International Society of Primerus Law Firms

Conversion of a Legal Entity

By Reinier W.L. Russell, LL.M.
Russell Advocaten, B.V.
Amsterdam, Netherlands

A conversion of a legal entity into another legal form may offer advantages, such as more opportunities for raising capital or expansion or more opportunities for commercial operations. How does a conversion work?

Why Convert a Legal Entity?

A conversion of a legal entity may contribute to realize the following:

  • Limitation of liability
  • Changing the internal organisation of a legal entity
  • Raising of (additional) capital
  • Development of commercial operations
  • Merger and division (merger and division are only possible for parties with the same legal form)
  • Strengthening of the influences of the “users” of a foundation.

Standard Operations Requirements

Under Dutch law, a legal entity can be converted into another legal form. The following is required in a conversion:

  1. Resolution for conversion. The resolution has to be taken by 9/10 majority of the votes cast, unless the articles require a larger majority. This majority requirement does not apply to a resolution for conversion of a foundation, or to the conversion of an NV into a BV, or vice versa. This resolution must meet the same requirements as a resolution for amendments to the articles of association.
  2. Resolution for amendments to the articles of association. How this resolution has to be taken and the requirements it has to meet is due to the law and the existing articles. In a foundation, the board may take a decision for amendment of the articles of association, in an association the general meeting of members, and in an NV or BV the general meeting of shareholders.
  3. Drafting of a deed of conversion. This will have to be laid down by a public notary. The deed has to contain the amendments to the articles of association.
  4. Registration of the new legal entity with the Chamber of Commerce. Non-registration may lead to personal liability of the directors.

Additional Rules for Conversion

Additional rules apply to a conversion of an NV or BV into an association, cooperation, mutual guarantee company, or foundation. One of these is that a shareholder of the NV or BV will become participant of the new legal entity, unless the shareholder disagrees with the conversion. In that case, the disagreeing shareholder can apply for compensation for the loss of his/her shares.

In a conversion of a foundation, cooperation or mutual guarantee company into an NV or BV, each member becomes a shareholder, unless the membership has been terminated before the conversion was initiated. A member will be granted a period of one month to terminate membership after the intention to conversion was announced. 

Judicial Authorization

Sometimes, a judicial authorization is required. This applies to conversions into a foundation. If an NV or BV is converted into an association, a judicial authorization is required too. Such an authorization may be denied if the interests of the shareholders that disagreed with the conversion were not sufficiently taken into account.

Conversion of Foundation

In conversions of foundations into different legal forms, the original definition of the foundation’s purpose must be taken into account. That definition determines how the assets are to be spent. However, a director often intends to spend the assets after conversion differently than originally intended. To achieve that, the director shall include a provision that permits this in the articles of association of the new legal entity. This has to include explicitly that judicial authorization is required to spend the assets for a purpose other than the foundation’s purpose before the conversion. By this provision, the regime applying to the amendment of a foundation’s purpose will also be applicable to the new legal entity.

More information

Would you like to make amendments to a legal entity or convert it into a different legal form, or do you need legal advice on a conversion? Do you have any other questions concerning the management of your company? Please contact us.

The general information contained herein is intended for informational purposes only. It is not intended to be, and should not be construed as, legal advice or legal opinion on any specific facts or circumstances.

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