Hoofdstuk 9 Summary

The aim of this study was to answer the question ‘What is the best possible legal form for the collaboration between professionals?’

This study was initiated for two reasons (Chapter 1). On the one hand, it was triggered by the developments regarding Title 7.13 of the Dutch Civil Code (titel 7.13 BW) and the withdrawal of the related legislative proposal, and on the other hand by the debate regarding the suitability of the Dutch partnership (maatschap) as a legal form for collaborative groups of professionals. This debate was sparked by the fact that professionals, previously working together in a partnership, have recently started to look for alternative legal forms for their collaboration. Both with respect to liability and its limitation and with regard to legal organisational structure, the partnership as a legal form is increasingly being considered as insufficient and outdated. This may be explained by the fact that the partnership was created as a legal form in 1838 and therefore no longer satisfies the current needs of professionals. Moreover, because the legislative proposal to change Title 7.13 has been withdrawn, this situation is not about to change in the short term, even if Van Olffen et al. have taken the initiative for a new draft legislative proposal. As a result, professionals are now looking for solutions in other legal forms, both Dutch and foreign ones. The question is, however, whether these forms are suitable for the collaboration between professionals. Therefore, this study aims to analyse whether present legislation offers any good alternatives for the partnership, and whether the existing Dutch legal forms should be extended or adapted. In addition, this study aims to contribute to the general debate regarding the existing range of legal forms.

In order to answer the main question, this study assesses several Dutch legal forms that may be suitable: the partnership (maatschap), companies with share capital (kapitaalvennootschappen), and the cooperative organisation (coöperatie). This assessment is based on three factors of choice that, as previous research has shown, are most important when choosing a legal form: liability (aansprakelijkheid) and the options to limit it, tax considerations (fiscaliteit), and legal organisational structure (juridische organisatiestructuur) (Chapter 2). The legal form of the partnership, historically being the most suitable and most frequently used legal form for professional groups, is taken as a point of departure. In addition to assessment of the legal forms available in the Netherlands based on these three factors, a number of foreign legal forms specially ‘designed’ for professional collaboration has been studied in the context of the existing need among professionals for a ‘tailor-made legal form’.

In order to answer the main question, it was essential to first define the concept of ‘profession’, which proved rather difficult. For this reason, this study uses the definition of a number of important elements of the profession. The professions analysed in this study are: accountants, architects, lawyers (advocaten), civil-law notaries, and medical specialists. These five ‘traditional’ professions were chosen to allow this study to produce results that may represent the majority of independent professionals.

This study focuses on the search for a legal form that offers the best mould possible for the collaboration between professionals. Collaboration is defined by two essential features of the partnership: collaboration based on equality (affectio societatis) and collaboration based on each other’s personal competences and qualities (intuitupersonae). The best possible legal form should facilitate professionals in efficiency, complementarity of competences, and positioning of their business.

With regard to the factor of liability (Chapter 3) the first step was to examine the existing forms of liability, and the parties regarding which this liability applies. The next step was to assess the extent to which certain legal forms could limit these forms of liability. The last step was to assess any other instruments that may serve to limit liability or limit damage and harm. In a partnership, the liability risk for professionals turns out to be significant. Under present law therefore, the best possible legal form should at least feature limited liability. This will at least protect professionals against errors by co-partners, because it is the legal person that is liable, not the partners, as in a partnership. Under present law, however, the use of a legal form with limited liability does entail other risks, such as directors’ and officers’ liability (bestuurdersaansprakelijkheid) vis-à-vis the company and third parties, and the liability of shareholders regarding unapproved distribution on shares. For both these types of liability, however, the risks are manageable and controllable. This is very different for the personal liability arising from a contract for professional services (overeenkomst van opdracht) granted to the professional personally, and for the direct personal liability for professional errors that may be characterised as a wrongful act (onrechtmatige daad). This last basis of liability can never and in no way be limited or excluded, not even by using a legal form. For this type of liability, only the ‘damage and harm’ arising for the professional can be limited by taking out a professional liability insurance. The personal liability that arises from the failure to comply with a contract for professional services granted to the professional personally can only be limited vis-à-vis a business partner by applying general terms and conditions. It is uncertain, however, whether in all cases an exoneration clause (exoneratiebeding) offers protection vis-à-vis private individuals as well.

Under present law, combining a legal form with limited liability, exoneration, and a director’s and officers’ liability insurance and a professional liability insurance, offers professionals the best protection currently possible.

