Introduction

Existing Dutch legislation concerning partnerships largely stems from the year 1838. Therefore, this legislation is regarded outdated. The applicable rules are included in various Dutch laws (Book 7A of the Dutch civil code for the Maatschap and the Commercial Code for the V.O.F. and the limited partnership) and jurisprudence has modernized such rules laid down in Dutch law. 

Since the 1970’s several attempts have been made to modernize the applicable legislation, while at the same time updating it with precedent cases. So far, any attempts to modernize have been unsuccessful. 

New draft legislative proposal 

On 10 October 2022, a new draft bill to modernize legislation concerning partnerships was published for consultation. The proposal aims to update the Dutch legislation on partnerships and to include the applicable rules exclusively in the newly introduced title 13 of Book 7 of the Dutch civil code (Book 7). 

The proposal envisages a simple and clear arrangement with appropriate measures for partners and creditors, without increasing administrative costs for the partnerships. 

Specific changes in Dutch civil law

Public and undisclosed partnerships

Current rules provide for three types of partnership: (i) a partnership for a regular enterprise (a V.O.F.), (ii) a partnership for a profession (Maatschap) and (iii) a limited partnership (Commanditaire Vennootschap). None of these partnerships qualify as a legal person. This means that these partnerships cannot hold legal title of assets in their own name. 

The proposed bill changes the categorization of partnerships. After implementation only two categories remain: (i) an undisclosed partnership without legal personality or (ii) a public partnership with legal personality. The legal form of a limited partnership will remain under some amendments. In addition, the limited partnership qualifies as a public partnership under this legislative proposal. 

This means specifically that the following three forms remain:

(i) An undisclosed partnership without legal personality (niet-openbare personenvennootschap);

(ii) A public partnership with legal personality (openbare personenvennootschap); and

(iii) A public limited partnership with legal personality (commanditaire vennootschap).

The proposal provides that the undisclosed and the public partnerships are entered into by means of a private deed, but the absence of such deed cannot be held against third parties (800 Book 7). 

Undisclosed partnership

An undisclosed partnership is a partnership between at least two partners. The partners of an undisclosed partnership act in their own name, but at their joint expense. The partnership does not have legal personality. Therefore, the title to assets cannot be held in the name of the partnership, so that the partnership does not have equity and the assets contributed by the partners to the undisclosed partnership are regarded as assets held in a specific community by and amongst the partners. This community property forms a separate capital, separated from the equity of the partners (801 Book 7). 

The undisclosed partnership is not registered with the Trade Register. However, if the undisclosed partnership becomes registered, the partnership will convert into a public partnership with legal personality and the assets in the community property will be transferred to the public partnership under universal title. 

Public partnership

A public partnership is in principle registered with the Trade Register. Due to such registration, the partnership will have legal personality. Contrary to the undisclosed partnership, the partners of the public partnership act under a common name and at the expense of the partnership itself. The legal personality allows a public partnership to own assets, including properties subject to registration (e.g. real estate). 

Having legal personality does not mean that such partnership is a legal person in the meaning of Book 2 of the Dutch civil code (DCC). Book 2 of the Dutch civil code does not apply to partnerships. 

In the event a public partnership is not registered with the Trade Register, it will still have legal personality. But, in such case the law power of the public partnership is limited: the partnership may not acquire registered shares, real estate or be appointed as managing director of a legal entity. But, as it has legal personality, it may hold assets in its own name and as such will form and hold equity (eigen vermogen). 

Joint and several liability

Public partnership

Partners - other than the limited partner in a public limited partnership - are joint and severally liable for obligations of the public partnership towards third parties. This liability applies besides the liability of the public partnership itself, but may only be invoked in the event the public partnership is in statutory default (verzuim), provided it regards a registered public partnership. In the event the partnership is not registered the requirement for statutory default does not apply (814 paragraph 6 Book 7).

In principle, a newly adhered partner is only severally liable for obligations that:

(a) became due and payable after his adherence (for contractual obligations); or

(b) arouse after his adherence (non-contractual obligations) (814, paragraph 4 Book 7). 

The liability of a partner that ceased to be a partner is in principle limited to five (5) years (814 paragraph 5 Book 7). 

Undisclosed partnership

The undisclosed partnership has no equity, and in furtherance thereof the treatment is different. The draft legislative proposal provides that debts of the partnership (i.e. debts incurred by the partners together) may be recovered on the assets held in joint community (802 Book 7). This rule also applies in the event that partners have left or joined the undisclosed partnership in the meantime. The partners are joint and severally liable for such debts. 

However, a sole partner is liable to the debts following from legal acts performed in its own name (i.e. with respect to agreements concluded in its own name and risk). These debts cannot be recovered from the assets held in the joint community. 

The limited partner in a limited partnership

Other than under current legislation, a limited partner is allowed to represent the limited partnership. The limited partner has such representative authority in case he is authorized thereto by the (partners) of the limited partnership. Upon representation, the limited partner will not incur a joint and several liability for his acts performed. However, in case his acting plays an important role in the bankruptcy, the applicable limited partner is personally liable for any deficit (819 Book 7). 

Continuation. Dissolution.

The public partnership will be dissolved in the event only one partner remains. However, there is a grace period of three months. In the event a new partner adheres within such period, the public partnership recovers (815 paragraph 1 Book 7). In case of dissolution, the partnership will continue to exist to the extent required for its liquidation (816 Book 7). The partners will jointly act as liquidators, unless agreed or resolved otherwise. 

Specific changes in Dutch tax 

Currently, both regular enterprise partnerships and professional partnerships are considered transparent for tax purposes in the Netherlands. Therefore, the partners are individually taxed based on their share in the partnership's assets and liabilities. 

Tax transparency

Under the proposed legislation, the tax transparency will continue to apply to undisclosed and public partnerships, regardless of their possible legal personality, for personal income tax, corporate income tax, dividend withholding tax and the inheritance and gift tax. 

Contrary to the above, a public limited partnership that issued freely transferable participations will be considered non-tax transparent. This however may change based on the legislative proposal regarding the qualification policy of (foreign) legal forms, which is expected to be published with the 2024 Tax Plan on 19 September 2023. 

The tax transparency will no longer apply to public partnerships for the Source Tax and Real Estate Transfer Tax (“RETT”).

Source Tax

With respect to the Source Tax, a public partnership will be the withholding tax agent for interest and royalty payments to associated enterprises in low-taxed jurisdictions. This will however not be the case for dividend payments, that are also subject to Source Tax as from 1 January 2024. With respect to dividends, the tax transparency will remain.

Real Estate Transfer Tax

Due to the legal personality, (registered) public partnerships can own property subject to registration. Public partnerships will therefore be considered as non-tax transparent for RETT purposes. The entry or exit of a partner should therefore no longer trigger RETT. 

However, please note that the entry or exit does trigger RETT when the public partnership qualifies as a real estate entity. This is the case when the assets of the public partnership at the time of acquisition of the participation or at any time in the preceding year consist or have consisted for 50% or more of immovable property and at the same time at least 30% of the assets consist or have consisted of immovable property located in the Netherlands, provided that the immovable properties, taken as a whole, are or were primarily used for the acquisition, disposal, or exploitation of those immovable properties.

Dentons’ comments

As several attempts to modernize the partnership legislation have failed, it remains to be seen if this legislative proposal will make it to the finish line. In our view, the introduction of the public and undisclosed partnerships and the centralization of the legislation in a new title in Book 7 of the Dutch civil code would make the level playing field clearly laid out. Dentons is happy to assist you in determining the potential impact of this proposal.