We are frequently approached by persons that would like to set up their company in a limited liability company, in order to limit the liability, but is that the case?
The Dutch BV company is the equivalent of the Ltd – limited liability company
The share capital to be paid up for setting up a BV company is EUR 1. This EUR 1 plus the costs of the notary to incorporate the BV company of around EUR 500 will shield you for any claim made against you? I hope you understand that this is of course not the case.
If you start a company in a BV company where you perform a service, then the clients will come for you, the person performing the service, regardless of the name the BV company has. It is your expertise that is on demand, it is most likely you that create the situation of a claim.
How does it work?
The person or organization that makes a claim, will use everything that is at their disposal. That implies a claim will be made against the BV company and against you personally.
How to prevent this situation?
Basically by not creating the claim situation. The next thing is to have a liability insurance. Such an insurance is only to be used in the last resort situation. As using the liability insurance will increase the premium for this insurance massively plus the insurance could be cancelled on you as you are too much a liability.
Make general terms and conditions, however, not like you see with most products. Most products have enormous texts with unreadable contains and in front of a court the judge accepts nobody ever reads these conditions, hence it cannot be held against you. Create simple short lines, short text terms and conditions. If the terms and conditions are rather crucial, contact a specialized lawyer that can assist you.
Is the BV company the answer to your need?
The BV company or limited liability company that turns out not to limit the liability so much has many more rules that needs to be obeyed.
The freedom to have a low salary and a high dividend payment to avoid the Dutch 52% tax bracket does not exist. Your salary cannot be lower than EUR 44.000, unless your company is in a loss position, or the company simple does not earn enough to pay you this salary. This EUR 44.000 is an indication, if you are the only person in the company, your salary cannot be lower than 75% of the company’s result (ex salary costs). If you do have employees, your salary cannot be lower than that of the highest earning employee. There are more restrictions in this matter.
If you have more paid into your bank account then the net salary you earn, you need to pay this amount back. In other words, a current account situation has arisen, that needs a current account agreement with a current account interest percentage, collateral, and repayment schedule. If you have not met the last two aspects, the interest percentage should show the lack of the two other requirements. If not, then the amounts paid are regarded a dividend payment for which you should have filed a dividend withholding tax return. Nearly all managing directors of the BV company they hold the shares of pay more money to themselves then the net salary shows. Many arguments exist for this behavior, but it turns out to be human behavior.
The BV company has a publication obligation. If not met, you have an economic offence and that will always hunt you. For instance when the BV company goes bankrupt, you are assumed to be the cause of this bankruptcy as you have not filed the publication report in the past years in time.
The BV company has many cons and a few pros.
Would an one man company be the answer to your need?
That is very well possible. No rules like you find with the BV company, a number of tax credits the BV company does not know. Your liability is such that you are fully liable with your entire assets for anything that happens with the one man company.
That is basically the same situation the shareholder / working partner of a BV company is in, but you are aware of this situation. By using correct terms and conditions and having a liability insurance you can shield some of the liability.
If you are married, the notary can set restrictions in the marriage. So you can make a new commitment such that your partner owns the assets and you own nearly nothing. That is good if you are held liable, and bad when your partner is value driven and takes off.
Selling products and BV company
The above is all based on the situation that you are some sort of consultant or you have a personal expertise that makes clients come to you.
In the situation you simply have the best price for a physical product, then the transaction is not based on your personal talent. Hence, in case of a liability there is no reason why you will be held liable personally. In those situations we do recommend to use the BV company, even with all the cons a BV company has, as being held liable for a defect in a product is or can be rather extreme.
If you are about to set up your business in the Netherlands and you would like to learn more about how to do this and what is best tax form, please do not hesitate to contact us.