Association with limited legal capacity: rules and director liability

An association with limited legal capacity (vereniging met beperkte rechtsbevoegdheid), often called an informal association, is a full legal person. You can set one up without a notarial deed, and it can hold assets, sign contracts and sue and be sued in its own name. The important exception: it cannot acquire registered property and cannot be an heir, and its directors can be personally liable for its debts.

What can an informal association do, and what not?

It can do almost everything a formal association can do. According to article 2:30(1) of the Dutch Civil Code (BW), an association whose articles are not laid down in a notarial deed cannot acquire registered property (registergoederen), such as real estate, and cannot be an heir.

Those two limitations in Article 2:30(1) BW are the whole of the difference in capacity. For most sports clubs, neighbourhood associations and hobby groups they make no practical difference. The association can still open a bank account, rent premises, employ staff and enter into agreements.

When are the directors personally liable?

Directors are jointly and severally liable alongside the association for debts arising from legal acts that become due during their term of office. That follows from article 2:30(2) BW, and it is the difference that matters most in practice.

The liability continues after a director steps down. A former director remains liable for debts arising from a legal act performed during his term of office, to the extent that no sitting director is liable for them alongside the association.

There is one way out. A director who was not consulted about the legal act in advance, and who refused to take responsibility for it as a director once he learned of it, is not liable under article 2:30(2) BW. Simply showing that you personally did nothing wrong is not enough. If there are no directors who are liable, the persons who acted on behalf of the association are jointly and severally liable.

What does registration in the commercial register change?

Registration makes the directors’ liability subsidiary. Once the association is registered with the Chamber of Commerce (KVK), a director is liable only to the extent that the creditor makes it plausible that the association itself will not pay (article 2:30(4) BW).

Under article 2:30(3) BW the directors may register the association; Book 2 does not require it. According to the KVK, registration is not mandatory but advisable because it reduces the personal liability of directors. If the association runs a business (onderneming), registration is required.

How do you set up an informal association?

You set it up by agreement between the founders. No notarial deed and no minimum capital are required. You can record the articles in a private document,.

The articles should at least state:

• the name, the seat and the purpose of the association;
• how members are admitted and removed;
• how the board is appointed and dismissed;
• how the general meeting makes decisions;
• what happens to any surplus on dissolution.

An association may make a profit, but under article 2:26(3) BW it may not distribute profits among its members.

Which governance rules apply anyway?

The Management and Supervision of Legal Entities Act (Wet bestuur en toezicht rechtspersonen, WBTR), in force since 1 July 2021, also applies to associations, including informal ones. It brings statutory rules on conflicts of interest, on the absence or inability to act of directors, and on directors’ liability in insolvency.

• A director with a direct or indirect personal interest that conflicts with the interest of the association does not take part in the deliberation and decision-making (article 2:44(6) BW).
• The articles must contain rules on how the association is managed for the time being if all directors are absent or unable to act (article 2:44(5) BW).
• In bankruptcy, directors can be held liable for the shortfall in the event of manifestly improper management. The trustee in bankruptcy must prove that improper management was an important cause of the bankruptcy.

Articles drawn up before the WBTR often lack the provision on absence and inability to act. Since 1 July 2021, Article 2:44(5) BW requires such a provision; adding it is done at the next amendment of the articles.

How does it compare with an association with full legal capacity?

An association with full legal capacity is formed by notarial deed and has no restrictions on registered property or inheritance. The main differences:

• it can acquire registered property and be an heir;
• its directors are not personally liable in the way described above;
• registration in the commercial register is compulsory;
• it must register its ultimate beneficial owners in the UBO register. According to the KVK, an informal association without a business does not have to do so.

You convert from limited to full legal capacity by having a notary lay down the articles in a notarial deed. The legal person remains the same, so contracts, assets and memberships continue unaffected.

Association or foundation: which fits?

The choice depends on who should have the final say. An association has members, and its general meeting ultimately decides. A foundation (stichting) has no members and is governed by its board, which makes it unsuitable where the participants want a say.

What should you check as a director?

• Is the association registered in the commercial register, so that your liability under Article 2:30(4) BW is subsidiary?
• Were you consulted before major contracts, and did you object in writing to any legal act you do not accept?
• Do the articles contain a rule for the absence or inability to act of all directors (Article 2:44(5) BW)?
• Do you step back from decisions in which you have a conflicting personal interest (Article 2:44(6) BW)?
• Does the association plan to buy real estate or accept an inheritance, so that conversion by notarial deed is needed first?

What should you check as a creditor or contracting party?

• Is the association registered with the KVK, and who are its registered directors?
• Were the directors in office when the debt became due, so that they are jointly and severally liable?
• If the association is registered, can you make it plausible that the association itself will not pay?
• Was the contract signed by persons authorised to represent the association under its articles?

What can we do for you with an informal association?

Our corporate lawyers advise boards, members and creditors of associations:

• We draft or review the articles of an informal association, including the WBTR provisions.
• We assess the personal liability of a current or former director for a specific debt.
• We prepare the registration with the KVK and the documents to file with it.
• We coordinate the conversion to full legal capacity with the notary.
• We send a creditor’s demand to the association and its directors and represent you in court.

Summary

• An informal association is a legal person, but it cannot acquire registered property or be an heir (article 2:30(1) BW).
• Directors are jointly and severally liable for debts that become due during their term, and in some cases after they step down.
• Registration in the commercial register makes that liability subsidiary.
• The WBTR applies to informal associations too; check that your articles contain rules on absence and inability to act.
• Converting to full legal capacity takes a notarial deed; the legal person stays the same.

Frequently asked questions