1.0 Summary

In this thesis, I provide an overview of the legal regime applicable to the Dutch commercial partnership with jointly and severally liable partners (vennootschaponder firma, VOF), identify problems and make recommendations to resolve those problems. In doing this, I pay attention to the measures that the partners themselves can take, to the role of the court and how the judge is expected to rule on disputes and to the role of the legislature. In this appendix, I will summarize the main findings of this thesis and answer the following research question:

The VOF has some significant advantages over other company forms. Firstly, the VOF has a large degree of flexibility. For its realization no formal requirements are needed, and because of the lack of mandatory law the partners are able to adapt their partnership perfectly to their needs and requirements. Secondly, the VOF is fiscally transparent for income and corporation tax purposes. This means that partners who are natural persons may use the tax facilities for entrepreneurs and that both partners-natural persons and partnerslegal persons can offset their profits and losses from the VOF with gains, losses and income from other sources. Thirdly, the VOF is not required, exceptions aside, to draw up and disclose annual accounts. To safeguard the interests of the VOF’s creditors (‘company creditors’), a capital is formed that is jointly owned by the partners, but that is separated from the partners’ private capital (‘separated capital’ or ‘company capital’). On the separated capital only the company creditors (in contrast to the partners’ private creditors) can enforce their claims. In addition, the company creditors can enforce their claims on the partners’ private capital.1

Despite the fact that the VOF is basically a contract and lacks legal personality, it has gained an ever-increasing degree of independence in social and economic interaction in the course of time. The partners take a less central position in favor of the VOF itself. Firstly, there is a separated, special purpose capital.2 This does not only mean that the company creditors have an exclusive claim on the company capital both during the time in which the VOF operates (so when the VOF is active) and after the dissolution of the VOF until completion of the liquidation. It also means that the partners themselves are in principle not allowed to use the company assets for other than the company purpose (the capital serves a special goal, namely the company goal). The partners therefore do not have to worry that a co-partner sells (his share in) company goods for private purposes, neither when the VOF is active nor after the dissolution of the VOF (the degree of bondage of the capital to the goal after dissolution of the VOF partly depends, however, on the (legal) relationship between the partners).

Secondly, the VOF is procedurally independent.3 The VOF itself is a party in proceedings before the court, in which it has its own means of defense. The VOF does not cease to exist as long as there are ongoing court proceedings in which it is party. The VOF can be condemned independently of the partners.

Thirdly, the VOF is considered an independent entity from a European perspective. It can rely on the freedom of establishment and move cross-border, with or without change of applicable law, to the Member State that offers the company the most optimal conditions.4 Thus, the VOF can establish a branch or agency in another Member State and it can transfer its real seat to another Member State whilst remaining a Dutch VOF. When a foreign equivalent of the VOF moves its real seat to the Netherlands and the country of origin continues to recognize it as a national entity, then the Netherlands must also recognize it as an entity under the law of the Member State of origin. Furthermore, because of the European Court of Justice’s interpretation of the freedom of establishment, a VOF must be able to convert into a foreign equivalent. In the absence of further regulations in this area, however, the practicle and effective exercise of this possibility may be doubted. Conversely, a foreign equivalent of the VOF can become a Dutch VOF by transferring its registered office and/or its real seat to the Netherlands. The European Court of Human Rights also recognizes the VOF as an independent entity, making it possible for the VOF as a victim to stand against violations of its own treaty rights.5

Fourthly, the VOF takes an independent position in administrative law.6 Amongst others, the VOF itself can act as an ‘interested party’ and can be imposed an administrative sanction as offender of a norm of public law directed to the VOF.

The VOF has significant advantages, but there is also a fair degree of legal uncertainty surrounding the VOF. This legal uncertainty concerns both the position of the VOF in the light of social developments (e.g.: which rules govern the cross-border movement of the VOF7 ) and the law that has governed the VOF for a long time (e.g.: is a former partner liable for the debts of the VOF that arise after his resignation but originate from contracts that have been concluded before his retirement from the VOF8 ). As a result, the VOF (and its stakeholders) is (are) largely dependent on developments in the legal practice, in particular case law of the Supreme Court of the Netherlands. Such developments are not easily predicted.

