Private limited company (BV)

What is a private limited company (BV)?

One person is enough to set up a BV or private limited company, although usually several people join forces to start a BV: they are the shareholders. Before the new Companies Code of 2019, people spoke of partners; that is now out of the question. The law also no longer speaks of a manager (zaakvoerder) running the BV, but of a director. That too has some consequences (see below).

On incorporation, the shareholder(s) describe(s) the characteristics of the BV in the deed of incorporation, such as its activity, name, registered office and the distribution between the shareholders. This deed must be executed before a notary. Below we always use the plural, but bear in mind that what follows also applies to a single shareholder.

What are the characteristics of a BV?

The private limited company is a legal entity, i.e. a separate legal entity. This has the advantage that the company's assets are separate from the private assets of each shareholder who joins. In this way, the resources exposed to business risk are limited. Private and professional activities are therefore separate, which offers important protection against any stormy times in the business world. The shareholders only commit their contribution to the BV's business. If the company goes bankrupt, the private assets of the shareholder(s) are out of reach of creditors, at least if sufficient resources were contributed at incorporation to function properly as a business.

The private limited company is called private (besloten, i.e. closed) because not everyone can freely join a BV. The founders deliberately choose to work with each other, on a personal basis. Under the new law, however, they can make the shares freely transferable, provided the articles of association provide for this.

Financial obligations

Since the new law, no minimum capital is required to set up a BV. That doesn't mean the shareholders can just get started. On incorporation, they must contribute sufficient resources for the BV to function properly for a longer period: adequate equity. The shareholders support this contribution with a financial plan. That plan gives an overview of all reasonable, i.e. substantiated, income and expenditure with a provisional opening balance sheet and projections over 12 and 24 months. Drawing up a financial plan requires financial and technical knowledge, so the founders usually engage a financially savvy adviser, for example an accountant. But be careful: given the need for sound assumptions and arguments, knowledge of the business activity is just as necessary. So it's important to seek advice on that too if needed, because accountants do not by definition have the required business experience. Should problems arise and, for example, a bankruptcy follow within two years of incorporation, the quality of the financial plan will determine whether or not a judge lets the shareholders keep the protection of their own assets.

There is a second possible danger: directors' liability. Directors have management duties they must perform properly. If they don't, the director can be held liable with his or her personal assets. A distinction is made between internal and external liability. Internal refers to the BV itself holding the director(s) accountable for mistakes; external applies to claims by bodies or persons outside the company.

So if you are a director, be sure to take out adequate insurance that covers the costs of defending against and covering possible claims.

Administrative obligations

A private limited company is obliged to apply the Companies Code. Among other things, this requires keeping double-entry bookkeeping. Some entrepreneurs have the training and technical knowledge to do this themselves, but in practice the vast majority of BVs outsource their bookkeeping to certified bookkeepers and accountants. Knowledge is one thing, but there is also the time needed to keep the administration and to follow the rapid changes in regulations and requirements. The aim of management is also and above all business success, so keeping the full administration yourself – unless it involves few transactions and documents – is rarely a good combination. Bookkeeping today is done with specialised software. This lightens the work because routine tasks run fully automatically. Remember to make full use of the accounting data as a basis for business management, such as customer management, sales analysis and evaluating sales campaigns.