Giddy Up, Entrepreneurs and future business owners, It’s time to make the critical decision. The Netherlands is raising the global index as one of the most profitable markets for people looking to set up their businesses abroad. The rich technical facilities and educational background make up a best-fitting place for foreigners and locals alike to set up a startup.
However, what type of business structure suits your needs and ambitions? This is among the most critical decisions you must make as it can greatly impact your business operations, such as taxation, liability, and governance.
One of the most popular choices is the Dutch BV setup, which is a legal entity equivalent to a Private Limited Company. A BV, aka Besloten Vennootschap, is like the business world’s Tuxedo. It is sophisticated and formal and reeks of the vibe of ‘I mean business.’ While it is a popular choice, exploring other options and making an informed decision based on your business goals and circumstances is still crucial.
Dutch BV: Besloten Vennootschap
The Dutch BV setup is the most widely chosen business structure throughout the Netherlands. The main reason behind its wide popularity is that it provides security for the personal assets of the shareholders and its Director. For instance, the major shareholder or Director is not held liable if the company is in debt or facing legal issues.
BVs also offer flexibility in terms of ownership. It can have a sole proprietor or a whole board of shareholders.
Another diamond feature is its minimum share capital requirement of only €0.01, making it a more affordable option for small businesses and startups. Find out how to open a company in the Netherlands on a BV structure for a more detailed overview of legal operations.
Pros of BV:
The best advantages of BV over other business structures are:
- Easy and cost-effective structure
- Flexible ownership
- Simpler tax reporting
Cons of BV:
Where BV has several advantages, it isn’t devoid of some downsides like:
- Limited access to certain tax advantages
- Unlimited Personal Liability
- It is hard to attract external investment
Limited Partnership: Commanditaire Vennootschap (CV)
If you want to set up a business but are short on capital and need financial backup, a Limited Partnership or CV might be your best option. In this business structure, there are at least two partners, one running the business and the limited partner dealing with the financial affairs.
Unlike a BV, where each shareholder can take part in decision-making, the limited/silent partner isn’t actively involved in the company’s decision-making process.
Pros of CV:
- No startup capital is required
- Low cost of setup
- It is the best form of legal entity to win over mute partners/lenders.
- Easy to manage and fulfill bookkeeping needs.
Cons of CV:
- Managing directors are personally liable for debts of the company
- You are entitled to certain tax benefits, while a limited partner isn’t
- CV is entitled to pay VAT
VOF: Vennootschap Onder Firma
A VOF is another business structure in the Netherlands where two or more individuals partner up and collaborate to form a business setup. Unlike a BV that keeps its owners free of liabilities, partners in a VOF have unlimited liability for the business’s debts.
While this structure offers flexibility and shared responsibilities among the partners, It requires a strong foundation of partnership agreements to define each individual’s responsibilities, roles, and profit distribution beforehand.
Pros of VOF:
A VOF allows:
- Shared responsibilities among partners and divided workload
- Relatively simpler setup.
- Flexibility in decision-making.
Cons of VOF:
VOF puts you in the face of:
- Potential of conflicts if the partners don’t have a clear agreement.
- Unlimited Personal Liability for each partner.
- Limited access to some tax benefits.
Sole Proprietorship: Eenmanszaak
Next comes Sole Proprietorship. As the name dictates for itself, this type of business setup allows a person to be the sole owner and decision-maker of all company operations. It is by far the simplest form of business in the Netherlands, where a single individual operates the whole setup.
Although this type of business structure is easier to set up and demands only a minimal administrative requirement, the owner is personally liable for all debts that the company may have. This business structure is very suitable for startups or small businesses due to small capital investment and low risk.
Pros of Eenmanszaak:
- Complete ownership and control of a single individual.
- Simplest tax reporting
- Easy and cost-effective
Cons of Eenmanszaak:
- Just like BV, Eenmanszaak also has limited access to certain tax advantages.
- Unlimited personal liability
- Poses challenge to attract external investments.
Vereniging (Association) and Stichting (Foundation)
Unlike the business structure we have discussed before, Verenigings and Stichtings are non-profit legal entities that are often set up for cultural, social and charitable purposes. This structure doesn’t have shareholders or owners, and the profit earned is typically reinvested into the organization’s mission.
Pros of Vereniging & Stichting:
- Non-profit activities
- Limited liability for board members
- Can qualify for particular tax exemptions
Cons of Vereniging & Stichting:
- Less flexibility to generate profits for organizers.
- Strict regulations and reporting requirements.
Final Thoughts
Setting up the right business structure that aligns well with your business goals and ambitions is vital to entrepreneurial success. Whether you choose a BV, an Eenmanszaak or a VOF, remember – It’s your business, your rules.
The business structures allowed by the Netherlands require careful consideration before you go with one. It is always a better route to research all the available options and find the most suitable one that resonates with your goals and comfort.
You can also consult legal and financial advisors to find out what suits you best. Expand your research horizon, experiment with your business visions and then decide on what you need. You’ve got this!
