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July 15, 2011

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Since one of the main goals of the modernization of Dutch company law is to enlarge its flexibility, the introduction of a zero-tier board system is an interesting thought indeed. I remember that the zero-tier board system has been mentioned during the discussion of the revision (the simplification and flexibilisation) of Dutch private company law.

The Minister of Justice and the State Secretary of Economic Affairs were advised on that revision by the Expert Group. With regards to the zero-tier board system the Expert Group pointed out that according to Dutch law the board of directors has to act in the interest of the company (including the interests of shareholders and employees). The shareholders on the other hand are, in general, allowed to fully act in their own interest. A company with a zero-tier board system has no board of directors but only (a general assembly of) shareholders who run(s) the company. Obviously that can cause a conflict with the principle that the persons who run the company should act in the interest of the company, not in their own interest. That was one of the reasons for the Expert Group to advise against the introduction of a zero-tier board system (page 21-24 of the report “Vereenvoudiging en flexibilisering van het Nederlandse BV-recht” of the Expert Group). The Minister of Justice agreed with the Expert Group on that matter, so no zero-tier board system will be introduced with the revision of Dutch private company law (Kamerstukken II, 2006/07, 31 058, nr. 3, p. 10).

Just like the Dutch Civil Code, the Civil Code of the Netherlands Antilles makes is mandatory for the board of directors to act in the interest of the company. I assume that the Civil Code of the Netherlands Antilles allows the shareholders to, in general, fully act in their own interest. Contrary to the Dutch Civil Code, the Civil Code of the Netherlands Antilles does allow private limited companies to have a zero-tier board system. In that case the provisions of the Civil Code concerning the (board of) directors are applied upon the (general assembly of) shareholders. Therefore, if I’m correct, when the (general assembly of) shareholders act(s) in a zero-tier board system where normally the (board of) directors would act, the (general assembly of) shareholders have to act in the interest of the company in stead of their own interest. That way the conflict with the principle that the persons who run the company should act in the interest of the company, that may arise with the use of a zero-tier board system, is tackled. (section 8, subsections 1 and 3 and section 239, subsection 1 of Book 2 of the Civil Code of the Netherlands Antilles)

If a company is run by its shareholders, with a board of directors and a general assembly of shareholders as two separate organs it obviously more clear than in a zero-tier board system when the shareholders have to act in the interest of the company and when they are allowed to act in their own interest. I guess that can be a legitimate reason not to allow a zero-tier board system. On the other hand there are many small private limited companies with a small number of shareholders and no or just a couple of employees. In that case the interest of the company will be (largely) identical to the interest of the shareholders. That makes the prohibition of a zero-tier board system based on the distinction between the interest of the company and the interest of the shareholders less acceptable.

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