Self-employed professionals working together
Self-employed professionals working together
Working as a self-employed professional offers a lot of freedom. You control which contracts you take. You can determine your own rate and you determine when you work. Besides these advantages, there are also some disadvantages when working as a self-employed professional. For example, when you are on vacation or when you are sick. At these times when you cannot work, you do not acquire new contracts and therefore do not receive an income. You, alone, can only do so much work. Therefore it is possible that you have to pass up certain large and challenging contracts. To create more security for yourself you can choose to work with other self-employed professionals. In this manner you can use each other’s knowledge to take on bigger projects, but you do not have to lose your independence as a self-employed professional.
Three suitable forms of collaboration can be a partnership (maatschap), partnership firm (vennootschap onder firma) and the co-operative society. The legal form that is most suitable for you is dependent on how you want to determine your liability or tax payments. The partnership and partnership firm are for the most part the same. That is why we choose to only describe the subjects where the partnership firm differs from the partnership.
The partnership is founded through an agreement. Together with others you decide to join forces, with as its purpose gaining profit for everyone involved in the partnership. To gain profit every partner brings something to the table such as money, assets, use of assets or labour. You can choose to take a communal name during the collaboration. This is called a public partnership. In a silent partnership you do not act under a communal name and third parties have no knowledge of your collaboration. The silent partnership will not be explained further in this article.
The partnership agreement can be made both verbally and in writing. You can chose to make the partnership contract together. In such, all agreements are determined in writing and you can always review the made agreements. Before the contract is signed it is important all parties have the same understanding of the made provisions. In this manner, disputes can be avoided in the future. After founding the partnership, you need to register in the Trade Register.
Characteristically everyone is equal in a partnership. In principle everyone participating in the partnership can perform tasks that are part of the regular activities and are aimed to serve the purpose of the partnership. These tasks may be performed without permission of one of your peers. If you do not agree with an action by one of the other peers you can oppose this. If the other partner still performs the task then only that partner is liable for that action. In the partnership agreement you can determine that the authority of certain decisions regarding certain activities are for one or more specific partners. The rules for performing tasks that are not part of the regular activities are slightly different. If these tasks are not part of the regular activities of the partnership, these can only be performed if all partners grant their permission.
Relationship to third parties
The partnership does not have a legal personality. In principle you only represent yourself and the partnership. If you wish to represent all partners, you need to have been granted an authorisation. This means that you have been given permission either verbally or in writing by the other partners for that legal action. If you have been granted that permission and you have performed the task to which you have been internally authorised, then all partners are equally liable. In such it is not taking into consideration what you have brought into the partnership. If the partner has not been given permission, that partner is the only one liable for that action in principle. In certain situations the action can still be linked to the partnership; if the unauthorized action is corroborated by the other partners or if the action has been beneficially for the partnership.
With an authorized legal action everyone participating in the partnership is liable in equal parts. That means the creditor of the partnership can hold every partner accountable for his/her part. It is important to consider that the internal decision authorisation is not linked to the general representation power. Someone can possess internal management power, but can simultaneously be unauthorized to represent the partnership. However, because that partner does have internal management power, he/she can pass on the consequences to other partners as per their internal agreement. If that partner does not have internal management power nor has general representation power, then only the acting partner is liable and he cannot pass on the consequences to the other partners. That partner is then also liable for possible debts caused by his action(s) with his private capital. This does not work vice versa though; possible creditors cannot make claims on the communal capital of the partnership, because the partnership has a so-called ‘’separated capital’
Profit and loss
There is a lot of freedom when determining how to distribute profit and/or taking responsibility for possible losses. The condition that every partner is entitled to a share of the profit is legally binding and must be upheld at all times. Whether the profit distribution is based on the partner’s contribution or is based on the contribution of a certain project is entirely up to the partners. Although no one can be excluded when distributing profits, the partners can determine that only one partner is responsible for all the losses.
The partnership is a fiscally transparent legal entity. Not the partnership, but the self-employed professionals are taxed with income tax. You, as a self-employed professional, have to pay taxes over the profits gained from the partnership. If you are entitled to the starters- and entrepreneurial deduction, then you keep that right. For the value added tax the partnership is regarded as a independent enterprise.
Accession and retirement
Depending on how the internal decision authorisation is arranged, you decide on the accession of new partners. If necessary, you can alter the partnership agreement, regarding the accession of new partners. In principal, a partnership is terminated if a partner retires from the partnership. If you want to ensure the continuing existence of the partnership, you can add that to the partnership agreement. In such a case you can add a so-called continuation proviso. After retirement, the partner is still liable for existing debts at the moment of retiring. General rules regarding the limitation period apply in this.
A partnership can be entered into for a definite or indefinite period of time. If the collaboration is for a definite period of time, then the start- and end date must be recorded. The partnership is terminated when the period of time has passed. A collaboration for a specific project is similar to a limited time partnership. This is still designated as a partnership for an indefinite period of time because it is uncertain when the project will be finished. If the partnership is terminated, it will also be dissolved. The partners are obligated to pay any outstanding debts. The private funds of the partners must be used if the partnership’s funds are insufficient. If a portion of the partnership’s funds remain, the remainder will be divided according to the agreements made concerning the distribution of profit.
