Share capital is the equity of a company divided into shares, as laid down in its articles of association. In the Netherlands only a private limited company (B.V.) and a public limited company (N.V.) have share capital; a sole proprietorship or a general partnership cannot issue shares at all. The figure matters in two directions: it shows what shareholders have contributed and what they may claim, and it sets the limits within which the company may issue new shares later.
The term looks like an accounting concept, but almost every question around it is a legal one. What do the articles permit? How can a transfer be restricted? What is a shareholder entitled to? This article sets out the structure.
Which companies have share capital?
Only a B.V. or an N.V. can issue shares. Both are incorporated by notarial deed and both have legal personality.
Legal personality means the company itself holds rights and obligations. It can enforce its rights against third parties, and creditors enforce their claims against the company rather than against the people behind it.
Holding shares gives you two things. You have a say in the company, which you exercise at the general meeting (algemene vergadering). And you have a claim to a share of the profits if and when a distribution is made.
The main difference between the two company forms is transferability. Shares in a B.V. are registered shares, and every transfer requires a notarial deed. An N.V. may have registered shares as well as bearer shares, which is what makes a stock exchange listing possible. Physical bearer certificates no longer circulate in the Netherlands: bearer shares are now held through a securities account, not as a document that can be handed over.
Is there a minimum share capital?
For a B.V. there is no minimum. Since the Flex-B.V. legislation, a private limited company can be incorporated with a nominal capital of one eurocent; the old requirement of eighteen thousand euros has gone.
For an N.V. the rules are stricter. Under Article 2:67 of the Dutch Civil Code (BW), the authorised and issued capital must each be at least forty-five thousand euros, and at least forty-five thousand euros of the issued capital must be paid up. At least one-fifth of the authorised capital must be issued. Where shares are paid up in cash on incorporation, a bank statement (bankverklaring) must show that the money is available to the company (Article 2:93a BW).
Abolishing the minimum for the B.V. removed a formality, not a risk. Creditors still look at what is actually in the company. A company incorporated with a few cents of capital will be asked for security that a better-capitalised competitor is not.
What are the components of share capital?
Share capital is made up of authorised, issued, paid-up and called-up capital. Each has its own legal meaning.
Authorised capital
The authorised capital (maatschappelijk kapitaal) is the maximum amount, stated in the articles of association, for which shares may be issued. For a B.V. it is optional; for an N.V. it is required. The part that has not yet been issued is held in portfolio. Issuing shares from that portfolio is how a company raises further equity without amending its articles.
Issued capital
Issued capital (geplaatst kapitaal) is the total nominal value of the shares actually issued to shareholders. It rises when new shares are issued, including when a stock dividend is distributed.
Shares can be issued at par or above par, but not below par. Article 2:80 BW for the N.V. and Article 2:191 BW for the B.V. require that the nominal amount is paid on each share. Issuing above par creates a share premium reserve for the difference. That reserve is equity, but it is not part of the nominal share capital.
Paid-up and called-up capital
Paid-up capital (gestort kapitaal) is the part of the issued capital for which the company has actually received payment. The articles or the terms of issue may allow part of the nominal amount to be paid later; in an N.V. that is at most three-quarters of the nominal amount (Article 2:80 BW).
Where shares have not been paid up in full, the company keeps a claim on the shareholder for the remainder. Once the company has called for payment, that part is called-up capital and the claim can be enforced. A shareholder cannot be released from the obligation to pay, and cannot set it off against a claim of their own on the company. Shareholders in a company heading for insolvency often discover this late: a liquidator can collect unpaid capital.
How can the transfer of shares be restricted?
Through a blocking arrangement (blokkeringsregeling) in the articles of association. Its purpose is to prevent the other shareholders from suddenly finding themselves in business with a stranger.
Two forms are used. Under an offer arrangement (aanbiedingsregeling), a shareholder must first offer the shares to the fellow shareholders, and may only sell to an outsider once they have declined. Under an approval arrangement (goedkeuringsregeling), the intended transfer needs the prior approval of a company body, such as the general meeting.
For the B.V., Article 2:195 BW provides an offer arrangement as the default: the shareholder must offer the shares to the co-shareholders in proportion to their holdings, unless the articles provide otherwise. Since the Flex-B.V. legislation the articles may depart from this and may even exclude any restriction. For an N.V. the law imposes no such arrangement, although the articles may provide for one in respect of registered shares. Bearer shares are freely tradeable by their nature.
How does share capital relate to equity and company value?
Share capital is only one part of equity, and neither tells you what the company is worth on a sale. Mixing these concepts up causes trouble in negotiations.
Equity is the value of the company’s assets less its liabilities; share capital sits within it, alongside reserves such as the share premium reserve. Enterprise value is the operational value of the business, regardless of how it is financed. Equity value is what the seller actually receives for the shares: the enterprise value less net interest-bearing debt.
Nor does share capital tell you what a share is worth. The nominal value is the figure in the articles. The market value is whatever a buyer will pay, and for a listed company it follows supply and demand on the exchange. In the Netherlands it is the N.V., not the B.V., that is used for a stock exchange listing.
Where do disputes about share capital usually arise?
Usually not over the figures, but over the articles of association. Think of an offer arrangement nobody read before signing a term sheet, a share issue that dilutes an existing shareholder, or a call on unpaid capital at the worst possible moment.
Reading the articles and any shareholders’ agreement before you invest, sell or issue shares avoids most of these problems. Our guide to the Dutch business register explains what is publicly recorded about a company and where to find it.
In summary
- Only a B.V. and an N.V. have share capital; a B.V. can be incorporated with one eurocent.
- An N.V. needs at least €45,000 in authorised, issued and paid-up capital (Article 2:67 BW).
- Shares may not be issued below their nominal value; unpaid capital remains a claim of the company on the shareholder.
- In a B.V. an offer arrangement applies by default (Article 2:195 BW), unless the articles provide otherwise.
- Share capital is not the same as equity, enterprise value or the market value of a share.
Frequently asked questions
Is share capital a debt of the company?
No. Share capital appears on the liabilities side of the balance sheet, but it is equity, not borrowed money. The company owes shareholders no repayment. What they hold is a residual claim, which is why they rank behind creditors in a liquidation.
Can a B.V. really be incorporated with one eurocent of capital?
Legally, yes. Whether that is sensible is another question. Banks, landlords and larger counterparties look at the company’s actual financial position. Directors of an undercapitalised company also run a greater risk of personal liability if it cannot meet its obligations.
Does a shareholder have a right to a dividend?
Not automatically. In a B.V. the general meeting decides what happens to the profit: full, partial or no distribution, and only to the extent that equity exceeds the reserves required by law or the articles (Article 2:216 BW). The resolution has no effect until the board approves it. The board must refuse if it knows, or should reasonably foresee, that the company will not be able to keep paying its due debts after the distribution. Directors who approve such a distribution can be held liable for the shortfall.
What is the share premium reserve?
When shares are issued for more than their nominal value, the excess is booked as share premium. It is part of equity and strengthens the company, but it does not increase the nominal share capital, and it is governed by its own rules on distribution.
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