The legal form of limited liability company is often used by large companies that need a lot of capital and want to go public. That capital consists of shares. They can be in name, but that is not necessary. Limited shares are called 'bearer' shares. The owners are not registered and therefore these shares can change hands very quickly. In a public limited company, the shareholders have a say in the company and they share in the profit. As of 2020 the 'bearer' shares will be abolished. They can be exchanged for registered shares until January 1, 2021.
Difference between NV and Ltd
As a legal entity, the limited liability company is very similar to the private limited company . In both cases, the driver is employed by the company. Public limited companies are usually established by two or more persons. As directors of the company, they have supreme power and they are also the shareholders. The main difference between a limited liability company and a private company is that the shares of an NV can be transferred to another owner. With a Ltd the shares are registered and this is not possible.
Start a business first, then set up an NV
What is attractive with a limited liability company is that you can start your business before the NV is established. Of course, the responsibility for any debts lies entirely with you, but that may outweigh the advantage that your company's production is already underway. A limited liability company requires a director, a founder and a shareholder, but you can perform those three functions at the same time. An NV requires a substantial starting capital of $ 45,000. That is also a difference with a Ltd. Before incorporation, the articles of association must be drawn up and approved in a notarial deed and registered with the Chamber of Commerce.
Paying out profit to an NV
The way in which profit can be withdrawn from an NV is also very similar to that of a Ltd. The condition is of course that there is sufficient money available. As a director you cannot simply decide that profit may be distributed. That must first be tested. This so-called distribution test must show that the NV can pay its debts for at least another year. Only then may you, together with any other directors, approve a reduction in the price of the shares. The money that is then released is distributed to the shareholders.
An NV is obliged to pay tax on its profits, just like any company. In this case, this is called corporate tax. That concerns 15% or 20% of the taxable profit. That is the profit after a number of deductions have been deducted. Investments, losses and wages count as deductions. Naturally, an NV must also pay VAT on the products that are sold. As a director you can have yourself paid a salary. It is interesting for tax purposes to keep this salary as low as possible. The tax applies a minimum annual salary of $ 42,000 for a director of an NV and income tax and payroll tax must be paid on this.
Tax benefits with an NV
If you want to get more money out of the company than the minimum annual salary that is calculated by the tax authorities, it is best to do that by withdrawing profit from the NV. Dividend tax must be paid on this. This is 15%; a lot lower than wage tax and income tax. That is the reason why as a director you can withdraw profit from the company more advantageously than translating it into a higher salary. As a director of an NV, you cannot make use of provisions such as a starter's allowance, SME exemption, self-employed person's allowance or the small business allowance. Still, there are some lucrative deductions for limited liability companies.
The deductible items for an NV are settled through corporate tax. An example of this is the investment deduction, which you may apply for the purchase of business assets. This is interesting in combination with the option of arbitrarily depreciating company assets. By writing off more investment costs for a business asset in a specific financial year, you will therefore also receive a larger investment deduction. If your company is involved in the development of new products, you can also claim the Research Development tax credit. This is a deductible item that can only be used after approval by NL Agency. Provided that all profits remain within the NV, you can take advantage of even more tax benefits. A financial expert needs to find out.
If you are a good director, you are not liable for debts in an NV. However, if demonstrable debts arise because you, as a director, have made too large investments or approved excessive profit distributions, you can be held personally liable for this. You can prevent this by not taking irresponsible risks when investing. Another good measure is to spend a lot of time in profit distribution tests. If financial problems nevertheless arise , it is important to inform the tax authorities immediately that there are insufficient financial resources to pay contributions and taxes.
As a director of a limited liability company, you are employed by the company. You will receive a salary for this and premiums are paid for this for social insurance. The result is that you are insured for this. But don't assume that by definition everything is well organized. Because if you are the largest shareholder in the company, you do not have the right to make use of social insurance in all cases. In that case it is advisable to take out disability insurance.
Formation requirements for an NV
Establishing a limited liability company is a relatively costly affair. You must be able to provide a minimum of $ 45,000. This can be in cash or in kind. Another condition is that you have a notarial deed drawn up. The articles of association of the NV are recorded in that deed. This deed must be approved by the civil-law notary. In addition, the Ministry of Justice and Security must approve your NV. This used to be done prior to the foundation. Nowadays, the Ministry carries out continuous checks. An integrity test is then carried out at times announced in advance.
