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BV company or one man company: what is limited liability?

A BV company stands for limited liability, one man company implies you are fully liable. What is limited liability?

BV company

A BV company is the Dutch equivalent of the Ltd, the limited liability company. Such a company can only be incorporated by the Dutch notary. The Dutch notary will ask the incorporator about the volume of the share capital. The minimum is EUR 0,01 and there is no maximum.

Honestly, the EUR 0,01 share capital is a bit silly. The balance will show zero, as EUR 0,01 equals zero on the balance. Potential investors or traders might wonder what is the situation. Then the silly one cent is often forgotten to be paid. The limited liability starts after the full share capital has actually been paid into the company bank account.

One man company

The one man company is a transparent company. That implies the company itself cannot own goods or be held accountable. The person owning the company owns the goods and is held accountable. The Dutch Chamber of Commerce (www.kvk.nl) is the organization incorporating these type of companies.

The Dutch Chamber of Commerce will ask basic questions while the process of registering the one man company is taken place. These questions are to avoid aspects as deemed employment.

BV company or one man company: what is limited liability?

Limited liability what is that?

Limited liability implies the obligations of the BV company shareholder is limited to the capital of the BV company. If a BV company has a EUR 1.000 share capital and the company goes bankrupt, the liability of the shareholder is limited to this EUR 1.000. The EUR 1.000 must have been paid into the business bank account, otherwise the limited liability has not started. The shareholder is then fully liable for the losses and debts due to bankruptcy.

Is the limited liability true?

No, of course not. Life is not this simple. Life is much more complex. A bankruptcy is not happening out of the blue on an early morning. Bankruptcy is a process that starts with no money coming in the BV company. The BV company does have payment obligations like Value Added Tax, Corporate income tax and maybe wage tax.

The standard situation is that money is not coming in, and obligations to pay tax or invoices are not proceeded. That implies there is a little amount of money in the BV bank account. That the shareholder often uses to simply pay the rent or mortgage of his or her house. Or pay for the food on the table. That is how simple life can be.

Personal liability is true

The moment a BV goes bankrupt, the curator, if one is appointed, has only one task: hold personal liable the shareholder. The shareholder might own a house or other assets that could be liquidated to pay for the debts. The curator will simply ask the shareholder to pay back the money he took from the account for the food he or she needs to eat. Nearly never the shareholder is able to pay back the money, and that is the moment the shareholder will be held personally liable and goes bankrupt as well.

If you would investigate the register with the Chamber of Commerce of the bankrupt BV companies and you hold next to that list the moment the shareholder of the BV goes bankrupt. Often the time between the BV bankruptcy and the shareholder bankruptcy is one week.

What is the point of the above?

The point of the above is not to assume that limited liability implies that the liability is limited. It is not. The name of the limited liability company is simple wrongly chosen.

Do you need to be afraid of liability?

Yes and no. You always need to be aware of your obligations. Then again, most entrepreneurs start a company that does not involve heavy machinery, a warehouse, team of employees. Most starting entrepreneurs offer consultancy services. Going bankrupt as consultant is nearly not possible. The investment is basically between your ears, not in financial investments.

If you trade in products, like you sell via an online platform products, you need to be aware of product liability. Even if you are only the company selling the products, not producing the goods, be aware of product liability.

What to do, BV or one man company?

That is a frequently asked question and the answer very much depends on the situation. A simple approach is to start with the one man company. If the company has proven itself with good turnover and opportunities, you can decide or consult about changing that one man company into a BV company. A BV company has many obligations and formalities, so maybe a BV company does not make your life better.

However, if you build value in a company with the intent to sell the entire company to an investor over time. Then it is important to start in a BV company instantly, as a later change will either cost you up front tax. Or a fiscal transfer rule cannot take place by lack of time. In this scenario the BV is the obvious choice. The question then is if you like to have a holding structure or not.

Tax is exciting

We think tax is exciting. We would love to be able to predict the future, but we cannot. Neither can you. We understand you are energetic about your company plans. We invite you to contact us to talk about company setup possibilities. Whether that will be in the end the perfect setup, time will tell. All we know is, get started. Stop planning, simply do it. We will be glad to assist you with the accounting and tax filings in your journey as entrepreneur.

Does this post make you want to get in touch? Go for it!

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