In order to answer the question of which legal form is the best possible form for collaboration between professionals in the fiscal sense, this study includes a brief description of the various fiscal rules and regulations that are relevant in this context (Chapter 4). This description reveals that there is no straightforward answer to this question, because the answer greatly depends on the individual circumstances and specific wishes of professionals. The applicable tax facilities, the salary that professionals wish to pay themselves, the desired pension accrual and the amount of profit are some of the variables that play a role here. Based on the amount of profit however, a general comment can be made on which legal form may be attractive. For small collaborative groups, with a limited amount of profit, the partnership will usually be preferred. For larger forms of collaboration where profit exceeds € 150,000 for each individual partner, the legal form will preferably be one that is subject to the tax regime of the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969). For this study, this includes the private limited company (BV), the public limited company (NV) and the cooperative organisation (coöperatie).

In order to answer the question of what the best possible legal organisational structure is for the collaboration between professionals a comparison is made, on the basis of the various chronological elements of the legal form, between the internal organisational structure of the partnership, the private limited company, the public limited company and the cooperative organisation (Chapter 5). The point of departure here, as it is throughout this study, is the partnership: the collaboration form traditionally used by professionals. The assumption is that this legal form, at least originally, complies with the needs of collaborating professionals also when it comes to internal structure. The driving motives in the choice of internal organisational structure, in general, are flexibility, continuity and legal certainty. Based on the description of the various organisational structures, an analysis was made to assess the extent to which the various legal forms comply with these ‘drivers’. This analysis shows that the answer to the question of which legal form offers the best possible internal organisational structure for professional collaboration is not straightforward. The best possible internal organisational structure depends on the significance attached to the various drivers. None of the legal forms discussed intrinsically complies with all three of the drivers. Where the partnership is flexible regarding its nature, creation, capital, corporate structure and management structure, it is less attractive when it comes to continuity and legal certainty. For legal persons, in short, the opposite is true.

When flexibility is the main aspect, the partnership is still the most appropriate form. If a legal person is preferred, of the legal persons discussed in this study it is the cooperative organisation that combines continuity and legal certainty with the highest level of flexibility. Although since the introduction of the Dutch Private Company Law (Simplification and Flexibilization) Act (Wet Flex-BV), the private limited company has also become significantly more flexible in its set-up, its nature (as a company with share capital) and especially the significant number of mandatory rules and regulations that govern e.g. its capital, its decision making, and its corporate structure make it less attractive than the cooperative organisation. Because of the large number of mandatory rules and regulations, the public limited company’s internal structure is the least suitable one in the context of professional practice. Naturally, an organisational structure may also be chosen for one specific feature – in which case the drivers are really of secondary importance. This may include confidentiality – when there is a need for privacy with respect to mutual arrangements – or the image bestowed by the legal form.

The international legal forms compared in this study are the LLP (United States and United Kingdom), the LLC (United States) and the PartG mbB (Germany) (Chapter 6). The LLP, LLC and PartG mbB share the fact that they were all developed on the specific wishes of professionals or by professionals. In all three of these countries, there was a strong call in professional practice for a tailor-made legal form. This call was mainly triggered by liability-related problems, especially in view of increasing numbers of claims. What these legal forms have in common is that they possess characteristics both of a legal person and of a contract – or that it is at least clear what legal subjectivity is supposed to mean.

In addition, all of these legal forms offer a combination of limited or more limited liability, fiscal transparency and a flexible legal organisational structure.

There are clear differences as well, however. The American LLP is a partnership (personenvennootschap) with limited liability, where both the LLC and the British LLP are hybrid legal forms with features both of a company with share capital and of a partnership (personenvennootschap).

Another major difference between the LLC and the LLPs is that the LLC can also have one single participant only, whereas for both LLPs the collaborative aspect is prominent and the group should therefore always have two or more participants.

The PartG mbB really is a public partnership with limited or more limited liability. It is a partnership (personenvennootschap) especially suitable and exclusively intended for professional practice. What characterises this version of the PartG is that the liability is limited for professional errors and that this limited liability is compensated by an obligatory professional liability insurance. This only partial limitation of liability in the PartG mbB (partial shield) has been criticised. The partners’ personal liability is excluded with respect to the company’s obligations arising from partners’ professional errors. This is not true for the other obligations that the PartG mbB has, e.g. arising from rental agreements and employment agreements. For these obligations, the partners remain personally – and jointly and severally – liable, as opposed to the LLP and LLC.

