Funding a BV
There are essentially two ways to finance your new BV company: by selling/issueing shares (equity financing) or by receiving a loan (debt financing).
This type of financing is the process of raising capital through the sale/issue of shares.
There are two ways to perform equity funding:
1. Share issue
If your bv will issue shares, this happens using a notarial deed from a notary. The issueing of shares can occur when incorporating the new company, or for example when you want to add an extra shareholder without selling existing shares to the new shareholder. The amount being issued is called the Issued Share Capital. A BV usually has a very low issued capital. We usually recommend clients to issue 120 shares of 1 euro (or even 0,01 euro). This makes for a share capital of 120 euros. We choose 120 shares because this number is easy to divide by 2, 3, 4, 5, 6 and so on.This issued capital is not really important for the actual company valuation. If you buy shares from a BV, you have to “pay up” these shares because of your obligation to deposit. That actually means that you have to pay the value of the shares to the BV. If you have issued 120 shares of 1 euro, your shareholder will have to pay up 120 euro to a business bank account. The issued capital must be on the company’s balance sheet, because it is part of the company’s assets. Issueing shares as described above is NOT a common method to increase share capital for a BV company. A Share Premium Contribution (or in Dutch: “Agio”) is the more logical way.
2. Share premium contribution (Agio)
This is most common way of equity funding of a BV company. This share premium is the amount paid up on the shares in excess of the nominal value of the shares. It costs much less time and less paperwork than issueing new shares. Share premium can be added to the company by transferring the amount to the company’s bank account. Remember to include a suitable description of the payment (capital deposit by shareholder) so it is clear how the payment should be qualified.
Taxes & equity funding
Share capital and share premium are both considered to be part of the equity of a BV and have the same effect on taxation: in the Netherlands there is no tax on equity funding (of course the return on equity, dividend, may be subject to taxation).
In this scenario the BV is funded by giving a loan to the company. This loan can be granted by a person or another company. This loan must be in the company’s interest. In order to comply with regulations from the tax authorities it It is very important that the loan is taken out under the usual business conditions. The most common loans are within a company structure. So for example a mother bv lending money to a daughter bv (or the other way around), or a main-shareholder/director lending money to the bv (or vice versa).
Debt funding & tax
There is a tax advantage to having a loan. If you lend money to your private limited company, the commercial interest that the private limited company pays to you as a business expense is deductible in corporation tax.