Partnership firm (VOF)
The most important differences between the partnership firm and the partnership concern the work activities, the general representation power and the liability. In the partnership the partners practice a profession together. For example professions like lawyers, general practitioners, artists or physical therapists. In the partnership firm the partners exercise the work activities of a communal company such as garages, shops or cafes. The participants of the partnership firm are called partners.
Relationship to third parties
Another difference between the partnership and the partnership firm concerns the relationship to third parties. In the partnership firm every partner is authorized to act in the name of all partners, provided the acts serve the purposes of the partnership and the authorization is not excluded in the agreement. In the agreement the general representation power can be limited or even excluded. The partners can only appeal to this limitation of authorization if it is known to third parties that there is a limitation regarding the general representation power. A convenient way to make the limitation of authorization public is by registering in the trade registry. In addition, the general representation power is limited, because the acts of the partner have to achieve the goals of the partnership firm. If these goals are not achieved by the acts of the partner, one partner can only bind another partner, if he/she has been given a proxy for the actions.
In an authorized legal action every partner is severally liable for that action and not, as in a partnership, liable in equal parts. This means that every partner can be held accountable for the entire sum of the debts. Creditors can appeal to both the communal partnership’s funds as the private funds of the partners. If the partner was not authorized for the action, just as with a partnership, the partner is exclusively liable for that action, just as with a partnership, unless the
action was favourable for the partnership firm, or has been authorized by other partners.
The co-operative society
When you think about a co-operative society, you will soon think about agricultural companies. However, as a self-employed professional, you and other entrepreneurs can also start a co-operative society. The law gives a rather unclear description of the co-operative society; ‘having as its purpose supplying certain material goods for its members by coming to agreements within the company that is exercised in the service of her members.’ In short, this means that independent entrepreneurs work together to accomplish a certain goal, that alone will be impossible or harder to accomplish. To participate in this collaboration you become a member of the co-operative society.
A visit to the notary is unavoidable, because the co-operative society needs to be founded with a notarial deed. In the notarial deed the articles are always recorded. In the articles the name, the purpose and the most important rules of the co-operative society are stated. After the foundation the co-operative society needs to be registered in the trade registry and the deed of incorporation needs to be deposited at the Chamber of Commerce. The registration in the trade registry is an important requirement, because the management in the period between founding and registration are severally liable for their legal actions. After the foundations the co-operative society will need to supply an annual report and make these public for the Chamber of Commerce.
The co-operative society is a legal personality. This means that the enterprise can perform legal actions under its own name. Representatives are, of course, required. They act in the name of the co-operative society. If you found a small co-operative society a management and a general members meeting of the members will need to be created. The management is authorized to represent the legal personality. If the management performs a legal action, then the rights and obligations of that action lie with the co-operative society. You can determine if the authorization of representation is for one or several members of the management in the articles. The general members meeting can be seen as the supreme body and has ‘residual powers’. The general meeting has all responsibilities that are not entrusted to other bodies of the co-operative society.
For the duration of their membership, members cannot be held accountable by creditors. When dissolving the co-operative society or in the case of bankruptcy, in principle, every member is equally liable for possible deficits of the co-operative society. Besides its current members, former members that were members of the co-operative society less than a year ago are also liable. An advantage of the co-operative society is that you can limit the liability within the articles. You can choose to limit or exclude the private liability. In this case respectively the letters B.A (beperkte aansprakelijkheid/ limited liability) or U.A (uitgesloten aansprakelijkheid/ excluded liability) are added to the company name.
Distribution of profit and loss
A co-operative society can be founded with the purpose profit. In the articles you can create regulations concerning profit distribution. If you have not recorded any regulations, then the general meeting of members is authorized to decide on the distribution of profit. The profit can be distributed periodically or when dissolving the co-operative society.
The co-operative society is obligated to pay taxes. Cooperation tax is paid over the profit made. It is important for the taxation if it concerns privatised profit or extended profit. Privatised profit concerns profit that the co-operative society itself is entitled to. If the members of the co-operative society are entitled to the profit directly, it is a called extended profit. This situation applies when the co-operation is entirely at the service of its members. In this case the entire profit can be designated as extended profit. To prevent double taxation, the distributed extended profit of the co-operative society is tax deductible. Over that profit the members only need to pay income tax themselves. Furthermore, the profit distribution of the co-operative society is not taxed with dividend tax for the members.
Entering and exiting the co-operative society
It is easy to enter or exit a co-operative society. Admission to the co-operation is possible by becoming a member. You can end your membership in several ways. One of those is a voluntary terminating the membership. Because it might not be desirable to grant easy termination of the membership, certain conditions can be added to the co-operative society’s articles. For example, the member will need to pay an exit fee.
Termination of the co-operative society
If you want to terminate a co-operative society, the co-operative society will need to be dissolved by the general meeting of members. If the co-operative society still has funds, the debts and dividends will be paid with these. After payment of the debts, the co-operative society can be terminated.
What legal personality suits you?
Depending on what is important to you, you will eventually choose the legal personality that suits your collaboration the best. Because of the great freedom that the parties will receive and the differences between the legal personalities, it is important to receive good advice. The legal personalities are flexible and easy to found, but also have some legal and fiscal issues. Do you want to know what legal personality would suit you the best or do you want to receive more information? Please contact us.