The American LLP seems to be the most attractive legal form, since this legal form offers a combination of limited liability (full shield), favourable taxes and the most flexible organisational structure. It is very difficult, however, to draw a clear comparison between the American legal system and the Dutch legal system, which makes it difficult to assess whether the LLP would suit the Dutch situation. In addition, it is easier to amend existing legislation than to introduce new legislation. For this reason, the German choice – to introduce a new version of an existing legal form with partial limitation of liability combined with a flexible structure and favourable taxes – also seems to be attractive. This option, mainly because of the liability insurance offered in the German version, is also easier to defend and justify – e.g. to creditors – than a ‘complete’ exclusion of liability. Moreover, a new version may be introduced more quickly and more easily since it will only need an addition to present law.

The results of this study were analysed by comparing the various legal forms based on the three criteria that are most important when choosing a legal form: liability, tax considerations, and legal organisational structure (Chapter 7). This analysis has shown that under present law, the best possible legal form for collaborating professionals does not exist. None of the legal forms discussed in this study complies with all three criteria at once. With respect to the factor of liability, there is a mild preference for a legal person. The best possible tax position (tax considerations) strongly depends on the specific circumstances, but usually fiscal transparency – logically meaning the partnership – has preference. And finally, there is not one specific legal form that offers the best possible set-up (organisational structure). This means that there is not one particular single form that specifically fits all collaborative professional groups. Therefore, the conclusion here is that under present law, each group will have to decide which factor takes priority when looking for the absolutely best legal form possible. In this decision, the collaborating professionals’ more specific wishes/circumstances play an important role. These circumstances may include, in a nonexhaustive list:

Both when establishing the group and when circumstances change during its existence, two questions should be answered:

This study has shown that there are two legal forms that largely meet the three criteria: the cooperative organisation and the partnership. The partnership is fiscally transparent; its creation and set-up are flexible, and inexpensive; and it is relatively easy to introduce additional arrangements to increase continuity and legal certainty. Although in the area of liability limitation the partnership ‘scores’ much worse than the cooperative organisation, additional constructions are available here as well – such as ‘inserting’ a professional corporation (praktijkvennootschap). The cooperative organisation is a legal person and therefore by nature offers greater legal certainty and continuity than the partnership. In addition, it allows a reasonably flexible set-up. Still, both options will always be a compromise: both legal forms need ‘extra moulding’ to – almost – achieve the best possible result.

To create the best possible legal form for professionals, it is recommended to introduce a tax regime that is neutral with respect to legal forms: this will allow tailoring without tax advantages being an incentive.

As to legal organisational structure, there is no need to introduce a new legal form for professionals, since the partnership greatly covers the need for flexibility, continuity and legal certainty. The structure of the partnership does need to be adapted, however, to solve the organisational issues under present law and comply with modern requirements.

Where liability is concerned, a regime would be justified that treats legal forms neutrally regarding all obligations (verbintenissen) other than professionals’ liability for their own errors, professional or otherwise. This will ensure that, also in a partnership, a partner is not liable for errors by co-partners. The main reason to introduce such a regime is that this limitation of personal liability is already possible under present law – by using professional corporations (maten-rechtspersonen: ‘legal-person partners’ ). Finally, it has been found that personal liability for one’s own professional errors cannot be limited by applying a certain legal form. This theme is beyond the ‘realm’ of legal forms.

The question is whether this type of liability is problematic, or undesirable. This seems to be a dilemma. On the one hand, an incentive is necessary to promote due care, on the other hand a professional needs enough ‘space’ to perform well. Further research should clarify this issue.

Should it turn out that professionals consider the liability for their own errors, professional or otherwise, as problematic and require this liability to be limited, more research will be necessary to determine the form of this limitation.

In the meantime, the present study suggests a possible solution, inspired by the German PartG mbB. This solution may be found in introducing a set of regulations – independent from the legal form – for specific professions into Book 6 of the Dutch Civil Code (wrongful act) and Book 7 of the Dutch Civil Code (contract for professional services). This set of regulations may stipulate that a professional is protected from liability caused by personal professional errors (both by reason of a wrongful act and under Book 7 Section 404 of the Dutch Civil Code) if the collaborative group has an adequate professional liability insurance. This basically amounts to a form of third-party liability insurance (WA-verzekering) for professionals.

Such a model may be applied to any type of legal form, because it is related to practising a certain profession, not to a legal form. The relevant professional rules and codes may, and actually should, also refer to this set of regulations. This model may be justified by the specific characteristics of practising a profession, and should actually be available to only a specific number of professions: civil-law notaries, accountants and medical specialists, insofar as they have a professional obligation to act.