Additional incorporation conditions
It will come as no surprise that, as is the case with any other legal form , you will have to register your NV at the Chamber of Commerce. This ensures that your data ends up with the tax authorities. With an NV you must also prepare annual statements. That is a kind of final report of how you performed financially in the previous year. The larger and more profitable the NV becomes, the more requirements are imposed on the annual accounts. Usually a bookkeeper or accountant will prepare the annual accounts. Below, we will discuss the preparation of the annual accounts in more detail.
Drawing up the annual accounts
The larger your company is, the more financial information you need to include in the financial statements. But whether you have a large or a small company; in any case, you must include the following information. First, the balance. That's a snapshot of the company's financial status at any given time. The profit and loss account, or an overview of all income and expenditure, is also essential. Third, an explanation of the financial information must be added. How much information you need to provide to a company your size can be found later in this article.
Filing annual accounts
The actual filing of the annual accounts is very simple. It has been legally required to do this digitally for a number of years. How this should be done also depends on the size of the NV. Small companies can file the annual accounts via an online self-service. Another suitable method for small businesses is the SBR method. This is a method in which the annual accounts are first drawn up and then sent to all relevant organizations. Think of the tax authorities, the CBS and banks .
What category does my company fall under?
As stated earlier, it depends on the size of the company which information must be included in the annual accounts. The Chamber of Commerce applies the following criteria for this.
|Micro||<$ 350,000||<$ 700,000||<10 people|
|Small||$ 350,000 - $ 6 Mill||$ 700,000 - $ 12 Mill||10 - 50 people|
|Medium||$ 6 - $ 20 mln||$ 12- $ 40 mln||50 - 250 people|
|Big||> $ 20 mln||> $ 40 mln||> 250 people|
Source: Chamber of Commerce
Size of the annual report by company size
For micro small and small companies, it is sufficient if their annual accounts contain a limited or abridged balance sheet with a limited explanation. A management report is required for medium and large companies. The annual report itself sometimes requires many elements, which makes drawing up the annual accounts considerably more complicated. The overview below shows which elements are required by medium and large companies.
|Financial Statements||Medium size||Big|
|Slightly simplified balance||X|
|Simplified profit and loss account||X|
|Extensive profit and loss account||X|
|Other information||Medium size||Big|
|Special rights regarding control in the legal person||X|
|Number of profit certificates and the like||X||X|
|Important events after the end of the financial year||X||X|
|Branch offices, their names and countries of residence||X|
|Statutory regulation and proposal for profit appropriation or processing loss||X||X|
Source: Chamber of Commerce
Keep a close eye on the deadline
The deadlines with which the annual accounts are drawn up is something to keep a close eye on. If your company goes bankrupt or you forget to file the annual accounts on time, you and your co-directors may be held personally liable for this. An investigation can also be initiated by the Economic Enforcement Bureau at the request of the Tax Authorities. This can lead to a criminal conviction, with the necessary financial consequences. Fines can amount to several thousand US dollars. Enough reasons not to exceed the deadline.
Which deadline is important?
The process of filing an annual account consists of a number of steps. At the end of the financial year, you as a board member have five months to prepare annual accounts and submit them to the shareholders. They in turn have two months to adopt the annual accounts. The annual accounts must be filed with the Chamber of Commerce eight days after adoption. Normally this is on July 31 of the following calendar year. It is possible to have a maximum delay of 6 months for the preparation of the annual accounts, provided that the shareholders agree to this.
When is an NV to be preferred over a Ltd
The limited liability company is not likely to be chosen by small businesses as a legal form. This legal form is particularly attractive to entrepreneurs who set up a large company and thus go public. If you wish, you can also consider setting up a Private Company . Because there is not that much difference between the two legal forms. The capital of both is divided over shares. With the Ltd they are registered, so you know who the shareholder is. This is not the case with the NV. The intervention of a notary is required for a share transfer with a Ltd. Not with an NV, so that goes faster.
In summary: the pros and cons of an NV
Based on the characteristics of an NV, it is not obvious that you as a small entrepreneur choose the legal form of a public limited company. If you have or want to establish a large company, an NV can have the necessary benefits, but only if you need a lot of capital and want to have the shares traded on the stock exchange. These are the main advantages at a glance:
- One or more directors possible
- Shares can be transferred
- The board can hire staff
- There is limited liability for the directors
- Tax deduction possible through investment deduction
- Tax deduction possible through arbitrary depreciation (under conditions)
- Tax deduction up to 52% through R&D deduction
- Drivers are insured for social insurance (under conditions)
The disadvantages of a limited liability company are:
- Relatively high starting capital of $ 45,000 required
- Relatively high tax burden with low profits
- No self-employed deduction
- No starter's allowance
- No SME exemption
- No small business scheme
- Major administrative effort required for the preparation of the annual accounts