As a rule of thumb, use a BV if your startup wants to start doing business and wants to raise funds. It generally shields you from liability and investors are willing to invest in it.

A BV (Private limited company) is a private limited company. This means that it is a legal entity with shares, one or more shareholders and one or more directors (which may be the same person(s)). Shareholders provide the funds, directors manage the company on behalf of the shareholders and other stakeholders (think of employees, or suppliers and clients). The company is a legal entity, that has its own property and debts, and its own rights and obligations. So, all assets acquired by the company, such as the business itself, are owned by the BV, and not the shareholders and directors. And the company is liable for the debts, so when the company obtains a bank loan, the bank by default does not have a claim against the shareholders or directors.

That is the very purpose of a BV: to limit liability of its shareholders and directors ('limited' company). And it does, except for exceptional circumstances. This enables the entrepreneur to take business risks, with the worst-case scenario that the company may go bankrupt, but that there is no more liability or loss to the shareholders and directors than the loss of investments.

From a legal perspective, when entrepreneurs start taking risks that they cannot afford or insure, then it is recommended to incorporate a BV. Sometimes that is from day one, sometimes this comes later. Accountants generally would advise you to wait, as BV's lack tax benefits that partnerships (partnership, general partnership or limited partnership, see below) or sole proprietorships (sole proprietorship) may have. Another reason to incorporate a BV. is to attract investors by offering them shares.

The shares of the company offer the shareholders control rights and economic rights, although it may be organized differently. Control by voting in the general meeting of shareholders, setting the agenda, obtaining information from the board of directors in that meeting, and even by starting corporate litigation if needed. Economic rights include the right to dividend (if the general meeting decides to pay dividend and the company can afford it) and the return on sale of the shares.

Incorporating a BV is done by a civil law notary (although legislation is being prepared to incorporate online). The company is governed by its articles of association, which are part of the incorporation package. It contains the rules that govern the relationship between the company and its shareholders (the basic control and economic rights) and organizational rules, such as the type of shares, how to transfer shares, who may represent the company, how to decide in board meeting and general meetings and how to dissolve the company. It follows the general lines of the law.

Startups do well to also conclude a shareholders agreement, to agree on additional rules that apply between themselves and sometimes also the company: think of matters for which increased approval is required, a conflict resolution mechanism, and the possibility for investors to arrange an exit.

Playing around with the articles of association and the shareholders agreement makes the organization flexible: to a certain extent, parties may tailor the company to individual wishes, for example to make it look (and work) pretty much like a UK or US style limited company. Of course, the Dutch legal framework will still apply, but its nice for foreign investors to feel at home to a certain extent.

The BV is recognizable and usable for investors, Dutch or foreign, and therefore the standard form for startups that seek financing. Both for equity (shares) financing since the shares look and work as expected, and for debt financing as the company may provide security. Share transfer is done by the notary, which is less familiar to investors from common-law countries, which comes with some additional costs and red tape, but at the same time that process provides some benefits to all parties involved (foremost: certainty that monies are received and shares are transferred with correct application of the law) and in practice does not cause an issue.

The BV comes with incorporation costs and upkeep costs, the latter foremost being the costs of your accountant as you have to file annual accounts. Running a business in another legal form will however also require you to keep your accounting in order for which you may need an accountant too, so the additional costs of drawing up the accounts may be limited in the beginning.

Other legal forms to run a business offer less certainty against liability, are less familiar or are more restricted.

Partnerships, such as the partnership, the general partnership (partnership) and the limited partnership (CV) do not shield its partners from liability, and lack the simplicity of 'ownership through shares'. They are often used in the beginning of running as business, often to save costs or because the founders do not want to think of the way of structuring the organization yet. However, converting the partnership to a limited company often costs money too and may make it more complicated that starting from day one.

The public limited company (public limited company, or NV) is similar to the BV, but less flexible and requires a starting capital of EUR 45,000. It is the prime legal form for listing your shares to the public market (initial public offering, or IPO; although the BV may sometimes be used as well), and often BV's are converted into NV at a later stage.

The Dutch foundation (founding) is often used alongside a BV, for special purposes such as employee participation, protecting certain material assets as escrow entity, or for idealistic purposes where profit is not a goal of the company. It is not very flexible, has no shares (or owners for that matter) and does not allow profit distribution, which make is unsuitable for most startups as their prime vehicle.

The cooperation (cooperative) is in fact an association with members. It is a legal person, that can shield liability of its members, and is quite flexible to organize. It does not have shares, which makes it less attractive for investors in general, although the membership may resemble shares to a certain extent. The tax treatment of cooperations is different than for BV, primarily regarding the tax neutral pay out of distributions. The cooperation is less known and therefore not often used, but may be an interesting legal form if distributable financial profit is less important that non-financial gains (eg environmental benefits, or costs saving by collective purchasing power).