Private limited company (bv or besloten vennootschap)

A Private Limited Company (BV), or 'besloten vennootschap' in Dutch, is a legal entity with limited liability. This means that the directors are generally not personally liable for any debts incurred by the company. A BV can be established by an individual or in partnership with others.

The capital of a BV is divided into shares owned by shareholders. The ultimate authority lies with these shareholders, granting them the (voting) rights to make decisions regarding the company. Shares can also entitle shareholders to a portion of the profits, known as dividend rights. A BV can issue different types of shares, such as shares without voting rights or shares without dividend rights. Decisions are made by the shareholders in the general meeting.

Directors are responsible for the day-to-day management of the company. A BV may also have supervisors, who can form a separate supervisory board (two-tier board) or be part of the management board (one-tier board).

In small BVs, there may be only one director, often also the sole shareholder, referred to as the managing director and majority shareholder (DGA).

Establishment

To establish a BV, you need to go to a civil-law notary. The notary drafts a notarial deed containing the articles of association. The notary usually handles the registration of your BV with the Chamber of Commerce (KVK).

All directors must be registered with the Chamber of Commerce. Until this is done, you are personally liable if you act on behalf of the BV in formation. Additionally, you must contribute at least €0.01 as initial capital to the company, which can be in cash or in kind, such as goods. This contribution is owned by the company.

During incorporation, you also register the ultimate beneficial owners (UBOs) of your BV. This is done in the UBO register at the Chamber of Commerce. UBOs are individuals with more than 25% of the shares in a BV or directors. If your BV is publicly listed, you do not need to register UBOs.

Digital establishment

Since January 1, 2024, you can also establish a BV online using a digital notarial deed. There's no need to physically visit the notary; you can do this via digital audio-video connection. In some cases, the notary may refuse to conduct the online establishment, for example, if identity fraud is suspected or if there are doubts about your legal capacity.

In formation

Even before the BV is formally established, you can conduct business activities. Registration in the Chamber of Commerce is mandatory in this case, and a notary must declare that the establishment will be arranged. Until the BV is established, you operate under the name "BV i.o." (in formation).

Make it clear to your business partners that you are entering into contracts on behalf of the BV in formation. Contracts during this phase are on behalf of the legal entity in formation. The BV can only assume a contract later if the other party agrees. As long as you act on behalf of the BV in formation, you are personally liable.

Registration

Establishing a BV involves notary fees, registration fees with the Chamber of Commerce, and costs for maintaining records. Notary fees vary per notary, averaging between €500 and €1,000. The Chamber of Commerce charges €80.10 for business registration (registration fee).

Administration

Additionally, there are costs for maintaining records. Your BV must prepare and file annual statements with the Chamber of Commerce. The required information depends on the size of your company. The average annual administration costs for a BV range between €600 and €1,800.

Paying taxes

VAT

The BV is liable to pay VAT on its profits as a legal entity. If the BV's turnover is up to €20,000 per year, it can benefit from the small businesses scheme (KOR) and may be exempt from VAT.

Payroll tax

As a director and officer, you may be an employee of the BV. The BV withholds payroll taxes from your salary as a prepayment for income tax (box 1). If you own at least 5% of the shares, you have a "substantial interest" and are a director-majority shareholder (DGA). The Tax Authorities do not allow DGAs to receive little or no salary. Your salary must be at market rates.

You can also be an employee of another BV, such as the holding company. In this case, the holding company withholds payroll taxes, and it invoices the operating BV for your services.

Corporation tax

The BV is subject to corporation tax on its profits. The BV can benefit from various deductions, such as investment deductions.

Dividend tax

When the BV pays dividends to shareholders, it withholds dividend tax on this amount. Shareholders also pay tax on the received dividends in box 2 of the Income Tax. The withheld dividend tax can be deducted from the tax return.

Profit distribution test

Directors who extract money from the BV must conduct a profit distribution test. For example, if the board wants to pay dividends to shareholders. This test ensures that there is sufficient funds in the BV. The company's solvency should not be jeopardized, and creditors should be able to get paid.

