Businesses are caught up in a tangle of rules that encourage entrepreneurship, regulate it, or restrict freedoms in order to protect others. As a result, business owners come into contact with various other branches of law, such as tenancy law, employment law, intellectual property law and so on. Giving a complete overview is an impossible task. That is why we focus first on the different legal forms and the liability rules that go with them, and then on a number of practical matters that business owners are guaranteed to come across. This page describes the situation in the Netherlands.
Contents of company law
Company law is part of private law. This makes company law very complex, which is why lawyers often have to specialise in it. Company law actually consists of two sets of rules:
- Rules that are meant to facilitate entrepreneurship, such as protecting the tenant of retail business premises
- Rules that regulate entrepreneurship, for example to protect consumers or the environment
In practice, however, the picture is rarely black and white, and a balance often has to be found between these two approaches. That is why some provisions facilitate and regulate at the same time.
Different legal forms and liability
Business owners can sometimes be personally liable for the mistakes or debts of their business. By choosing a legal form with legal personality, they can limit the risks to some extent. Even then, risks remain, because directors sometimes have to answer for their mismanagement too. In any case, the liability rules differ depending on the legal form chosen. They are set out below. We leave out the association (vereniging) and the foundation (stichting), partly because company law applies to them only in very exceptional cases.
Sole proprietorship (eenmanszaak)
Many business owners choose a sole proprietorship because it is so easy to set up. There are few formalities involved and the start-up costs are therefore very limited. Still, the sole proprietorship has one big disadvantage: it is not a legal entity, so the business owner is liable with their private assets for everything the sole proprietorship does. This means that if the sole proprietorship is liable for a mistake, the creditors can also claim the business owner's private assets or even their home. The same applies to other creditors, for example because the business owner can no longer pay their business invoices. And to make it even more dramatic: for anyone married in community of property, creditors can also hold the partner financially liable.
General partnership (vof)
A general partnership (vennootschap onder firma, vof) is a partnership in which several business owners work together under one shared name. No start-up capital is needed to set up a general partnership, and the arrangements between the partners are easy to record in a partnership agreement (vof-contract). The disadvantage is the same as with the sole proprietorship: all partners are personally liable for the debts of the partnership. What is more, each of them is liable for the full amount. This means that creditors may choose which partner they approach to recover the debts, and they do not have to limit themselves to that partner's share in the partnership. As with the sole proprietorship, this can also have consequences for anyone married in community of property.
Limited partnership (cv)
The limited partnership (commanditaire vennootschap, cv) is again a form of partnership, but here there is a financier (the "silent partner") and a managing partner who actually runs the business. The silent partner stays in the background. Their personal details do not even have to be registered with the Trade Register (Handelsregister).
The same liability rules apply to the managing partner as to a general partnership. The managing partner is fully liable for all debts, and their private assets can be claimed for them. The partner they are married to in community of property runs the same risk.
The situation for the silent partner, on the other hand, is more favourable. If they do not present themselves outside the business and are not involved in running it, they can stay in the background in such a situation. They cannot then be held liable. Of course, they do run the risk of losing the capital they have put in. So they had better be sure who they are getting involved with.
Professional partnership (maatschap)
A professional partnership (maatschap) is an ideal legal form for working together with other business owners under a shared name. It is often used, for example, by self-employed dentists who join forces in one large practice so that they can share investments.
A professional partnership is not a legal entity, so in principle the partners are liable with their own money when debts are incurred. In this respect it is similar to the legal forms above. The same goes for the liability of a partner married in community of property. On the other hand, there are also big differences compared with the legal forms above:
- Each partner is only liable for themselves, so a creditor of an individual business owner cannot go to the other partners
- The partners are each liable for obligations entered into jointly
- The partners are each liable if, in a partnership agreement, they have given one of the partners a power of attorney to act on behalf of all of them
Private limited company (bv)
Unlike the partnerships above, a private limited company (besloten vennootschap, bv) has legal personality. Such a private limited company must therefore be regarded as a separate legal entity that is itself responsible for its debts. Setting up this type of company therefore involves stricter formalities.
