Limit your partner's liability for your business

As a business owner, you are liable (responsible) for paying off business debts. And liable for a claim for damages against your business, for example. In some cases, you and your partner are also liable privately. If so, creditors of your business can claim your personal savings and belongings.

Whether that applies to you depends on these 2 questions:

1. What is the official status of your relationship?
2. What is the legal structure of your business?

What is the official status of your relationship?

There are different forms of relationships. The risks for the partner of an entrepreneur are different for each form. 

The rules for a marriage and a registered partnership are the same. Everything in this article about marriage and prenuptial agreements also applies to a registered partnership and partnership agreements.

You are not married and do not live together

If you and your partner are unmarried and do not live together, your partner is separate from any agreements you enter into as an entrepreneur. Your partner is not liable.

You live together

Even if you are living together, without a cohabitation contract your partner is not liable. However, when you live together, you often make joint purchases. If you are privately liable as an entrepreneur, creditors of the company can have any joint assets seized if your company cannot pay its debts.

You can avoid this happening by having a civil-law notary draw up a a cohabitation contract. Tell the notary that you have a business and want to prevent a claim being made on joint assets by including a residence clause (verblijfsbeding, in Dutch).You also record which possessions belong to whom.

You are married or have a registered partnership

In the case of marriage or registered partnership, your partner's liability is determined by:

• Whether you got married or became registered partners before or after 1 January 2018.
• Whether you have drawn up a prenuptial or partnership agreement.

Limited Community of Property Act

Since 1 January 2018, the Limited Community of Property Act has been in force. Did you enter into a marriage or registered partnership before this date without a prenuptial agreement? Then all money and assets you or your partner have belong to both of you. Also your business. So, your partner shares in the entrepreneurial risk. If you get divorced, you have to share this joint property. 

If you married after 1 January 2018, then what you had privately before the date of your marriage or registered partnership remains private. The assets you build up after marriage or registration are shared

Prenuptial or partnership agreement

Has a prenuptial or partnership agreement been drawn up? A past agreement may have different consequences when you start your own business. So take a careful look and make sure the agreement fits your new situation. 

If you do not have any agreement, it is wise to have one drawn up and limit the risks for your partner. Ask a civil-law notary for advice. 

Already an entrepreneur

If you are already an entrepreneur when you marry or enter into a registered partnership, your partner will not automatically become co-owner. The business remains yours.

Nevertheless, it is wise to draw up a prenuptial agreement or partnership agreement. Because by law, married or registered partners must both make a reasonable contribution to household expenses. Does one partner earn more? Then that one usually pays more too. But does the other person take more responsibility for the household and/or children? Then that also counts.

For entrepreneurs, it is sometimes difficult to ensure this contribution is fair. You might leave profits in your business to build up assets, while your partner's salary might go entirely to your household.

Reasonable contribution

There are no set rules for what a reasonable contribution is. It depends on the situation. You  agree on this together. Get advice from a bookkeeper or accountant. 

A reasonable contribution is based on:

• The size of your business
• How much profit you make
• The sector in which you are active

Have a civil-law notary record the way you calculate the contribution in a prenuptial or partnership agreement. If you have not agreed in advance, a judge will decide how money and property must be shared after a divorce. 

Consequences of divorce

It is good to know how divorce will affect your business. Does the company, or the value of the shares of a BV, fall under joint ownership? If so, your ex-partner has the right to half of the value and you  must buy them out. If you do not have the money to do this then you must take out a loan. 

Consequences of death

You may not want to think about death, but it is still a good idea to consider what will happen to your business if the worst happens.

• If you run an eenmanszaak, your business will form part of the estate left to your heirs. Your next of kin will need to decide whether to continue the business temporarily, sell it, or wind it up.
• If you have a BV, the shares will form part of your heirs’ estate. Control and voting rights over the shares must be properly arranged.

Set out plans before death

By setting out the right plans in advance, you can give your surviving relatives greater peace of mind. You can draw up a will and a living will with a civil-law notary.

• A will is for after your death. In your will, you can specify, among other things, who will handle the estate, to whom the assets will go, and who will take over the management of your business. You can also have the will drawn up in such a way that your successor can make use of the business succession scheme (BOR) for gift and inheritance tax purposes. This prevents the business from immediately facing financial difficulties due to high tax liabilities.
• A living will applies if, during your lifetime, you cannot make decisions because of an accident or illness. In other words, if you become temporarily or permanently incapacitated. In a living will, you state who will speak for you if you cannot speak for yourself. You can join your personal living will (about care and medical treatment) with a business living will. Appoint someone who can make business decisions on your behalf. Set out exactly what this person is and is not permitted to do.

What is the legal structure of your business?

The legal structure of your business plays an important role in your and your partner’s liability for your company's debts.

Legal structures with legal personality

With legal structures with legal personality, you and your partner are not personally liable for the debts of your business. Legal structures with legal personality are:

•  besloten vennootschap (private limited company, BV)
• naamloos vennootschap (public limited company, NV)
• coöperatie (cooperative)
• stichting (foundation)
• vereniging (association)

There are exceptions where you can be held personally liable. For example, if you mismanage your BV. Or if you borrow money to start your business. The bank will often ask you and your partner to sign privately for the loan. You give the bank additional security that you can repay the loan with, for example, the value of your house or your own savings. If you signed privately and your business does not pay back the loan, then the bank can hold you privately liable for this even if your company has legal personality.

Legal structures without legal personality

With legal structures without legal personality, you have full private liability. With theselegal structures, you must pay off debts with your own capital. This includes assets you have together with your partner such as your house or car(s). Legal structures without legal personality are:

• eenmanszaaak (sole proprietorship)
• vennootschap onder firma (general partnership, VOF)
• maatschap (professional partnership)
• commanditaire vennootschap (limited partnership, CV)

Special general partnership (VOF): de man-vrouwfirma

Are you and your partner both active in a new company? Then you can set up a so-called man-vrouwfirma (husband-and-wife business). You do not have to be husband and wife, this structure is available for all couples (married or registered partners), their sex makes no difference. 

The man-vrouwfirma is a variety of the VOF, and in a VOF all partners are personally liable. The structure is widely used in the agricultural and hospitality sectors. In a man-vrouw firma, both partners are personally liable even if you have made other arrangements in a pre-nuptial or partnership agreement.    

Get help

As you can see, there is a lot involved in getting everything right. Consider hiring a legal adviser or civil-law notary. Arrange it now so you are prepared for the future.