In September a private sector partnership law committee (the “Committee”) submitted its final proposal for new statutory provisions with respect to Dutch partnerships (the “Proposal”) to the Dutch Minister of Justice (the “Minister”).
Although a similar government initiated legislative proposal was repealed in 2011 because its primary goal to make the process easier for entrepreneurs did not come into its own, the partnership sector is still in need for a modernisation of the current partnership laws, since they date back to 1838. The current Committee tried to meet this needs with the submitted Proposal, by creating a legal basis in the form of mandatory provisions and several options in the form of regulatory provisions, to give partners the possibility to stipulate otherwise in their partnership agreement. In this alert we will set out some of the legal implications of the Proposal. Any tax implications the Proposal might have are not reflected in this alert.
The starting principle of the Proposal is a continuing existence of the three most used partnerships, being (i) a professional partnership (maatschap), (ii) a general/commercial partnership (vennootschap onder firma) and (iii) a limited partnership (commanditaire vennootschap), which (in principle) all qualify as public partnerships. Only in case a partnership does not publicly conduct any business it shall qualify as silent partnership, and a silent partnership has a significantly reduced number of options under the Proposal.
Further (key) elements
The Proposal furthermore provides for:
- the possibility to acquire legal personality, and have a separated estate owned by the entity (for public partnerships only);
- the possibility to pledge a partnership interest or give it in usufruct (for both public and silent partnerships);
- limited partnerships, the abolishment of the prohibition to:
- use (part of) the limited partner’s name in the name of the partnership, and
- have the limited partner perform management activities;
- the possibility to convert the partnership into a different kind of partnership or into a company (for public partnerships only); and
- the possibility of a statutory merger or de-merger (for public partnerships only).
To acquire legal personality, the public partnership should be registered with the Dutch trade register. Only partnerships that have been registered can own assets, hold rights and have obligations as an individual entity and can be converted into a different kind of partnership or legal entity, or could take part in a merger or demerger. The possibility to register a partnership with the Dutch trade register is therefore key.
Registration with the Dutch trade register
Based on the Commercial Register Act, all partnerships that conduct their business in the Netherlands are required to register the partnership with the Dutch trade register. After the implementation of the Proposal, these partnerships therefore (automatically) acquire legal personality.
However, based on the same Commercial Register Act, it is not possibility to register a partnership with the Dutch trade register if it does not conduct any business in the Netherlands and/or does not have an address here. This means that a lot of (limited) partnerships which are created in the Netherlands, but conduct their business in another country, cannot acquire legal personality, simply because they cannot be registered with the Dutch trade register. The Proposal therefore recommends to change the Commercial Register Act on this point, in order to give these (limited) partnerships the same possibilities as partnerships that do conduct their business in the Netherlands have.
Management activities by a limited partner
The current ban on performing management activities by a limited partner has been reduced in the Proposal in such way that the limited partner is allowed to perform management activities and represent the limited partnership if it has been granted a power of attorney to do so. According to the explanatory notes to the Proposal, this system allows a limited partner to act as (the sole) board member of a legal entity that, in turn, acts in the capacity of general/managing partner of the limited partnership.
If a limited partner acts in the manner stated above and the partnership is bankrupted, the limited partner becomes jointly and severally liable towards the bankrupt estate in case its actions under such power of attorney significantly contributed to the bankruptcy.
Finally, the Committee has made the choice not to require any notarial intervention when it comes to the creation of legal personality, conversion of the partnership into a different kind of partnership and merger or demerger of a partnership. The reason for this is that this is currently not required for partnership either and would – in their opinion – not benefit the interests of entrepreneurs in this sector.
However, although all assets and liabilities that are jointly owned by the partners for the purposes of the partnership, prior to the partnership achieving legal personality are transferred to the partnership under universal title of succession (without notarial intervention) once the partnership acquired legal personality, an exemption has been made for assets that – based on Dutch law – already require a notarial deed (such as transfer of real property). Notarial intervention is furthermore required in case a partnership wishes to convert into a (full) Dutch legal entity (for instance a Dutch cooperation (cooperatie).
The Royal Dutch Association of Civil Law Notaries (“RDA”) has expressed disappointment in the choice of the Committee not to require notarial involvement. It has therefore sent a letter to the Minister to stress the benefits of notarial involvement from the start (such as legal certainty and providing information of the (legal) consequences) hoping the Minister shall reconsider this choice of the Committee.
Up to today the Minister has not responded to the Proposal or the letter of the RDA yet, so let’s see if this Proposal will overall get more support than the legislative proposal that was repealed in 2011!
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