Incorporation Proceedings

What are the Dutch director requirements and liabilities of company with a business in the Netherlands?

This article explains the Dutch director requirements and liabilities of company with a business in the Netherlands.

Requirements of a Director

The board of directors a Dutch limited liability company (besloten vennootschap, ‘BV’ or naamloze vennootschap, ‘NV’) may consist of only one managing director. The board of directors is the executive body of the company and responsible for the management and administration, its day-to-day affairs, and the operations of its business.

The members of the board of directors are appointed and removed by the shareholders. The managing director of a Dutch limited liability company doesn’t need to be a Dutch resident or national, even a corporate entity may act as managing director. There may be tax reasons to have a majority of Dutch resident directors.

Generally stated by the articles of association, each director of a Dutch limited liability company is solely authorized to represent the company. However, it is possible to that the articles of association of the Dutch limited liability company determine that the directors are only jointly authorized. This provision has external powers, meaning that it can be invoked against third parties. It is also possible that the articles of association provide that certain acts of the board of directors require the prior approval of another corporate body such as the shareholders’ meeting or the supervisory board. Such a provision is only internally valid and cannot be invoked against a third party, except where the party in question is aware of the provision and did not act in good faith.

Supervisory directors or two-tier board

Under certain circumstances a Dutch limited liability company can have a supervisory board. The duty of the supervisory board of directors is solely to supervise the board of directors.

Each Dutch limited liability company must prepare an annual account, in a defined format, which must be signed by the members of the board of directors of the Dutch limited liability company. The annual accounts should give a true and fair view of the state of affairs of the company and of its profit or loss for that period. The members of the board of directors are responsible for keeping records that are sufficient to show and explain the company’s transactions and will, at any time, enable the financial position of the company to be determined with reasonable accuracy. They are also responsible for safeguarding the assets of the company and hence for taking responsible steps for the prevention and detection of fraud and other irregularities.

Liability of a Director

In principle, the liability of the Dutch limited liability company is limited to its share capital and reserves. The managing and supervisory directors may be held personally liable for liabilities of the Dutch limited liability company (internally) towards the company itself or (externally) towards third parties under certain circumstances. Mismanagement must be involved for this to apply.

The managing and supervisory directors can be, under conditions (in case of (deemed) mismanagement), liable for the following events:

  • Incorrect annual accounts;
  • Involuntary liquidation of the company;
  • Losses;
  • Non-compliance with internal limitations;
  • Failure to pay taxes;
  • Negligence or improper management in the preceding 3 years.