This Q&A provides country-specific commentary on Practice note, Structures: international joint ventures, and forms part of our international joint ventures transaction guide.
A joint venture can either be set up as a corporate entity including, but not limited to:
A private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid (B.V.)).
A co-operative (coöperatie (Co-operative)).
A contractual business form without legal personality and (in principle) without limited liability, such as a general partnership (vennootschap onder firma) or a limited partnership (commanditaire vennootschap).
A new that liberalises private company law (Flex BV) came into force in The Netherlands on 1 October 2012. The Flex BV has significantly revised the provisions of the Dutch Civil Code relating to the B.V. The changes have made the B.V. a more attractive legal entity and provide significantly more flexibility as to structuring the B.V. to the shareholders' needs.
At a high level, the new rules:
Abolish the minimum share capital requirement, and other mandatory capital protection provisions, such as the prohibition on financial assistance.
Abolish the restriction on mandatory share transfers.
Introduce non-voting shares and the option of attaching any number of voting rights to shares.
Allow shareholders in joint ventures to appoint and dismiss their own directors directly (instead of the shareholders' meeting as per previous legislation).
Introduce an approval right for the board in respect of distributions to shareholders.
Allow more organisational freedom to reflect a broad range of governance models.
There are two types of corporate entities that are typically used as joint venture companies:
The B.V.
The Co-operative.
The B.V. is the most frequently used corporate entity for a joint venture, and mirrors the English limited company, a well-known form of corporate entity, whilst the Co-operative is a type of association.
Since the introduction of the Flex BV, a share transfer restriction clause in the articles of association is no longer mandatory. The articles of association may explicitly exclude any share transfer restrictions, or include a transfer restriction which does not envisage the mandatory approval of right of first refusal restrictions.
if there is no explicit share transfer restriction, the Flex BV has introduced a statutory obligation to offer the shares to the co-shareholders in the first place.
The Flex BV has abolished the requirement for a minimum share capital of a B.V. It is now possible to denominate the shares of a B.V. in a foreign currency.
In relation to a Co-operative, no minimum and/or maximum capital requirements apply. It is possible to structure a Co-operative in such a way that the membership rights have similar features as shares in a B.V.
In respect of a B.V., shares can be issued in consideration for assets as long as the executive board of the B.V. describes the assets that are being contributed, including their value and the valuation methods applied.
Since the introduction of the Flex BV, an auditor statement certifuying that the value of the assets being contributed is at least equal to the nominal value of the shares issued in consideration for the assets is no longer required.
Exceptions to the above are available in certain (limited) circumstances. Shares in a B.V. may not be issued in consideration for the provision of services.
A Co-operative does not, by law, have share capital in the same way as a B.V. Instead, the participants in a Co-operative are members with membership rights, and the assets of a Co-operative are formed through the contributions of its members.
It is possible to structure the membership rights in a Co-operative in such a way that they have similar features to shares of a B.V. The articles of association may stipulate that there is an obligation on members to make contributions to the equity of the Co-operative once they become members. Whether or not this participation can be in the form of assets depends on whether the articles of association of the Co-operative allow for this.
Both the B.V. and the Co-operative must have an executive board. These entities can have a voluntary supervisory board (if the articles of association so stipulate). In certain cases, a B.V. or Co-operative is subject to the so-called "large company regime" (structuurregime), in which case a supervisory board is mandatory. The supervisory board will also have an approval right in respect of certain decisions by the executive board. If the large company regime is applicable to a B.V. without exception or mitigation (see below), the members of the supervisory board appoint the members of the executive board.
The large company regime is applicable to a B.V. or Co-operative if all of the following apply:
It has equity of at least EUR16 million (as at 21 November 2012, US$1 was about EUR0.77).
The entity, or a dependent company, has set up a works council in accordance with a statutory obligation.
The entity alone, or together with its dependent companies, employs on a regular basis at least 100 employees in The Netherlands.
There are certain mitigations and exceptions available in respect of the large company regime.
A proposal for new legislation with regard to the governance structure of a B.V. has been adopted by the Dutch Lower House and passed by the Dutch Upper House, and will be implemented on 1 January 2013. After implementation, it will be possible to have a B.V. without a supervisory board but with a one-tier board consisting of non-executive directors together with executive directors.
The chairman of the one-tier board, should be a non-executive director. The non-executive directors will supervise the executive directors.
It should be noted that a one-tier board structure can, under current law, be created in the articles of association of a B.V. or Co-operative as long as the large-company regime is not applicable.
In principle, there are no restrictions. Certain individuals may be disqualified by the Ministry of Justice from acting as member of the executive board and supervisory board of a B.V. if they have been involved in the bankruptcy of other legal entities.
However, the position of directors and managers is not scrutinised at the time a company is incorporated. Under a new policy, the Ministry of Justice continuously screens the directors and managers of corporate entities.
Only natural persons can be members of the supervisory board of a B.V. or Co-operative, while natural persons and/or legal entities can be members of the executive board.
The appointment of members of the executive board is in principle the right of the general meeting of shareholders in the case of a B.V., and the general meeting of members in the case of a Co-operative. As a result of the introduction of the Flex BV, members of the management board may also be directly appointed by a meeting of holders of a specific share class.
There are four exceptions to this rule:
If the large company regime applies without mitigation or exception, members of the executive board of a B.V. are appointed by the supervisory board. Although the general meeting of shareholders needs to be informed of an intended appointment by the supervisory board, the general meeting of shareholders does not have any right of nomination.
