A fictional legal memorandum - Essay Example

Legal Memorandum Introduction Ruled by Dutch law, the Netherlands has traditionally been known as a hub for business in Europe. When thinking of establishing a business in the Netherlands, an individual ought to select the legal structure they will operate under first. This choice will be a determinant of the company’s tax obligations as well as liability. There is a wide range of opportunities for both national and international entrepreneurs and investors to establish businesses in the country.

It is therefore important to consider the requirements stipulated by the country’s corporate law before one considers setting up. Legal Person vs. Non-Legal Person There are several legal entities from which one can pick from in the Netherlands. However, the two major kinds of business entities are; those whose proprietor(s) is held personally liable for any debt that the company accrues in the course of business. Under this category, there are four entities including sole proprietorship, partnership, limited partnership (CV) and partnership under common firm (VOF).

The second kind includes legal entities that are separate from their owners. According to the Dutch law, the company is regarded as a legal person held liable for any obligations and debts it accrues. The owner(s) of the company cannot for the most part be followed in the case of collection of debt. The five entities under this category include limited company (NV), foundation, association, cooperative and mutual insurance, and private limited liability company (BV) (Usa, 2008). Each of the fore mentioned entities has its pros and cons and serves specific business plans and needs.

Advice to Xavier It is advisable that Xavier forms a legal entity and to be specific, a Private limited liability company (BV). This will make the business a ‘legal person’. A BV is generally composed of personnel and shareholders. Such an entity may be made up of one person who might act as both a director and shareholder. It does not have an upper limit on the requisite number of employees and shareholders hence suitable for this business as he seeks to employ two assistants. The entity requires € 18,000 in order so to be formed (Pacces, 2013).

This is far much less than the € 120,000 speculated by Xavier. The issue at hand is that he does not want any liability imposed on either his girlfriend’s inheritance or him. This is because he had been told that his creditors could lay claim on the property inherited by his girlfriend. He intends to keep his business matters away from his girlfriend’s property. The rule pertaining to a legal person as per the Dutch law however implies that the proprietors are not held liable for any financial responsibilities held by the company.

This will be applicable to Xavier’s case given that creditors are entitled to only pursue the assets of the BV itself as far as liability is concerned. This brings us to the conclusion that in the case of a BV, the directors as well as the shareholders are not held liable to a company’s debtors. Liability of Xavier’s Girlfriend Xavier had received misleading information that if he formed an enterprise his girlfriend’s inheritance would be at risk. He assumed that his creditors would be able to gain access to them in case of any financial problems.

This would however not be the case since the BV is a legal entity. Creditors can only in principle make claims on the BV’s assets and not on the shareholder(s)’ or director(s)’ assets. The amount invested by each shareholder determines their liability (Cerioni, 2007). This means that Yvonne’s inheritance will by no means be at risk of being acquired by the company’s creditors. His concerns are also misplaced since there is no indication of her inheritance being tied to Xavier’s company.

Furthermore, He doesn’t give an indication as to whether he will be going into business with Yvonne which would make her a shareholder. Bank’s Position after Legal Entity Formation Before the formation of the legal entity, Xavier is personally liable to the bank as he owes them some money. His business runs as a sole proprietorship which automatically makes him legally responsible for any business obligations. Creditors have the right to go after any of his personal assets if debt collection is necessitated.

The bank is therefore entitled to acquire his personal belongings in case he defaults on the loan he owes them. After the formation of the Private Limited Liability Company (BV) however, the bank will only have access to the company’s assets if he transfers the loan to the company (Cerioni, 2007). The company will have a life of its own and its assets are the only ones that are liable to act as collateral for the bank. Therefore, if Xavier goes ahead with the formation of the legal entity, all his private property will be protected under the law from being collected as debt.

Conclusion Xavier has very many misconceptions about the details of starting an enterprise. Some of these include the cost of establishment and legal liability. It would however be a wise decision if he opted to form a legal entity of which the recommended kind is the Private Limited Liability Company (BV). This would be the most suitable since it is not costly to establish and frees him of personal liability which is clearly a major concern for him. References Cerioni, L. (2007). Eu Corporate Law and Eu Company Tax Law.

Northampton, MA: Edward Elgar Pub. Pacces, A. M. (2013). Rethinking Corporate Governance: the Law and Economics of Control Powers. New York, NY: Routledge. Usa, I. (2008). Antilles Netherlands Business Law Handbook. New York, NY: International Business Publications, USA.