Also, while the VOF has gained a more independent position in some aspects, it is still an old-fashioned figure that does not match the social developments in other aspects. For example, the VOF can be declared bankrupt as such without the partners necessarily going bankrupt (due to the existence of a separated capital) on the one hand, but on the other hand the VOF will be automatically dissolved when one partner is declared bankrupt and the partners have not agreed upon a continuation clause beforehand.9 In the partnership contract the partners can regulate much, but especially for non-legally trained entrepreneurs this is a difficult task. For instance, partners can make arrangements about the continuation of the company,10 the payments to a partner after his retirement and distribution of the separated and jointly owned capital after partial dissolution of the VOF.11 Agreements can be made with contract partners of the VOF about the consequences for the contract of continuation of the company by, for example, a limited liability company (BV) or about the liability of a partner after his retirement from the VOF. The omission of such agreements, however, may lead to the result that the company cannot continue. Moreover, the consequences for e.g. non-transferable goods cannot be settled by a mutual agreement.

Apart from the difficult traceability of the law applicable to the VOF (which is difficult to read and widely distributed in statutes and jurisprudence), the main problems are on the level of proprietary, company and European law.

Because the VOF is not a legal person and therefore cannot own property itself, changes in the partner base and continuance of the VOF’s company by a BVare accompanied by property law ‘red tape’.12 Upon retirement of a partner, the separated and jointly owned goods should be divided, after which the goods must be delivered to the person(s) to whom they were allocated. On the accession of a partner or on the continuance of the VOF’s company by a BV, the (shares in) the jointly owned goods are to be transferred to the entrant or the BV. The transition of the goods goes along with formal requirements: notarial intervention is required for the transfer of a registered good, notice must be made to a third party for transfer of receivables, etcetera. The property law hassle that goes with such restructuring of the company, can be a risk for its continuity. For example, company creditors may oppose the division of the goods and essential goods can be forgotten. If one partner goes bankrupt before the jointly owned goods are divided, collaboration of the curator, involvement of a notary and approval of the district court (kantonrechter) will be needed to reach a division. If the goods have been divided before the partner goes bankrupt, then still cooperation of the curator will have to be awaited for the actual delivery. Regarding the continuation of agreements with third parties, the company often depends on the cooperation of those third parties.

Restructuring is accompanied by more problems.13 First, the statutory main rule is that the VOF is automatically dissolved once a partner retires from the VOF. This puts the continuity of the company in jeopardy and may lead to capital destruction. Since many European countries have the continuation of the company as a main rule, the Netherlands are way behind from a European perspective. Second, it is prevailing doctrine that conversion of a VOF into a CV (commanditaire vennootschap: a Dutch commercial partnership with both jointly liable and limitedly liable partners) and vice versa by joining or retirement of a limited partner without dissolution of the partnership is possible, but an explicit legal basis for this is lacking. It is therefore questionable whether such conversion and with it the continuity of the partnership holds in court. Third, the legal conversion of a VOF into a BV and vice versa is not possible. The VOF’s company can be continued by a BV, but this is accompanied by dissolution of the VOF, establishment of a BV, the transfer of goods and cooperation of contract parties. Fourth, legal merger and demerger of VOF’s are not possible, while it is not inconceivable that a need exists here. In Germany and Belgium, for example, conversions, mergers and demergers of commercial partnerships are possible.

It is unfortunate that the VOF as such cannot be appointed as a director of a legal person.14 Were this possible, it would make the VOF more appealing in (international) joint venture relationships, particularly due to its flexibility and fiscal transparency. After all, no appointment and dismissal procedures would need to take place when a partner joins or retires and the joint venture partner (the VOF) itself could decide which partner it slides forward in carrying out its administrative duties.

From a European perspective, the VOF can rely on the freedom of establishment, but in practice cross-border movements of the VOF hardly exist.15 This can possibly be explained by the absence of specific Union and national rules and a lack of clarity for government officials, consultants and the partners themselves about what is and is not possible.