Directors of a private limited company have only limited personal liability for debts. For example, they are liable until they have been entered in the Trade Register. As long as they act on behalf of a bv in formation, they can, just like a sole proprietor, be held personally liable for their debts and obligations.
After that, in principle they are not liable for debts, but there are exceptions. This is called directors' liability (bestuurdersaansprakelijkheid). Directors' liability applies mainly in cases of mismanagement. For example, when a director knows that the bv is in financial difficulty, but still enters into obligations that the bv will never be able to meet.
Finally, a director-major shareholder (DGA) can always choose to make themselves personally liable. This is the case, for example, when a bv wants to borrow money from the bank. The bank will then want extra security and will ask the DGA to sign for the loan personally. The DGA is of course free not to do this and to look for other sources of finance.
Public limited company (nv)
A public limited company (naamloze vennootschap, nv) is comparable to the private limited company. Here too there is legal personality. The main difference between these two forms, however, is that the shares of an nv can be freely transferable, including on the stock exchange. However, not every nv is listed on the stock exchange. A shareholder of this kind is not liable for the company's debts, but can of course lose what they have invested. Directors are in theory not liable either, but the same exceptions as for the bv apply here too. That is why directors must always be on their guard against making mistakes.
Tenancy law for business premises
Tenancy law for business owners is arranged differently from the tenancy law that applies to renting a home. That does not mean, however, that business owners who rent have no protection at all. On the contrary: the legislator also sets requirements for tenancy agreements for business owners, and it is not always possible to deviate from them. The rules that apply do differ depending on the type of business premises being let. A distinction is made between 290 business premises and 230a business premises.
290 business premises
These business premises are also known as retail business premises (middenstandsbedrijfsruimtes). They concern tenancy agreements for premises intended for retail businesses, restaurants, cafés and craft businesses. The legislator believes that these tenants should be given more protection. A restaurant often depends heavily on its location, and if the business suddenly has to move elsewhere, that becomes a problem. In addition, these business owners often invest a lot in the location where they operate. By regulating a number of matters, the legislator aims to protect them.
Tenancy law and the rules for 290 business premises →230a business premises
If the premises are not residential and are not 290 business premises either, they are referred to as 230a business premises. In other words, this is a broad residual category that includes, for example, hospitals and banks. Tenancy agreements of this kind allow much more freedom. The contracting parties may, for example, choose their own notice period, but on the other hand they also have fewer rights. Among other things, they cannot simply submit a request to the subdistrict court judge (kantonrechter) to have the rent adjusted. Here, everything depends to a large extent on the arrangements made, which is why it is still advisable to get help from a legal professional when drawing up the tenancy agreement.
Trade unions and legal assistance
Trade unions play an important role in the legal conflicts that business owners run into. Employees can count on legal support from their union without a second thought, while the employer has to pay high costs to defend themselves. This once again underlines the importance of good legal expenses insurance.
Legal expenses insurance through the trade union
Trade unions perform various tasks, but providing legal support has always been an important one. The legal assistance then relates to income and employment matters. For this, employees do have to pay a membership fee of around €200 per year. Many collective labour agreements (cao's) state, however, that the employer must deduct the union fee from gross salary, which gives employees a tax advantage.
In addition, a waiting period applies before you can count on legal assistance. This varies from union to union, but usually lies somewhere between three and six months. After that, the union will provide legal assistance in a conflict with the employer. There is usually no free choice of lawyer. And because the cover is limited to the employee and to employment and income-related matters, legal expenses insurance is often more attractive.
Legal expenses insurance dossier →Problems with the trade union
Because of the active and supportive role of the union, a conflict with one or more employees ends up in court more quickly. While employees count on the support of the union, the employer has to pay all legal costs themselves. That is why it is advisable for employers to take out business legal expenses insurance themselves as well. With the right cover, this insurance will provide help with legal conflicts with staff or unions.
Professional liability
Professional liability is liability for mistakes made while carrying out professional work. Failing to act while carrying out professional work can also result in professional liability. This is often not a statutory form of liability, but a form of liability that arises from the assignment that was accepted. An example is an architect who makes an incorrect calculation. Business owners can insure themselves against professional liability.
