On February 21, 2019, the Dutch Minister of Justice and Security published a preliminary draft of a legislative bill for new statutory provisions regarding Dutch partnerships (the “Draft“). The Draft provides an update of the current partnership laws that date back to 1838. Based on the proposal of a private sector partnership law committee (the “Proposal“), the purpose of this Draft is to create a legal framework suiting the wishes and practices of today’s entrepreneurs, with the appropriate guarantees for the partners and the creditors. In this alert we will highlight some of the notable elements of the Draft.
The starting principle of the Draft is contractual freedom: a partnership is easily set up by entering into a partnership agreement. Because the Draft consists mostly of non-mandatory provisions, the partners have considerable freedom to customise the agreement to their situation. In certain areas, the Draft creates a legal basis in the form of mandatory provisions. One of the purposes of these mandatory provisions is to prevent an imbalance between the positions of each partner and to protect other interests, in particular the interests of creditors.
Another main principle of the Draft is having an equal legal basis for the different forms of partnerships. The distinction between the three forms of partnerships, as made in the current laws as well as in the Proposal, can still be found in the Draft, but has a different application. As in the current laws, in the Draft a partnership with a professional practice qualifies as a maatschap, a partnership with a commercial business as a vennootschap onder firma, and a partnership with (a) limited partner(s) and (a) general partner(s) as a commanditaire vennootschap. However, the Draft provides the same legal basis for all three forms of partnership. There is no different legal framework for each form of partnership, except for a few additional provisions regarding the limited partner in a limited partnership. The provisions of the Draft also apply to partnerships that are not listed in the Trade Register (Handelsregister), which are known as silent partnerships. The regulations regarding silent partnerships and options of its use are, however, limited in the Draft.
Other notable elements of the Draft are:
- Legal personality for all partnerships. Under the current laws partnerships have no (option to acquire) legal personality. The Draft, on the other hand, provides every partnership with legal personality upon its formation without the intervention of a civil-law notary. Even silent partnerships have legal personality, although they cannot own real property and inherit as an heir.
- (Regulatory) provisions for the accession and retirement of partners. There are no provisions in the current laws regarding this subject. In principle, a new partnership agreement should be entered into if a new partner wants to accede to the partnership, and similarly if a partner retires the partnership ceases to exist (although contractual provisions dealing with this are common) .. The Draft provides a legal basis for the accession of new partners and the option to partially dissolve the partnership agreement when a partner leaves, or to continue as a sole proprietorship (eenmanszaak) if one partner is left. All these provisions are non-mandatory, which means that partners can agree on a different arrangement.
- The possibility to pledge a partnership interest or to give this in usufruct. The creation of rights of pledge and usufruct will be expressly allowed in the Draft.
- The abolishment of the prohibition for a limited partner in a limited partnership to:
- Use (part of) the limited partner’s name in the name of the partnership.
- Perform management activities and represent the partnership. The provisions of the Draft give the limited partner the possibility to represent the partnership by power of attorney. However, if the actions of the limited partner by power of attorney have significantly contributed to the bankruptcy of the partnership, the limited partner will become jointly and severally liable towards the bankrupt partnership.
The Draft does not contain provisions for conversion into a (limited liability) company and vice versa, nor does the Draft contain provisions for a legal merger or de-merger, transitional law, amendments in other laws, or tax implications. These subjects will be up for consultation later on in the legislative process. The scope of impact of this Draft is therefore relatively small.
It is possible to respond to the Draft until the May 31, 2019. The first reactions have been mostly positive about the simplicity of the Draft in comparison to the current laws, but some also see this as one of the main faults. The provision of legal personality for every partnership without the involvement of a civil-law notary is an example of that. The Draft is, according to the first reactions, sometimes too simple at the expense of legal certainty and clarity.
The online consultation and the Draft can be found here (in Dutch only).
1] For more information about the Proposal, see our alert: https://vancampenliem.com/blog/proposal-for-modernisation-dutch-partnership-law-submitted/