There are enterprises that serve a social purpose and are not profit-oriented. Current legal entities, such as a limited liability company (BV), foundation and association are not optimally suited for these kind of enterprises. Therefore, the Dutch government is working on a new legal entity: social enterprise (BVm). What will it look like?
Currently, the bill for a social enterprise (hereinafter: BVm) is being prepared. Social enterprises have been in the spotlight for some time now. Social enterprises are companies that operate for a social purpose, such as hospitals, companies dedicated to the environment, animal welfare or education.
In the Netherlands there is still no legislation about a legal entity that clearly refers to a social enterprise. However, more than 50% of the EU Member States already have legislation (in preparation) dealing with this topic, and the UK has Community Interest Companies (CIC). So the Netherlands could not stay behind, simply because of the great importance of these social enterprises to the functioning of its society. Therefore, on 3 March 2021, a BVm draft regulation was submitted for consultation. This consultation closed on 7 May 2021. It is planned that the amended bill will be submitted for consultation early this year.
A BVm aims to provide a clear and unambiguous legal structure that is easy to recognize, both for investors, clients and other BVms, so that they can more easily find each other and do business with each other. As yet, a legal entity such as a BVm does not exist. Therefore, it is often difficult for companies with a social purpose to choose the intended legal entity.
When, for example, a foundation is chosen as legal entity, no profit may be distributed. In addition, when a foundation is chosen, there is no separate capital, so that the foundation is at risk when engaging in commercial activities. On the other hand, a BV is often regarded as a purely commercial organization. This is an image that does not necessarily fit the image of companies with a social purpose and also excludes certain forms of financing. To accommodate such companies, the government intends to introduce the BVm.
Legally, a BVm is a ‘regular’ BV. Thus, the BVm is not a new legal entity but an addition to a regular BV. When the law will take effect, the BV with BVm status may add the addition ‘with social purpose’ to its trade name. To qualify as a BVm, the following requirements must be met:
Moreover, the articles of incorporation of a BVm must include that it pursues/promotes a community interest, what this purpose is and in what way it will be achieved.
In the document for internet consultation, fourteen topics are identified as having a social purpose. These topics include health care, human rights and education. This is in line with the definition of purpose required for qualification as Public Benefit Organisation (ANBI). The first requirement is therefore that the social purpose pursued by a BVm must not be merely a secondary activity or effect of a BVm.
To protect the status of a BVm, the wrongful use of BVm in a trade name will be penalized. This can be done in different ways. Firstly, unjustified use of BVm is a violation of the Trade Name Act. Also, any stakeholder can request the court to change the name, so that it is clear that it is no longer a BVm. In addition, a fine can be imposed and, as the most serious remedy, stakeholders and the Public Prosecution Service can request the court to dissolve a BV. Stakeholders include clients, investors and customers.
Other consequences of incorporating a BVm are the obligation to prepare an annual social report and a set of different rules for mergers, demergers and connections with other legal entities, which are no BVm. The social purpose of a company even leads to another group of stakeholders that can make use of the enquiry procedure at the Enterprise Chamber, namely associations and foundations representing social interests, which includes the purpose of the BVm under investigation. After all, they may be directly affected by a BVm seeking financing in the same circles.
These requirements and sanctions are based on the concept bill and may still be amended before the law will be definitely implemented. We will thus be happy to keep you updated on the development about further developments regarding the BVm bill.
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