Professional indemnity insurance →Business liability
Business liability arises when a business owner or one of their employees causes property damage or personal injury in the course of running the business. This is the case, for example, when a removal worker breaks a customer's window or drops a heavy television on the neighbours' car. Even when employees make such a mistake, the employer is almost always liable. Business owners can protect themselves against these risks with business liability insurance.
Business liability insurance →Legal expenses insurance for business owners
The importance of legal expenses insurance has come up several times above. Unlike private legal expenses insurance, which often works with standard clauses, business legal expenses insurance is always tailor-made. Of course, this does not make comparing policies any easier. In any case, there are a number of things business owners can look out for when assessing the policy conditions put to them.
Legal help or legal assistance
Legal expenses insurance comes in two variants. In the most basic form, the insurer limits itself to providing legal support or advice. This means that a team of legal professionals will inform you about the next steps to take. For example, they may advise you to conclude a settlement agreement, or they may recommend going to court. That is where their legal advice stops, and after that the business owner has to pay the lawyer's fees themselves.
With legal assistance, they will pay for such costs. That way, the insured can be completely sure that various legal matters are handled as well as possible.
General points to look out for
In addition, always check in which countries the cover applies, whether there are maximum amounts for things such as external lawyers' fees, whether there is a minimum claim amount, whether there is an excess, and under which conditions a free choice of lawyer is or is not possible. There are often big differences here, so remember to compare different offers with each other.
How extensive is the legal expenses insurer's service?
Whether it is legal assistance or legal advice: always check how far the support goes. The main question is which disputes are covered. They are not always equally relevant, but do think about disputes with the following parties or about the following matters:
- Disputes with employees
- Disputes with contractors
- Disputes with the government
- Disputes with the Dutch Tax and Customs Administration (Belastingdienst)
- Disputes with suppliers or customers
- Disputes about renting the business premises
- Disputes about company vehicles
- Disputes about personal injury
- Disputes about environmental damage
- And so on
The best approach is to find out in advance which risks exist in the sector concerned, make a list of them, and then have the legal expenses insurance tailored to them.
Frequently asked questions about business legal expenses insurance
Isn't legal expenses insurance too expensive for my business?
First of all, it is good to know that the premium for legal expenses insurance is closely linked to the risk a business runs, which in turn is determined by factors such as turnover. As a result, the premium for legal expenses insurance is relatively modest. It is important, though, to tailor the legal expenses insurance closely to your needs and not to insure yourself against risks that do not exist, because then legal expenses insurance will of course be unnecessarily expensive. A good insurer will, however, offer the help needed to avoid mistakes like this.
What does business legal expenses insurance cost?
The premium for business legal expenses insurance depends heavily on the cover chosen and the risk a business runs. A company with a hundred employees is more likely to have trouble with the union, while a business with two employees is a smaller risk. This makes the cost hard to predict. For self-employed professionals (zzp'ers) with a very limited risk, there are cheaper policies; for an exact amount, it is advisable to request quotes. For large companies the rates are of course much higher, but these companies will also get more benefit from business legal expenses insurance.
Does business legal expenses insurance cover all conflicts?
No. A lot depends first of all on the choices made. Cover can often be chosen in consultation with the insurer. In addition, there are disputes that no insurer is willing to cover. Examples are disputes about intellectual property or conflicts about the internal organisation of companies.
I have a dispute with another business. Can I still quickly take out legal expenses insurance?
It is of course always possible to take out legal expenses insurance quickly, but it will not cover the ongoing conflict in any case. Ongoing matters are always excluded. New conflicts that arise after the start date of the legal expenses insurance are covered.
How much in legal costs can I incur?
This depends on the arrangements made with the insurer. In any case, legal costs cannot be unlimited. There are often maximum amounts, especially for external legal professionals. Many insurers use a limit of €30,000 per dispute, but a tailor-made arrangement is certainly possible. Bear in mind that choosing higher limits will also result in a higher premium.
Can I choose which lawyer I go to?
As so often, this differs from insurer to insurer. In principle, a dispute is always first handled internally by the legal department the legal expenses insurer works with. If it becomes necessary to go to court, an external lawyer is brought in. The extent to which you then have a free choice of lawyer, and whether or not this is penalised with a higher excess, can be found in the policy conditions.