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Doing business in the Netherlands 52. StartingbusinessUnder Dutch law, a foreign individualor company may operate in theNetherlands through an incorporatedor unincorporated entity or branch. Dutchcorporate law provides a flexible and liberalframework for the organization of subsidiariesor branches. There are no special restrictions for aforeign entrepreneur to do business in theNetherlands.2.1 General summary of business formsThe business operations can be set up in theNetherlands with or without a legal personality. If alegal entity has legal personality, the entrepreneurcannot be held liable for more than the sum it contributedto the company’s capital.Dutch law distinguishes two types of companies bothof which possess legal personality: the private limitedliability company (besloten vennootschap metbeperkte aansprakelijkheid - BV) and the public limitedliability company (naamloze vennootschap -NV). These forms of legal entities are most commonlyused for doing business in the Netherlands.Other commonly used legal entities in theNetherlands, are the cooperative (coöperatie) andthe foundation (stichting). The foundation is a commonform used within the non-profit and health caresector.Other common business forms are sole proprietorship(eenmanszaak), general partnership (vennootschaponder firma - VOF), (civil) partnership(maatschap) and limited partnership (commanditairevennootschap - CV). None of the latter formspossesses legal personality and, as a consequencethereof, the owner or owners will be fully liable forthe obligations of the entity.All entrepreneurs engaged in commercial businessand all legal entities have to register their businesswith the Trade Register at the Chamber ofCommerce. This section covers the abovementionedlegal entities for doing business in the Netherlandsfrom a legal perspective. After dealing with thedistinction between a subsidiary and a branch, theabove-mentioned entities will be described ingreater detail. This will be followed by a summaryof the status of intellectual property rights in theNetherlands. Finally, this manual will explain theadvantages and disadvantages of doing businessthrough a subsidiary or a branch.2.2 Branch or subsidiaryBranchA branch is not a separate legal entity. A branch is apermanent establishment of a company from whichbusiness operations are carried out. As a result, thecompany that establishes a branch in theNetherlands is liable for claims incurred by actionscarried out by the branch.SubsidiaryA subsidiary is a separate legal entity that maybe established by one or more shareholders. Thesubsidiary is a legal entity that is controlled by the(parent) company. Control of a subsidiary is mostlyachieved through the ownership of more than50% of the shares in the subsidiary by the (parent)company. However, under certain circumstances itis also possible to obtain control by special votingrights or diversity of the other shareholders. Theseshares or rights give the (parent) company thevotes to determine the composition of the boardof the subsidiary and thereby to exercise control.Since a subsidiary has limited liability, a shareholder(the parent company) is generally only liable tothe extent of its capital contribution.Many foreign companies make use of a subsidiaryrather than a branch. The main legal reason to set upa subsidiary, instead of a branch, is limitation of liability.As a shareholder of a subsidiary, the foreigncompany’s liability is basically limited to the extentof its capital contribution; whereas, if the foreigncompany makes use of a branch, it is fully responsiblefor all the obligations and liabilities of thebranch.One major advantage of setting up a branch is that itdoes not generally require the same legal formalitiesrequired for setting up a subsidiary. However, asmentioned above, the simplification and flexibilizationof the Dutch limited liability company law maywell diminish this advantage.Another important aspect to consider with respectto the choice of setting up a branch or a subsidiary inthe Netherlands is the matter of local tax regulations.The choice of setting up a branch or a subsidiarywill be determined based on the circumstancesand relevant factors with respect to the business assuch, and the Dutch tax regulations and tax treaties.