Before making recommendations to solve the existing problems, I emphasize that designing one perfect regulation is impossible. Firstly, a regulation that is beneficial for one, can bare the risk of affecting the rights and interests of another. Secondly, there will always be unforeseen situations and disputes and/ or situations that are difficult to solve by means of legislation due to their specific circumstances. However, given the current problems it is clear that action of the legislature is required at short notice. The mere fact that every option has advantages and disadvantages and that it is impossible to design a 100% waterproof regulation, should not be the reason for holding on to an outdated regulation. Where fear exists that rights and/or interests of thirdparties may be negatively affected, a regulation will need to provide safeguards that on the one hand protect those rights and interests, but that on the other hand do not unnecessarily complicate the regulation. Such safeguards should be of mandatory law, in the sense that partners themselves cannot deviate from them. One should bear in mind that also after the entry into force of a new regulation, there will always be the possibility for partners to shape their partnership in a way that best suits their specific needs and there will always be the possibility to present a dispute to a judge. New legislation that seeks to regulate the mutualrelations of partners, must therefore be seen as a safety net provision.

Given the large number of partnerships (there are over 200 000 VOF’s and other types of contractual partnerships registered in the Dutch trade register), and their position in society, it is necessary to quickly come up with a workable regulation.

When designing a regulation for solving the existing problems, it is important that the VOF maintains its existing advantages, such as flexibility and fiscal transparency, as much as possible. A regulation should therefore not be too extensive and compelling, but instead be short, of non-compelling nature and clear. In addition, the regulation should be as complete as possible and fit the needs of the users. Entrepreneurs who want to deviate from the main rules are free to do so. Entrepreneurs who do not deviate from the main rules, need not fear that the continuity of their business is at risk. Furthermore, it is desirable that a new regulation matches the withdrawn (in 2011) Dutch partnership bill as much as possible. After all, the partnership bill had political support in parliament and was extensively discussed in politics and among legal scholars. In addition, entrepreneurs have not expressed much opposition of principal nature to most of the bill’s provisions. Actal (the Advisory Board for regulatory burdens) may be asked to do research on the effects of a new draft regulation on the administrative burden for businesses.

I have a preference for optionally granting legal personality to the VOF, meaning that the partners of the VOF can themselves decide for or against legal personality. I suggest a basic partnership model that is easy to create and that can be equipped with legal personality from the start, from later on or not at all. Regarding matters such as governance, representation and continuation after retirement of a partner, the rules must be as similar as possible for the VOF-non legal person and the VOF-legal person. With such a system, the VOF’s partners are not forced to weigh and to gather legal advice on all the pros and cons before even starting their business.

The procedural requirements for acquiring legal personality must be clear in order to create legal certainty about the (time of) creation of the legal person. Notarial intervention is ideally suited, for it assures, amongst others, that it is supervised professionally that all requirements are met and that there is a clear moment of establishment. In addition, the notary can play an advisory role regarding the consequences of the choice for legal personality and of the choice for a VOF itself for the entrepreneurs. Who finds that the costs of notarial intervention do not outweigh the benefits of legal personality, can settle for the partnership without legal personality. An alternative formal requirement for the acquisition of legal personality may be to suffice with the filing of (an extract of) the partnership agreement with the commercial register. Until the moment of acquisition of legal personality the company goods form a separated capital, so that company creditors do not have to tolerate interference from private creditors and partners do not have to fear each other due to the target bondage. Ambiguity or legal uncertainty is hardly present.

In case the VOF-contract is nevertheless void or voidable, there must be certainty about the legal person’s status. For this, I wish to link up with Belgian and German law: nullity or annulment is in this case not retroactive, but dissolves the VOF-legal person as soon as the ground is invoked, as a result of which the VOF-legal person must be liquidated in the normal way. For the preceding period, the VOF-legal person is deemed to have been lawful. I refer to chapter 6.

