the exercise of shareholders’ rights. Examples of these changes include the right to place items on the agenda, the right to present questions and the right to vote. Those amendments will also apply in cross-border situations.

Entry into force

The aim is to have the new private limited company law and the Partnerships Act enter into force on 1 July 2010.

Boekel De Nerée is a leading independent Dutch law firm of advocaten and civil law notaries.

Based in Amsterdam, it offers specialist advice to clients in a wide range of industries. Its corporate practice includes an Anglo-American advisory group specifically geared to serving the interests of clients from English-speaking parts of the world, providing clients with a peace of mind when dealing with matters in the Netherlands jurisdiction.