To prevent misunderstandings in the future, it is essential to make clear agreements in advance and to record these clearly for everyone. Choosing the right vehicle in which to collaborate is an essential part of these agreements.
Subject of the law (“rechtssubject”)
In day-to-day life we perform legal acts (“rechtshandelingen”). Any natural person older than 18 years old can generally perform these. In addition, we know of certain organizations that can be a subject of the law on its own. These are amongst others the private limited company (“Besloten Vennootschap”), the public limited company (“Naamloze vennootschap”), the foundation (“Stichting”), and the association (“Vereniging”). Because the foundation and the association by their nature are less suitable as a vehicle for investments, I will discuss these in this article.
Legal entities
The private limited company and the public limited company are the most used to invest with. These companies are governed by their articles of association. The capital of the company consists of shares. The shareholders are the owners of the company.
In addition, a company has a management board or a director. These are the persons who represent the company in legal transactions. This ability of representation can be limited in the articles of association in two ways. Firstly, a supervisory board can be included in the articles of association. This supervisory board is charged with supervision of the management board and also it can be included in the articles of incorporation that some decisions may require the management board to obtain the approval of the supervisory board for certain legal acts. Secondly, it can be included in the articles of association that
a director needs the permission of the shareholder(s) for certain legal acts.
By drawing up a shareholders’ agreement, the shareholders can agree on how to vote at certain times or with regard to certain decisions. This can be a useful tool to safeguard the continuity of the company if the shareholders disagree at a certain point.
Different types of shares
Shares generally grant their holders two rights, entitlements to the profits and ability to vote. It may be stipulated in the articles of association that certain shares have only voting rights or only profit rights. We also call them letter shares.
Creating these letter shares can be a useful means of granting fewer voting rights to those who have not contributed the capital within the shareholders’ meeting.
The inclusion of letter shares can also be a useful means of allowing staff to participate in the company and to motivate them. In this way, the staff sees their efforts rewarded by an extra dividend payment at the end of the year.
Creating preference shares is one way to ensure that investors are more likely to participate in a company.
Preferred shares give a pre-emptive right to profits over the ordinary shareholders. In this way, an investor is more likely to be guaranteed the return on his investment that he expects.
A final way to give an investor the last word in making certain crucial decisions is to create priority stocks.
These shares give the priority shareholder a decisive vote
when making such decisions, for example to pay a dividend
or the purchase of real estate.
Partnerships
There are also ways to cooperate without the entity being a separate subject of the law. These are partnerships (“personenvennootschappen”). They are governed by an agreement between the partners.
The fact that they are not a subject of the law means that their directors, also known as partners, not the company, are liable for any legal acts performed on behalf of the partnership. Well-known examples are the general partnership (“vennootschap onder firma”), the limited partnership (“comanditaire vennootschap”) and the partnership (“maatschap”).
These partnerships are characterized by the presence of
a separate company capital. This capital is also known as
a bonded capital (“gebonden vermogen”).
This is the capital used to run a business.
This bonded capital must be maintained as much as possible and are the funds that creditors should address first should the partership be in arrays.
However, if this bonded capital is not sufficient to pay the creditors, the partners are still personally liable.
The general partnership is often used for trading companies. The partnership is used for certain professions, in particular lawyers and civil-law notaries. Both natural persons and legal entities can be partners.
A special variation is the limited partnership (commanditaire vennootschap). This partnership is characterized in that they have two types of partners. Namely, the managing (beherende vennoten) and limited partners (commanditaire vennoten). The latter is always the investor and the general partner is the partner who actually does the work. The limited partnership (commanditaire vennootschap) in particular is an interesting option for investors. It is important to know that the managing partner is personally liable in addition to the tied capital. The limited partner is not unless it has acted as a general partner.
Conclusion
The law offers many options for organizing the structure in which investments are made tailormade to one’s own taste and needs. It is important to think carefully beforehand about what your expectations are and even more important to clearly state these to each other. The more thought has been put into this, the easier it will be to resolve any conflicts in the future.