To protect the interests of creditors, the board must ensure that the BV can pay its due debts for approximately one year after the distribution. If the BV cannot, the board cannot approve the distribution. A director who distributes when it turns out to be unwise may be held personally liable.

The shareholders' meeting can decide not to distribute profits to strengthen the BV's financial position. The profits then go to the (general) reserve. If there is a separate shareholders' agreement, it may contain provisions on profit allocation different from the articles of association.

Liability

A BV is a legal entity, meaning that directors are generally not personally liable for its debts. However, there are exceptions to this rule. Directors can be held liable for mismanagement or if the BV is not registered with the Chamber of Commerce.

If you are a director-majority shareholder (DGA), banks may require you to personally guarantee loans. This makes you personally liable for repayment of those loans. If you are only a shareholder, your liability is limited to the amount of your shares. It may be financially beneficial for you to refinance the loan with a commercial lender at a current interest rate. This provides cash to the BV.

Limitation on unlimited loans 2023

Since 2023, you can no longer take unlimited loans from your own BV. If the debts exceed €700,000, you will pay 26.9% income tax in box 2. There is an exception for financing your own home. From 2024, the maximum amount you can borrow is €500,000.

Issuing new shares

To raise additional funds, the BV can issue more shares (share issuance). The recipient of the shares must pay the BV for them. Note: the articles of association may specify a so-called authorized capital. This authorized capital sets a maximum amount for issuing additional shares.

Holding company

A holding company is a BV that owns the shares of another BV. This business structure can be used to separate capital (such as profits or pension provisions) from business risk.

Signing authority

The board as a whole has signing authority. This means that the directors together or individually can sign contracts or carry out certain legal acts on behalf of the company. Who can sign alone and who must sign with one or more others is stated in the articles of association.

The board can also grant someone else a power of attorney. This is a statement that this person can act on behalf of the company. This person is the authorized representative. You can register this person with the Chamber of Commerce. It's not mandatory but useful, so your business partners know who is authorized to act on behalf of the company.

Employees

Within a BV, you can hire employees. You are responsible for paying payroll taxes and social security contributions for your employees. If you're hiring an employee for the first time, you must register as an employer with the Tax Authorities and notify the Chamber of Commerce.

Insurance and pension

Like other employees, as a director-majority shareholder, you may be obligated to take out insurance for employee insurance, sickness benefits, and unemployment benefits. In some cases, you may be exempt from mandatory insurance if you:

solely or jointly with your life partner hold enough shares that you cannot be dismissed against your will.
together with your immediate family members own two-thirds or more of the voting rights.
are a director, along with all other directors, hold the shares, and all shareholders participate equally in the company.

In this case, you can insure yourself independently.

If you are pregnant, the BV is not required to continue paying you. You can take out a voluntary Sickness Benefits Act insurance for maternity and childbirth leave from UWV.

Selling or closing down

You can sell your company in two ways:

You can sell your shares. In this case, you pay income tax on the proceeds.
Another way is to sell the business (machinery, inventory, etc.). In this case, the BV pays corporation tax on the (book) profit.

If the shareholder of the selling BV is itself a BV (holding) and owns 5% or more of the shares, this holding generally does not pay tax on the proceeds. If you want to terminate the BV, the general shareholders' meeting must first decide to dissolve the legal entity. A dissolved legal entity does not cease to exist immediately. The legal entity is only terminated when all debts and distributions have been paid.

Consequences

Changing board members or dissolving your BV can have consequences for your bank account, financing, insurance, pension fund, and municipal permits. For example, you may lose access to your business bank account.

Changing legal form

You can convert a BV into a public limited company (NV), for example, to attract more capital. To change the BV into an NV, you need to amend the articles of association and have a notary draw up a conversion deed. You can also convert your BV into a sole proprietorship or general partnership (partnership), for example, if the profit is disappointing.