The Dutch legal system knows 9 different legal forms for Dutch companies. The most common legal forms are eenmanszaak, vennootschap onder firma (VOF) and besloten vennootschap (BV). These Dutch words are important to remember, because these are the legal forms you are most likely to encounter on October.
Various legal forms
Various legal forms come with different levels of liability, rules, taxes and administrative structures. What are the most important characteristics of these legal forms?
The eenmanszaak translates to a “sole proprietor“. It is quick and easy to set up with the local chamber of commerce. There are no capital restrictions or any other legal restrictions. Although the name suggests that it consists of only one person, an eenmanszaak can in fact have employees. It just always has has 1 owner.
With an eenmanszaak, the entrepreneur pays a relatively small amount in taxes when a low profit is realised. Therefore, it is a legal structure that you often see with starting businesses. The downside of this legal structure, for the entrepreneur, is that he is personally liable for the debts of the business. As the company grows, it becomes less attractive to run your business in an eenmanszaak and they are often transformed into a BV. This is why you will typically find that eenmanszaken are relatively small businesses. If an eenmanszaak borrows on October, we can also seize personal assets to repay the debt. At October, we only finance eenmanszaken with at least 5 employees.
A VOF is a general partnership between 2 or more partners, that own a business together. Like the eenmanszaak, the owners of the VOF are personally liable for the debt. Each partner is fully liable for the whole debt. Usually the partners in a VOF are natural persons, but in exceptional cases they can also be legal persons like a BV (see below).
The legal structure of a BV is completely different from the previously mentioned legal forms. The BV is a legal entity, which means that the liability of a company are separated from their owners. In case the BV is unable to meet its payment obligations, the creditor can only lay claim on the assets of the BV, unless other contractual agreements, such as a personal guarantee, were made.
The BV is a more professional legal form, that is often used by companies that are large enough, employ a number of people and exist for some years. It takes more effort to set up a BV and a BV requires yearly reports to be disposed with the chamber of commerce.
The ownership of a BV is divided in shares, which means a BV can have multiple owners. The amount of shares someone has, defines their power in the business and their entitlement to the profit of the BV. Peculiar is that the total share capital of a BV can be as little as €0.01.
Investing in different legal forms
When you lend to companies on October, you should always read the project description. It contains valuable information, such as what the money will be used for and the company’s financial results. The project description also shows the legal form.
In case of judicial recovery, there are more possibilities to recover the late capital when the owner of a business is personally liable. With an eenmanszaak or VOF the owners are always (personally) liable. If there are any additional securities, you can find them in your loan agreement with the borrower.
Regardless of their legal form, borrowers always have to meet our minimum criteria for standard projects: be profitable, be at least 3 years in business and have at least €250,000 revenue. Of course, no borrower gets a loan without passing our credit analysis.