Bill on Modernization of Partnerships

To this day, the Netherlands has three legal forms of partnerships: the partnership, the general partnership (VOF) and the limited partnership (CV). They are mainly used in small and medium-sized enterprises (SMEs), the agricultural sector and the service sector. All three forms of partnerships are based on a regulation dating back to 1838. Because the current law is considered to be very outdated and not sufficient to meet the needs of entrepreneurs and professionals when it comes to liability or the entry and exit of partners, a Bill on Modernization of Partnerships has been on the table since 21 February 2019. The aim behind this bill is primarily to create a modern accessible scheme that facilitates entrepreneurs, offers appropriate protection to creditors and security for trade.

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Are you the founder of one of the 231,000 partnerships in the Netherlands? Or are you planning to set up a partnership? Then it is wise to keep an eye on the Bill on Modernization of Partnerships. Although this bill would in principle enter into force on 1 January 2021, it has not yet been voted on in the House of Representatives. If the Bill on Modernization of Partnerships, which was positively received during the internet consultation, is actually adopted by the House of Representatives in the current form, some things will change for you as an entrepreneur in the future. A number of important proposed changes will be discussed below.

Distinguish profession and business

First of all, instead of three, only two legal forms will fall under the partnership, namely the partnership and the limited partnership, and no further distinction will be made separately between the partnership and the VOF. As far as the name is concerned, the partnership and the VOF will continue to exist, but the differences between them will disappear. As a result of the change, the existing distinction between profession and business will become blurred. If you want to set up a partnership as an entrepreneur, you now still  need to consider which legal form you are going to choose, the partnership or the VOF, as part of your activities. After all, with the partnership there is a cooperation that concerns a professional exercise, while with the VOF there is a business operation. A profession mainly concerns independent professions in which the personal qualities of the person who performs work are central, such as notaries, accountants, doctors, lawyers. The company is more in the commercial sphere and the primary aim is to make a profit. After the entry into force of the Bill on Modernization of Partnerships, this choice can be omitted.

Liability

Due to the transition from two to three partnerships, the difference in the context of liability will also disappear. At the moment, the partners of the general partnership are only liable for equal parts, while the partners of the VOF can be held liable for the full amount. As a result of the entry into force of the Bill on Modernization of Partnerships, the partners (in addition to the company) will all jointly and severally be liable for the full amount. Which means a major change for the “former general partnerships” of, for example, accountants, civil-law notaries or doctors. However, if an assignment is specifically entrusted by the other party to only one partner, then the liability also rests solely with this partner (together with the company), with the exception of the other partners.

As a partner, do you join the partnership after the Modernization of Partnerships Bill has entered into force? In that case, as a result of the change, you are only liable for the debts of the company that will arise after the entry and no longer also for the debts that were already incurred before you entered. Would you like to step down as a partner? Then you will be released no later than five years after termination of liability for obligations of the company. Incidentally, the creditor will first have to sue the partnership itself for any outstanding debts. Only if the company is unable to pay the debts, the creditors may proceed to joint and several liability of the partners.

Legal entity, foundation and continuation

In the Bill on Modernization of Partnerships, partnerships are furthermore automatically assigned their own legal entity in the context of the amendments. In other words: the partnerships, just like NV and BV, become independent bearers of rights and obligations. This means that the partners will no longer become individually, but jointly owners of the assets that belong to the joint property. The company will also receive separate assets and liquid assets that are not mixed with the private assets of the partners. In this way, the partnerships can also independently become the owner of immovable property through contracts concluded in the name of the company, which do not have to be signed by all partners each time, and can easily transfer them themselves.

Unlike with NV and BV, the bill does not require notarial intervention by means of a notarial deed or starting capital for the incorporation of partnerships. There is currently no legal possibility to set up a legal entity without a notarial intervention. Parties can set up a partnership by entering into a cooperation agreement with each other. The form of the agreement is free. A standard collaboration agreement is easy to find and download online. However, in order to avoid uncertainties and costly procedures in the future, it is advisable to engage a specialized lawyer in the field of cooperation agreements. Would you like to know more about the cooperation agreement? Then contact the Law & More specialists.

Furthermore, the Bill on Modernization of Partnerships makes it possible for the entrepreneur to continue the company after another partner steps down. The partnership no longer needs to be dissolved first and will continue to exist, unless otherwise agreed. If the partnership is dissolved, it is possible for the remaining partner to continue the company as a sole proprietorship. The dissolution under continuation of activities will result in a transfer under universal title. In this case, the bill again does not require a notarial deed, but does require compliance with the formal requirements required for delivery for the transfer of registered property.

In short, if the bill is passed in its current form, it will not only be easier for you as an entrepreneur to start a company in the form of a partnership, but also to continue it and possibly leave it by retirement. However, in the context of the entry into force of the Bill on Modernization of Partnerships, a number of important matters concerning legal entity or liability must be kept in mind. At Law & More we understand that with this new legislation on the way there may still be many questions and uncertainties surrounding the changes. Would you like to know what the entry into force of the Modernization Partnerships Bill means for your company? Or do you want to stay informed about this bill and other relevant legal developments in the field of corporate law? Then contact Law & More. Our lawyers are experts in corporate law and take a personal approach. They are happy to provide you with further information or advice!

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