Draft Bill Modernizing Dutch Partnerships

On 21 February 2019, Dutch Minister Dekker presented the draft Bill Modernization of Partnerships (the "Draft Bill") for consultation. The purpose of the bill is to modernize the legal framework for Dutch partnerships (the “Partnership”) and make it accessible to entrepreneurs, to offer creditors adequate protection and to provide trade security.

The proposed changes
Below you will find the most important proposed changes to the Draft Bill:

Characteristics of the Partnership

• The Draft Bill includes only two legal forms, being the partnership (vennootschap) and the limited partnership (commanditaire vennootschap/CV). 
• The Partnership is an agreement to cooperate in the exercise of a profession or business, where-by each partner makes a contribution with the aim of gaining and sharing profits with each other.
• No notarial deed or starting capital is required when entering into a Partnership.
• A Partnership automatically acquires legal personality. The advantage of this is that:
  - Property can easily be registered in the name of the Partnership;
  - Partners can easily accede to the Partnership and resign.
• The Partnership and its partners must be registered in the trade register. Partnerships that haven’t been registered in the trade register:
  - can’t obtain registered property and can’t be an heir;
  - can’t limit the liability of the partners;
• Contrary to the existing law, the limited partner can represent the limited partnership, provided that  he has been granted a proxy to that effect.

Pledge and usufruct

• A pledge or usufruct can be established on the distribution at the expense of the Partnership’s equity, as well as on a payment upon retirement. The transferable legal relationship of the partner to the Partnership can also be pledged or charged with a usufruct.

Liability of the Partners

• Partners will be jointly and severally liable for debts of the Partnership, if the counterparty can demonstrate that the Partnership can’t meet its obligations. Thus, a subsidiary liability applies which means that the counterparty must first address the Partnership.
• In addition to the Partnership, the partner to whom the counterparty has explicitly entrusted the execution of an assignment will be fully liable towards the counterparty.
• Each partner can resign without the Partnership being terminated. The resigning partner will be entitled to a resigning compensation.
• The resigning partner remains liable for a maximum period of five years for existing commitments of the Partnership at the time of his retirement.
• The acceding partner will be only liable for commitments that arise after his accession.

Administration obligation

• The Partnership has an administration obligation; a balance sheet and a statement of income and expenditure need to be drawn up and proper administration should be maintained.

The dissolution of the Partnership

• The Partnership will be dissolved in its entirety pursuant to a decision by the partners, after which the assets of the Partnership will (if applicable) be liquidated by the partners jointly. The Partner-ship which has been registered in the trade register ceases to be a legal person with effect from the day following the registration of the termination of the liquidation in the trade register.
• The Partnership which only has one partner will be dissolved by operation of law. The sole partner may continue the Partnership’s activities; subsequently, the assets of the Company transfer to the continuing partner under universal title, so that in principle no further actions will be required.

Conversion of the Partnership

• The conversion of the Partnership into a Dutch Book 2 Civil Law legal person, such as a private limited liability company (and vice versa), will be dealt with in a separate legislative process.

Consequences for existing partnerships

• Partnerships that are entered into at the time the Bill comes into effect will be either a partnership (vennootschap) or a limited partnership (commanditaire vennootschap/CV).
• Existing commercial partnerships (VOF), i.e. Partnerships that conduct a business, may be con-tinued.
• Existing professional partnerships (maatschap), i.e. Partnerships that practice a profession, may also be continued.
• Existing limited partnerships (CV) will have to be registered in the trade register, only if they have not yet been registered.

Timing
The consultation ends on 31 May 2019, after which a bill will probably be drafted. It is expected that the new legal regulation will come into effect at the end of 2019 at the earliest.