The benefits of a VOF’s legal personality must be clear, so that entrepreneurs can make an informed decision for or against legal personality. One important benefit is that when a partner joins or retires from the VOF, the VOF legal person continues to exist. Only a share in the legal person needs to be transferred. I refer to the chapters 4 and 6. The VOF-legal person remains a party to agreements it has concluded with third parties (see chapters 5 and 6). The continuity of the business is thus guaranteed. Also, the VOF-legal person can be converted into a BV without the need to transfer goods.16 The legal person’s goods remain the property of the legal person and the legal person continues to be a party to agreements. I refer to chapter 8. Furthermore, the VOF-legal person may merge with at least one other VOF-legal person like other legal persons can. The VOF can then also participate in a cross-border merger. I refer to the chapters 8 and 12. Another benefit is that the VOF-legal person can be appointed director of another legal person in the same way as a BV can. The articles of association of that legal person provide for a regulation in case of absence of directors. I refer to chapter 9.

Next to a regulation that provides optional legal personality, also those entrepreneurs who do not choose legal personality should be facilitated in terms of property law with the possibility of transferring a (share in the) company. I refer to chapter 6.

Continuity of the company should be the main rule. The retirement of a partner, after which at least two partners remain, must not lead to dissolution of the VOF. The jointly owned goods in the case that the partners did not opt for legal personality should be automatically allocated to the continuing partners. Third party agreements will automatically be continued with the VOF in its modified composition. If the partners want to deviate from this main rule, they can arrange such. An alternative, for as long as the current law is still in force, is to conceive of the dissolution of the VOF as a change of company goal, from exploiting a business to liquidation. After dissolution but before the VOF has ceased to exist, the goal can be changed back to exploiting a business. Already acquired rights of third parties must of course be respected. Whether a judge will go along with this proposal, however, is very uncertain. Furthermore, a partner’s bankruptcy should not have as a consequence that the continuing partners have anything to fear from a property law perspective from his curator.

The possibility of conversion of a VOF into a partnership with limited partners (commanditaire vennootschap, CV) and vice versa by joining or retiring of a limited partner without dissolution of the partnership should be anchored in the law.

As a partner retires from the VOF, he remains liable for company debts up to five years. When the creditor’s claim lapses earlier, the former partner’s liability also ends earlier. Claims that become due only after the partner’s retirement, will nevertheless lapse no later than five years after his retirement. This will prevent a former partner from being liable for an unreasonably long time for debts from agreements that continue long after his retirement. See chapter 5 for this.

The main rule that the law that governs the VOF is only of regulatory nature, should have an exception for the discharge after dissolution (now regulated in art. 33 Commercial Code). If the VOF’s capital after dissolution appears to be insufficient to satisfy all company creditors, a liquidator can demand discharge of the former partners. In my proposal, the partners cannot set aside this compulsory discharge in the partnership agreement. This will prevent the company creditors with claims payable from losing a claim on the separated capital and only having the personally liable partners to turn to. As opposed to the compulsory discharge, there is, for example, no need to mention the fact that the VOF is in dissolution on outgoing mail. See about the discharge chapter 3 (paragraph 2.4).

To facilitate cross-border movements the Dutch legislator will have to design a national procedure that provides clarity on what is and is not possible. It should be noted that the legislator cannot infringe upon rights of the VOF under the EU freedom of establishment with such procedure. The procedure therefore does not so much create or restrict rights, but clarifies the rights and obligations for both partners and other stakeholders including officials at the trade register and notaries. See on cross-border movements of the VOF chapter 12.

The partners themselves will have to make clear arrangements and define their internal relationship and the consequences of entry and exit of a partner (in the partnership agreement). These include a continuation clause, an equity clause (verblijvensbeding) and an irrevocable power of attorney to allocation and delivery of jointly owned goods. See on this subject the chapters 4 and 8. This is of particular importance as long as the statutory main rule is still not the continuity of the company.

It is also advisable to make arrangements with a VOF’s contractual parties about, amongst others, a future contract acquisition by a BV that continues the VOF’s business and the liability of a partner after his retirement from the VOF. I refer to chapter 5.

In the Law on legal aid (Wet op de rechtsbijstand) it should be made clear that an impecunious VOF is eligible for subsidized legal assistance and for a reduction of court fees. I refer to chapter 7.