Dutch Capital: Full Funding Flexibility

A Dutch limited liability company (named a BV or besloten vennootschap) is very commonly used in international structures. In this article you will get acquainted with the key characteristics of the equity of a BV. The Civil Code in the Netherlands does only contain a limited number of restrictions in the use of equity since an amendment called ‘Flex BV’ in the year 2012. At the time the articles related to the public limited company (called a NV or naamloze vennootschap) were not amended, which makes that much of the following will not apply to a NV.

How do you fund a BV with equity? 

At incorporation of a BV, at least one share has to be issued. The Civil Code in the Netherlands mentions no limitations in regard the nominal value per share or amount of equity. The Netherlands does no levy any stamp duties. It is not required to pay up share capital before or directly after issuance, though from a Dutch tax and liability viewpoint it is not recommended to issue shares without paying them up. It can lead to not qualifying for the participation exemption of fiscal unity requirements. In case of a bankruptcy of a BV, shareholders can be forced to pay up any unpaid equity.
On top of the nominal share value, share premium can be paid. Share premium does not require the involvement of a notary. An agreement between the parent company and BV plus a shareholders’  resolution is sufficient. Note that share premium redemption is possible without any tax consequences. Though only in case the BV has no profit reserves and does not expect any profits in a period of three years. Otherwise the risk exists that the share premium redemption qualifies as a distribution of dividends triggering withholding tax. To avoid the payment of withholding tax two steps shall be taken: share premium can be turned into share capital and subsequently the nominal value of the shares can be decreased. Turning share premium into share capital and lowering of the nominal value of shares require notarial deeds. 
 

What Classes of Share a BV can issue?

Ordinary shares, referent shares, priority shares, tracking shares and non-voting shares; all can be issued by a Dutch BV. Also, letter shares allow to combine the characteristics of these classes of shares by means of letter shares. The characteristics of applicable classes of shares can be recorded in the articles of the BV.
Priority shares vest decision-making powers with respect to one or more points stipulated in the articles of association of the BV. Priority shares in general have no profit entitlement.
Preference shares are typified by the fact that the shares yield a fixed income that is not directly related to the operational result. Instead the yield can be a linked to for example market interest. The return on the preference shares is to be paid out before any distribution takes place on the ordinary shares.
Tracking shares only entitle the shareholder to the profits in relation to a certain activity and or subsidiary of the BV. 
Non-voting shares do not entitle its shareholders to vote, though allow them to benefit from the BV’s profits. These shares can be used as a tool to have investors or employees participate in the BV, or for estate planning. 
The shares of a BV can be denominated in any kind of currency. This comes in handy in case your BV’s cash flows are mainly in foreign currency. Next thereto the BV is allowed to have an authorised capital, though it is not mandatory.

Can a Dutch BV acquire its own shares?
A BV can in principal acquire its own shares. Also, a BV can cancel such shares. Under Dutch law, a capital protection scheme exists for acquisition of own shares. This same scheme is also relevant for Dutch share premium redemptions, dividend and other kinds of distributions
The acquisition of own shares as such is not subject to any maximum, except that one share with voting rights shall remain with a shareholder. At purchase of own shares, the management board is to execute two tests. The BV may not acquire its own shares for payment if the shareholders' equity and reserves do not allow this. Neither if the management board knows it should be reasonably foreseeable that the BV shall not be able to continue meet its due debts obligations after the acquisition.
The flexibility makes that a BV can be applied under many different circumstances. Its adaptive character for sure contributes to the fact that the BV is the most prominent legal form in the Netherlands.