Some frequently asked questions about business succession
With a business succession scheme (in Dutch: bedrijfsopvolgingsregeling, BOR) it is possible to obtain a partial tax exemption in the case of a business transfer within the family. This can be done by gifting or bequeathing the company or substantial interest shares. The BOR also has added value when the owner of the company dies. The heirs can invoke the BOR when filing their inheritance tax return and it is not until 10 years later that they will have to pay the inheritance tax (with interest).
It is conceivable that the BOR will be limited or abolished in the short term. Plans for this have already been formulated in the memorandum ‘Building blocks for a better tax system’.
Once the most important agreements have been reached, it is important to legally record them. This is done by drawing up a deed. In this deed we lay down, for example, provisions such as on the purchase price, reliance on tax regulations and an excess value clause. Once the deed has been signed, the business transfer is a done deal.
There are several reasons, but two main ones.
The first is liability. In a sole proprietorship, partnership, general partnership (in Dutch: vennootschap onder firma, VOF) or limited partnership (in Dutch: commanditaire vennootschap, CV), the entrepreneur is a natural person and is therefore privately liable for all and any business debts incurred. Even if you keep the records up to date and even if it is not due to a wilful act or gross negligence on your part that the debt cannot be paid. In the case of a BV, the company itself is liable as a rule, unless the director(s) have acted with (serious) personal culpability.
The other main reason is tax related. Over time, it often becomes more favourable from an income tax perspective to do business in box 2 (private limited company) than in box 1 (sole proprietorship, partnership, general partnership, limited partnership). Box 1 is particularly interesting for start-up entrepreneurs.
Many entrepreneurs choose to set up not just one but two companies, namely a holding company and an operating company. This has several advantages. Fiscally, the main advantage is that this allows you to make use of the so-called ‘holding exemption’ from corporation tax. Everything the operating company pays out to the holding company is untaxed. Only if you choose to distribute profits to yourself privately from your holding company the distribution is taxed (with income tax, in box 2). This immediately illustrates the other major advantage of a holding/operating company structure: risk spreading. Everything you ‘hoard’ in the operating company is available to its creditors. With a holding company, you can distribute the surplus liquid funds to it and thus ensure that these funds are not exposed to the risks of the business without incurring taxes. A sale of (part of) the shares in the operating company is also tax-free: after all, the holding company holds the shares that are sold, and the profit generated by the holding company from that sale remains untaxed under that same holding exemption.
There are actually two ways to switch from a sole proprietorship / general partnership / partnership / limited partnership (entrepreneurs subject to income tax rules, in Dutch: IB-onderneming) to a BV:
- Transfer on the basis of purchase (also referred to as ‘the transfer of assets and liabilities’). The BV then pays a purchase price for all the business units of the entrepreneur subject to income tax rules.
- Transfer on the basis of contribution. The BV does not pay a purchase price, but instead issues shares to the entrepreneur subject to income tax rules as ‘consideration’. In this way, the value of the business units ends up in equity. For tax purposes, this can be done in either a manner which has tax consequences or a manner which has no tax consequences. The first option involves the levy of income tax, the second one does not involve the levy of income tax but requires that you meet certain standard conditions.
We will be happy to look at which type of transfer is most suitable in your situation.
There are several options for phasing the succession. You can, for example, assign 5% of the shares in the company to the successor in a first step to permit your successor to attend the AGM. Subsequently, you can gradually increase the shares until the control increasingly lies with the successor. In a phased succession, it is important to make clear who is in charge. This will prevent misunderstandings.
There are three financing options: equity, converting the purchase price into a (subordinated) loan and borrowing from the bank. Often a combination of these types of financing is used. For example, it frequently happens that a bank finances part of the purchase price and parents provide the remaining part as a (subordinated) loan.
Since 1 October 2012, there is no longer a minimum capital requirement for a BV. Nevertheless, a shareholder must of course pay a certain amount for the acquisition of the shares. One share of € 0.01 is in fact the only lower limit, but of course incorporators usually choose to put more money in their BV. There are several ways to do so. You can lend the money to the BV, or deposit it as capital (either as nominal share capital or as share premium). The way you make the money available to the BV does make a difference for tax purposes. It is therefore important to always determine the amount of share capital to be deposited or the manner of financing the BV in consultation with your tax advisor/accountant.
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