The rules governing the general partnership (maatschap), the general partnership under a common firm (VOF) and the limited partnership (CV) are set to change considerably. Officially, the ‘bill on the modernisation of partnerships‘ is scheduled to enter into force on 1 January 2021. However, since the bill has not yet been put to a vote in the House of Representatives, we suspect its introduction will be delayed. The bill was received positively during the internet consultation, so a majority in both the House of Representatives and the Senate is likely. Since partnerships are used quite extensively by businesses in the Netherlands, we answer the most frequently asked questions about this bill.
Why is partnership law being overhauled at all?
Partnership law partly still dates back to 1838. This law is therefore also accused of being ‘old-fashioned’ and incomprehensible to entrepreneurs. Specifically, problems exist in practice with partners joining and leaving. Mutual liability and the multitude of legal forms have also come in for a great deal of criticism.
The aim of the new law is to create a modern and accessible scheme that facilitates entrepreneurs. It should become easier for entrepreneurs to establish a maatschap, a VOF or a CV. In addition, the bill should provide more clarity about the rights and obligations of partners and about their internal and external liability. Ultimately, the new scheme should also result in lower formation, management and termination costs.
Will the different types of partnerships remain?
No, because the VOF and the maatschap will disappear. They will be absorbed into a new legal form with the extremely creative name “vennootschap” (partnership). The differences between ‘professionals’ (such as notaries, accountants, doctors, lawyers) who have traditionally operated via a maatschap, and entrepreneurs and their companies, which usually operate via the VOF, will therefore disappear. Accountants, lawyers and doctors have also increasingly begun operating under one company name for joint account. They now all organise themselves on a business basis, in the sense that, strictly speaking, they no longer operate for their own account and risk. If, as a client, you do business with an accounting firm, you are doing business with the firm, regardless of which accountant carries out the services.
This also means that all partners (read: accountants, doctors, lawyers, legal professionals, notaries, etc.), in addition to the partnership itself, are jointly and severally liable for the whole. For “the former partners”, this therefore means a significant change. After all, they are currently only liable for equal shares of debts and claims against the partnership.
The CV legal form will continue to exist as such, meaning one can continue to work with an active partner and a silent partner.
Will anything change regarding the formation requirements?
No. A notarial deed or start-up capital is still not required for formation. This makes the partnership, in particular, still an attractive legal form for start-up entrepreneurs and professionals. Especially now that these legal forms are being further simplified and improved in terms of rules, structure and the liabilities of the partners.
Will the partnerships get separate assets and legal personality?
The partnership and the CV will indeed acquire their own legal personality from the moment the new law enters into force. This means the partnership is regarded as an independently operating legal entity, as is also the case with a private limited company (BV). This is in contrast to a sole proprietorship, where it is the natural person who is identified with the sole proprietorship.
Legal personality means, among other things, that the partnership acquires separate assets consisting of assets and liquid funds that are not mixed with the private assets of the partners.
Because of the legal personality, contracts can then be concluded in the name of the partnership, and this no longer has to be signed each time by all the partners (depending on the agreed representative authority of the partners). This makes it possible, for example, to finally put (registered) property, such as buildings, in the name of the partnership instead of it becoming the shared property of all the partners. As a result, the exit problems between partners surrounding the allocation of the property of the maatschap or VOF will become a thing of the past. Notarial involvement is sometimes still required upon exit, such as, for example, in the transfer of registered property owned by the partnership or registered shares in a BV.
Finally, legal personality gives creditors somewhat more clarity regarding recourse. They can, for example, consult the public KvK registers to view the annual accounts. They can also more easily see who is and who is not authorised to act on behalf of the partnership.
Is a partner still (jointly and severally) liable for debts of the partnership?
Under current law, a creditor of the VOF can directly and jointly and severally hold the partners liable in their private assets for debts of the VOF. Under the new law, creditors will in future first have to approach the partnership itself. Only if the partnership is unable to pay the debts may the creditor turn to the partners. They are then still each liable for the whole (jointly and severally).
This development is therefore disadvantageous for the partners. Under current law, they can in principle only be held liable for equal shares, so not jointly and severally for the whole. Partners who nevertheless want more private protection could then consider a BV in order to participate as a partner in the new partnership. Do bear in mind the tax and financial consequences of this.
Fortunately, there is also an exception to the joint and several liability of the partners. When an assignment has been given specifically to one partner, only that partner is liable in a private capacity. The other partners cannot then be held liable with their private assets. It is important, though, to record this very clearly in the order confirmation and in the general terms and conditions, for the sake of clarity.
Will joining and leaving a partnership become easier?
In principle, under current law, leaving a partnership leads to dissolution of the partnership, unless otherwise agreed in the partnership agreement. The partnership then ceases to exist. Legal personality now makes joining and leaving easier.
The liability of partners upon joining and leaving will also change. Incoming partners are currently also liable for debts of the partnership incurred before joining. Outgoing partners, after leaving, are in principle also still liable for the debts of the partnership. The new bill puts an end to this.
When the partnership offers no recourse, the joining partner will not be liable for debts dating from before joining. The liability of the outgoing partner is also limited. The outgoing partner is liable for up to 5 years after leaving for the debts for which he was personally liable as a partner.
May the limited partner manage the business?
Under the current scheme, a limited partner (the silent partner, i.e. the financier) may not represent the partnership. This is to prevent abuse, in the sense that one does all kinds of things on behalf of the partnership while always staying out of the firing line. After all, the limited partner is the only one not liable beyond his capital contribution (which he loses if the CV runs into financial trouble).
Under the new law, however, partners could use the limited-partner construction to escape the joint and several liability, which will continue to exist. Under the new bill, the limited partner may, in certain situations, perform management acts if he has been given a specific explicit power of attorney by the other (managing) partners for this purpose. The legislator assumes that creditors are sufficiently protected when silent partners are liable to the extent that their authorised acts have led to the bankruptcy of the CV.
Do I now need to take action if I have a partnership?
All existing partnerships will automatically acquire legal personality by operation of law after the introduction of this new act.
What does not happen automatically, however, is, for example, the transfer of property already owned by the VOF, maatschap or CV. Nor will the name registration of already concluded contracts with the VOF, maatschap or CV be automatically adjusted.
The transfer of property and contracts to the partnership with legal personality will therefore require action from the partners. This can be a time-consuming process. Cooperation from counterparties and third parties will often also be needed, or special delivery conditions will have to be met. If there are already problems within the VOF or maatschap, this will also become problematic.
Goods that already belong to the partnership at this point in time will, however, transfer by operation of law to the new partnership from the moment the act enters into force. Do pay attention to the transitional law in this regard. A concrete transitional scheme for the draft bill has not yet been published.
Incidentally, it is not necessary for VOFs and maatschappen to change their company name after this act enters into force. If this legal form is mentioned in the company name of the business, that is not a problem.
What happens next?
It is not yet certain whether the bill will pass in full through the House of Representatives and the Senate, but it is expected that it will be dealt with fairly quickly. This part of the law has, after all, been waiting a very long time for modernisation. All the more so now that simplification for businesses is important given the current COVID troubles. Hopefully COVID itself will not cause any delay to this legislative process.
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Questions or advice?
The corporate legal advisers at The Legal Company specialise in company law. If, in anticipation of this legislation, you have legal questions about your current legal form or its conversion, please contact us by emailing info@thelegalcompany.nl, calling 020-3450152 or filling in our contact form.
Nothing changes as often as laws and regulations. We would like to point out that our blogs may no longer be in line with current laws and regulations and may therefore be outdated. If you have questions or a problem relating to this blog, or if you require legal assistance, please contact us.
