Paying up share capital
The share capital of a company reflects a ‘nominal value’ which should be present within the company in the form of cash, or goods (in kind).
In 2012 new legislation regarding the Dutch limited liability company (“BV”) came into effect. This new law provided more flexibility in the tailoring of the Dutch BV. Therefore this legislation is called “Flex-BV legislation”. Before this date, shares issued upon the incorporation of a BV needed to be paid up.
As we mentioned above the shares of a BV do not have to be paid up (immediately). A ‘capital deposit requirement’ does apply to the Dutch NV. Regarding the Dutch NV, at least 25% must be paid immediately upon incorporation.
The new Dutch law prescribes that the shareholders can opt to not pay up the shares issued at incorporation, but that payment is only due upon request by the company. Meaning that when a BV is incorporated, the shareholders are not obliged to pay up the issued shares immediately. Each shareholder is still obliged to pay up its shares in the future. We recommend to pay up the shares when the BV is incorporated.
When the shares are not being paid up immediately, the shareholder will in principle still remain liable for the amount which still needs to be paid up on the shares.
Not paying up your shares can have big consequences as a result of specific tax regulations. For example, to qualify for the participation exemption (deelnemingsvrijstelling) pursuant to the Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969), the mother company needs to hold at least 5% of the paid up shares in its subsidiary to be eligible for the participation exemption. The participation exemption is a facility which provides for an exemption from corporate income tax of profits derived from the investment in a company. As a consequence, dividends and capital gains arising from such participation are tax exempt (and capital losses and cost of acquisition/disposal are not deductible).
A ‘capital deposit’ is the payment of the share capital by the shareholder. This is possible by paying in cash. The amount is then transferred to the Company (BV), typically from the shareholders bank account, with a relevant payment description (‘capital deposit’). The description is of great importance because, for example in case of bankruptcy, the shareholder has to proof he has paid up the capital.
Shares can be paid up in cash or in goods (so in kind), this last method requires an accountants declaration to determine the value of the goods involved.
Although a capital deposit requirement does not exist for BV’s, most public notaries insist on this anyway, to avoid any liability (for the involved shareholders, but also for the public notary himself.
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