Incorporation of a Legal Entity for a Startup

Today, we provide you with a shareholders agreement for founders incorporating a Dutch B.V. in the pre-investment phase, before business angels or VCs come into play. The Startup shareholders agreement can be downloaded here, available in Dutch or English.

Generally, founders start working without any legal entity at all. In legal terms this is called a sole proprietorship (‘eenmanszaak’) or partnership (‘vennootschap onder firma’) for founders acting jointly. Since a sole proprietorship or partnership has certain tax benefits that BVs don’t have, founders are usually not in a rush to enter into a BV. However, at a certain moment, every (successful) startup has to take this step. In most cases, the transformation begins when startups begin hiring employees or entering into contracts with customers or other parties, in order to avoid the personal liability that comes with a sole proprietorship or partnership.

Fiscal aspects of incorporating a BV

The activities of the proprietorship or partnership will be contributed into a newly incorporated BV. In this respect, there are two ways to contribute the business activities into a BV: by means of (i) a taxable contribution (‘ruisende inbreng’) whereby the hidden reserves and goodwill realized in connection with the business activities will become subject to personal income tax at the level of the founders or (ii) an untaxed contribution (‘geruisloze inbreng’) whereby the existing hidden reserves and goodwill will not become subject to personal income tax, provided certain conditions are met. The possible risk of a taxable contribution is that the tax authorities will state, with the benefit of hindsight that the value of the business at the time of incorporation of the BV was too low, resulting in a tax claim and penalties. With an untaxed contribution this risk doesn’t exist, but for its application certain conditions need to be fulfilled. The most important one is that, in principle, the majority of the founders’ shares are is not supposed to be disposed of within three years after incorporation.

It should be considered on a case by case basis which way of moving your business into a BV is most favourable from a tax perspective. It is not an option to pretend nothing has been done or developed in the early stage and subsequently assert that the company has started from scratch. This will be a red flag for any investor considering to invest in the company at a later stage, because in that case fundamental IP rights are at risk. In particular with regard to technology startups is it extremely hard to value the business and set a price at the time the BV is incorporated. For that reason, we have included in the Startup shareholders agreement that, as a default position, the business will be transformed in a BV by way of an untaxed contribution (‘geruisloze inbreng’).

The documentation is prepared for a financing round

We have included consent rights for the general meeting of shareholders, information rights and drag along and tag along rights. These clauses are less relevant at the start of the BV, especially in a two equal shareholder structure where both founders-shareholders are also manager, but shareholdings might change and a founder who is a manager now, might not be a manager in the future. Another reason for including these clauses, which may seem redundant at first instance, is that the shareholders agreement is already prepared for the next step, i.e. the subscription of shares by an investor, which requires to have consent and information rights, as well as drag and tag along clauses in the contract.

Since we take as default position two founders in a fifty/fifty owned startup, a deadlock in decision-making might occur. This can be killing for an early stage company. To find a way out in such a situation, the shareholders agreement encompasses a deadlock mechanism. Other provisions that are included are inter alia a lockup for the transfer of shares, a bad leaver provision and non-competition and confidentiality clauses. The shareholders agreement can be used in combination with any standard set of articles of association of a Dutch BV.

We need feedback!

We have observed the same key principles when designing the shareholders agreement as we did with all other Capital Waters investment documents:

  • Simplicity – keep it simple, brief and readable
  • Neutrality – no intention to favour either founders or investors
  • Open source – free to use and free to revise

We encourage and invite everyone of you to send us your feedback on the documents, so we can keep on improving them. Last but not least, we are happy to provide you the documents but the use thereof is at your own risk, so please read the disclaimer.

We hope that many startups and investors will benefit from the freely available documents on We keep on working on providing new and improved documents to reduce time and costs of setting up a business and making investments in early stage companies. Please feel free to contact us with any enquiry on

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