Social entrepreneurs be aware: the Dutch BVm is upcoming!

A new type of the Dutch private limited liability company that is specifically aimed at social entrepreneurs (the so called “maatschappelijke BV” hereafter the BVm) is in the making. In March 2021, a regulation outline was published by the Dutch government for public consultation following the coalition agreement of 2017, in which the concept of the BVm was first raised (the outline can be accessed via the following link and the overview below is based on this outline).

In the beginning of this year, a new government has been installed in the Netherlands that will hopefully propose an official legislative proposal for the BVm in the near future, also in view of its broader prominent ESG-agenda. A good time for us to highlight the key features of the BVm again!

Why is it intended to introduce a BVm?
The purpose of the BVm is to better facilitate and recognize social enterprises in the Dutch legal framework. This new company type, currently expected to get the legal form of a Dutch BV, will be marked by the letters “BVm” - instead of just “B.V.” - in its legal name, making it easily recognizable for other parties (potential business relations, financing parties or suppliers) that the relevant company has a social object. This will help social enterprises and stakeholders to connect.

What are the key expected features of the BVm?
In order to make use of the BVm, a company will have to prioritize social impact before the realization of profit. For the avoidance of doubt: it is possible to have a financial profit goal as well (as this will enable the BVm to broaden its impact), but the primary purpose should be to positively impact society.

From a legal perspective, the BVm will have to meet certain requirements in addition to the general BV framework and the rules that apply to an “ordinary” BV. In the current outline for the BVm, the four key characteristics can be distinguished in order for a BV to qualify as a BVm:

1. Social objects.
2. Designation of profit in line with the social objects / limitation on distributions.
3. Safeguarding of rights of stakeholders and organizations that serve a common interest.
4. Social reporting requirements.

We will discuss each of these features briefly below:

1. Social objects
The articles of association of the BV include its objects (in other words: contemplated activities). The objects of a BVm should stipulate the pursual or promotion of social objectives (i.e. objectives that will benefit the society).

Objects that are deemed to be in a common interest (algemeen nut) will also qualify as having a social objective and will in our analysis likely be leading in setting the objects for a BVm. Consequently, the following objects could be relevant to include in the BVm objects clause: welfare; culture; education; science and research; protection of nature and the environment; health care; care of young people and the elderly; animal welfare; religion and spirituality; promotion of the democratic legal order; public housing; human rights; labour market participation; or a combination of these objectives.

The actual activities of the BVm will of course have to match these objects.

In setting this requirement to include the social objectives in the objects clause of an entity, the BVm deviates from the American B-Corp, that chooses a substance over form approach and makes social entrepreneurship leading in eligibility for a certification and not the legal objects as such. However, in a Dutch legal context the mandatory requirement to include the social goals in the objects clause should lead to the same end result.

2. Profit allocation and distribution restrictions
BVm will restrict the possibilities to distribute profits to shareholders when compared to an ordinary BV. It will be mandatory to appropriate part of the profits towards the objects of the BVm: at least 50% of the profits will either have to be put towards the social objects or will have to be reserved to preserve the financial solidity of the BVm.

The remainder of the profits may be distributed, noting that the managing board of a BVm will have the authority to - and must -  withhold its approval to a distribution (and in line with the Dutch law system thus preventing a distribution) if this distribution would interfere or is reasonably likely to interfere with / prevent the BVm from pursuing its social objectives.

3. Specific rights for stakeholders
It is intended to grant BVm stakeholders certain additional governance rights in respect of resolutions of the managing board of a BVm that are deemed contrary to the primary social purpose of the BVm and are as such damaging to the interests of the relevant stakeholder. In the outline, these enhanced governance rights are considered for resolutions regarding merger, demerger, dissolution or conversion of a BVm.

We note that the outline does not include a definition of the parties that are deemed to be a stakeholder in relation to the BVm: in the current expectation, this term will in any case include shareholders, financing parties, contractors and customers of the BVm.

4. Social reporting
A BVm must prepare a report (either separately or in its management report accompanying the annual accounts) with a description of the manner in which it benefits society. This report must in any case include the BVm's objectives, activities and the value added to society by these activities. It is also considered to extend the reporting requirement to a description of the profit and reservation policy of the BVm and relationship management of stakeholders.

How can BUREN help?
In the absence of an actual legislative proposal regarding the BVm, it is too early to anticipate on the proposed BVm introduction in contemplated incorporations or amendments of articles of association.We will however gladly keep you informed of any updates in this process and are happy to talk through the potential fit of a BVm for your organization.