The vof contract, laying down good ground rules

You do not have to draw up a vof contract when you form a vennootschap onder firma, but it is highly advisable. You can make all the verbal agreements you want, but you will not have any evidence when push comes to shove. You can draw up the contract yourself. You can decide to use a model contract, which you only have to fill in. Do you want to make sure you have not forgotten anything? Then have a legal adviser check the contract.  

1. Liability

Each partner is personally liable for the vof. This is called hoofdelijke aansprakelijkheid in Dutch. Partners are liable for all debts of the vof. Even if another partner caused the debts. You cannot change this in your vof contract. But you can describe the goal and activities of the vof in detail, and lay down each partner's legal powers. By doing so, you reduce the risk that other partners will be held liable for the actions of another partner. 

In comparison: the officials of legal structures like the bv or the stichting are not personally liable for the debts of the company. That is because a bv and a stichting are legal entities. The officials of a legal entity are not personally liable: the egal entity is.

Debts

Does the vof owe money to a supplier or the Tax Administration, for example? The creditor can decide which partner to burden with the debt. Is the partner unable to pay? Then the creditor can lay claim to the partner's personal belongings, even their home. 

2. Goal and activities

Start the partnership contract with a description of the partnership’s goal and activities. That way, it is clear for everyone what work partners are allowed to do on behalf of the vof. Say, the vof's goal is carpentry. If a partner then decides to do the electrics for a job too, they are personally liable if anything goes wrong. 

3. Term

State in the contract if you want to work together for a fixed period of time or indefinitely. Typically, people enter into a vof indefinitely, because it means they can decide to continue or stop at their own discretion. If you agree on a specific term, the cooperation will end after the term expires. Fixed-term contracts are common for groups of construction companies that decide to work together for a new-build project and start a vof. As per the contract, the vof ends when the project is over.

4. Contribution

The law assumes that everyone contributes knowledge, labour, and goods. Describe in the contract who contributes what, possibly in an annex. For example, equipment, inventory, customers, or money. This helps prevent misunderstandings about who contributed what. Which can prove useful if one of the partners wants to leave the vof.

5. Legal powers

In a vof, the basic premise is that partners can make whatever commitment they wish without the knowledge of the other partners. In other words, that partners may do anything they wish for and on behalf of the vof, such as entering into a contract for the purchase of a company car. If you want to arrange things differently, add restrictive provisions to the vof contract. These provisions clarify what partners are and are not allowed to do and set a cap for independent actions.

List the restrictive provisions in the Business Register. This lets your business partners check whether a partner has the power to act independently or whether all partners have to sign the contract.

Keep it practical: after all, the last thing you want is to need lots of signatures to approve everyday expenses and activities. 

6. Remuneration and profit

When problems arise, money is often the culprit. Make clear arrangements about how to divide the profit. For example, base it on the number of hours worked for the vof. Partners are not employees. Instead of wages, they receive a remuneration for the work they do. Put in the contract how much they get and when it is paid out, for example monthly.

If the remuneration you pay out during the year exceeds the partnership’s profits, they must return the excess to the account of the vof. Put this in the contract. Also wirte down what to do if the vof makes more profit than expected. 

7. Disbanding a vof

It is possible that one of the partners wants to leave the vof. Perhaps the cooperation was not what they had hoped for. Put in your contract what to do if that happens. You can think of a notice period or a compensation sum. Or you can agree on situations that automatically trigger the dissolution of the partnership, such as if a partner declares bankruptcy, is put into receivership, or has to undergo restructuring.

8. Illness and incapacity for work

Do you become unfit for work, or can you not work for a period of time? As an entrepreneur, you have to make your own arrangements for this. You can use your savings money or take out insurance. Put in the contract if and which insurances are mandatory for the partners. And agree whether or not you are entitled to a share of the profits if you are sick.

If a partner is ill for along time or unable to work, this causes problems for the company as well. Lay down in the contract for how long a partner must continue to be paid if this happens. And at which point the partner has to leave the vof. 

9. Continuing the business

If a partner leaves the vof or dies, the law states that the vof ceases to exist. But you or the other partners may want to continue the business. In the contract, you can give each other the right to continue the business if one of the partners leaves or dies.

If a partner dies, their heirs may claim part of the business. By taking out term life insurance for each other, you can prevent that this means the end of the vof. 

10. Valuation

If a partner leaves the business, they are either entitled to their original contribution and part of the value of the business, or they will have to pay extra, for example if there are debts. It is important to agree in advance how you will arrive at a valuation for the company and who will appraise it for you. Different valuation methods exist, all with different outcomes. Ask an accountant for advice.

The actual market value of real estate may be higher than the value stated in the business’s books. The clientele of a business also has value. 

11. Resolving disputes

When you go into business together, everyone has the best intentions. But quarrels or disagreements may arise over time. That is why it is clever to write down in the vof contract what to do if you cannot come to a resolution together. Think of asking someone to act as intermediary or of mediation. If that fails, you could consider arbitration or bringing the matter before a judge.

Division of tasks

You can choose to write down in the contract how the several tasks are divided. You can agree that each partner has the ultimate say about their own tasks. It means that that partner can make decisions about their part of the work for the vof themselves.

12. File the contract with KVK

Bring the vof contract to the registration appointment at KVK. Once files with KVK, your customers and suppliers will be able to view the restrictive provisions. For example, about how much money a partner is allowed to take decisions without consulting the other partners.