The articles of association of a B.V. or Co-operative may stipulate that another body or a third party can make a binding nomination for the position of a board member. The binding character of the nomination can be removed by a resolution of the general meeting of shareholders/members, with a majority of two-thirds of the votes cast and, in the case of a B.V., representing more than half of the issued share capital.
Under the Flex BV, the articles of association grant a right to the holders of shares (of a specific class if applicable), or the supervisory board, or any other body of the company to give binding instructions to the executive board. The executive board must in principle follow these instructions, unless they conflict with the interests of the company or its business.
In the case of a Co-operative, the articles of association may stipulate any manner in which members of the executive board are appointed, as long as each member of the Co-operative has the opportunity to (directly or indirectly) participate in the ballot for the appointment of the respective member of the executive board.
The appointment of the members of the supervisory board is in principle the right of the general meeting of shareholders in the case of a B.V. (members of the supervisory board may also be directly appointed by a meeting of holders of a specific share class), and the general meeting of members in the case of a Co-operative. There are certain exceptions to this rule, such as:
If the (non-mitigated) large company regime applies, members of the supervisory board are appointed by the general meeting of shareholders/members through a binding nomination of the supervisory board. In the case of a B.V., one-third (rounded down) of the nominated members of the supervisory board should consist of persons recommended by the works council. A resolution of the general meeting of shareholders may overrule the binding nomination of the supervisory board if it is adopted in a meeting with a majority of the votes cast and representing at least one-third of the issued share capital of the B.V.
The articles of association of a B.V. or Co-operative can stipulate that another body or even a third party can make a binding nomination for the position of supervisory board member. The binding character of the nomination may be removed by a resolution of the general meeting of shareholders/members, with a majority of two-thirds of the votes cast and, in the case of a B.V., representing more than half of the issued share capital.
The articles of association of a B.V. can stipulate that another body or a third party may appoint (up to a maximum of) one-third of the members of the supervisory board.
In the case of a Co-operative, the articles of association may stipulate any manner in which members of the supervisory board can be appointed, as long as each member of the Co-operative has the opportunity to (directly or indirectly) participate in the ballot for the appointment of the respective member of the supervisory board.
The supervisory board is independent and should act in the interest of the legal entity, regardless of who has nominated or appointed it.
Under current Dutch law, a partnership is a contractual business form without legal personality. Apart from registering a partnership with the Chamber of Commerce, no formalities are required to establish a partnership other than those applicable for entering into a contract. Dutch law recognises three kinds of partnerships:
Partnership (maatschap).
General partnership (vennootschap onder firma).
Limited partnership (commanditaire vennootschap).
The partnership is traditionally used for partners that act in the exercise of their profession, for instance general practitioners. The general partnership is normally used if the partners jointly operate a business under a common name. The limited partnership is a partnership which has, in addition to one or more managing partners, one or more partners who only act as financier of the partnership. Such partners cannot act as managing partner of the limited partnership. General and limited partnerships should be registered with the Chamber of Commerce.
The legislative proposal to amend the law in respect of all three types of partnerships was withdrawn by the Minister of Security and Justice on 15 December 2011. The proposal will be implemented when the Dutch Upper House has given its approval.
The main reasons for the withdrawal were that in practice there was no need to amend the law extensively, and the changes would not result in significant cost savings.
There are no legal restrictions on the age, identity or number of partners.
Except for a limited partner (commanditaire vennoot) of a limited partnership, a partner may be personally liable for the debts and other liabilities of the partnership.
In respect of a partnership, the partners are in principle liable for an equal part of the debts and other liabilities of the partnership. In respect of a general partnership and limited partnership, each partner other than a limited partner is jointly and severally liable for the debts and other liabilities of the partnership. A limited partner is liable up to the amount of its contribution. If a limited partner performs an act of management, then the limited partner becomes jointly and severally liable for all debts and other liabilities of the limited partnership.
The most important reason for using a partnership instead of a B.V. or Co-operative is that, under Dutch tax law, a partnership can be structured as a tax transparent entity. This means, for example, that the joint venture partners can deduct start-up losses directly from their taxable profits.
In most cases a contractual joint venture will be categorised as a partnership. The definition of a partnership in the Dutch Civil Code is that of an agreement between two or more persons to contribute cash or assets to a community of property in order to divide the benefits among the partners. It is very likely that a contractual joint venture falls under this definition, and therefore creates liability for the joint venture partners.
It is possible under Dutch law to establish a limited partnership. The limited partnership can have one or more limited partners (commmanditaire vennoten) with limited liability, together with one or more managing partners (beherend vennoten). A limited partner will become jointly and severally liable for the debts and other liabilities of a limited partnership if he performs acts of management (see Questions 10 and 15).
A limited partnership is not a legal entity, but a contractual business form. Apart from registering the limited partnership with the Chamber of Commerce, no formalities are required to establish a limited partnership other than those applicable for entering into a contract. It is common to enter into a limited partnership agreement when establishing a limited partnership.
The limited partners cannot be involved in the management of the partnership. A limited partner will become jointly and severally liable for the debts and other liabilities of a limited partnership if he performs acts of management. There are no restrictions on the identity of a managing partner of a limited partnership.
The use of a limited partnership for a commercial joint venture is most likely tax driven (because of its tax transparency). The use of a limited partnership instead of a B.V. or Co-operative is, for example, more appropriate if it is envisaged that the joint venture will initially not be profitable. The losses then made can be directly offset against taxable profits of the partners, while a B.V. or Co-operative can only offset losses against future (or past) taxable profits of its own.