A PUBLIC LIMITED LIABILITY COMPANY AND LEGAL PERSONALITY

Dutch Supreme Court, Decision of 18 January 1901

Suppose you and several of your friends decided to combine your financial resources to start a business. You subsequently agreed on the incorporation of a limited liability company (NV). You also agreed on the amount each of you would put into the NV and the number of shares each of you would receive in return for this capital contribution. You and your friends then visited the civil law notary and a notarial deed incorporating the NV was executed. The NV now exists.

However, although you and your friends paid their respective capital contributions and the NV has issued shares to your friends, each receiving the number of shares agreed upon, the NV refuses to issue shares to you. Despite the agreement concluded and despite your capital contribution, you are still ‘shareless’. You call and write to your friends, remind them of your agreement and you even grant them a reasonable period for the issuance of your shares, but they don’t seem to care and don’t take any action whatsoever.

The next and in most cases quite logical step for you to take, would be to make an appointment with your lawyer. He fully understands that you are upset and he advises to take legal action immediately. He tells you that every failure in the performance of an obligation makes the defaulting party liable for damages caused. You are not willing to participate in the NV any longer and you now simply want your money back. According to your lawyer every failure of the other parties in the performance of their obligations under the agreement gives you the right, in principle, to set aside the contract.

Upon your instructions the lawyer initiates legal proceedings. However, he decides to let the NV be the defendant. He does not demand repayment of your capital contribution, but requests the dissolution of the NV based upon the described failure of performance under the agreement.

This action poses two important questions to the Court. Can the NV be liable for the non-performance under an agreement to which it is not a party? The agreement was concluded prior to the establishment of the NV and the NV never became a party to it. The other question is about the nature of the NV: is the NV of a contractual nature (and are you and your friends, or are the shareholders, the parties to the contract) or is the NV of a different nature?

As far back as 1901, the Dutch Supreme Court in The Hague was faced with these questions. In its decision of 18 January 1901 (W. 7553), thus 110 years ago today, the Supreme Court ruled that an NV was a legally distinct person from the persons who are its shareholders (and also from, as I may add, the persons who had formed the company and are no longer shareholders). An NV is a company limited by shares and, according the Supreme Court, it is of no importance what the names of the individual shareholders are. In the case of bearer shares, such names may not even be known to the NV.

The Supreme Court stipulates that when an NV becomes a party to an agreement which it concludes with a third party, there will be no legal relationship emanating from such an agreement between the shareholders and aforesaid third party. In other words: the NV has a legal personality a.k.a. juridical or juristic personality.

No one has even seen an NV. You may have seen contracts, but never an oral one, even though you know that even an oral agreement is binding. And have you ever seen a marriage? Probably not. However, once you are married you are instantly aware of the consequences thereof, also in legal terms. Think of an NV as of a human being: capable of carrying rights and obligations of its own. The NV has the legal powers and capacity of an individual. It also has a name and responsibilities, just like natural persons. There is nothing mysterious about legal personality. It is the law itself, or eventually the court, which decides whether a certain phenomena possesses legal personality or not. As far as the NV is concerned, the law requires a notarial deed signed by a civil law notary, and as long as the deed is authentic, it creates a legal person.

Now back to your case. You may want to consider changing lawyers since your claim will be denied by the Dutch or the Dutch Caribbean courts (and eventually by the Supreme Court). It depends on the exact wording of the agreement whether you can successfully claim certain performance or compensation from your friends. Assuming that the NV accepted your capital contribution as such, in principle it could be forced in court to issue your shares. If, however, the NV states that it has received a certain amount of money from you and that according to the NV there was no obligation for you to pay that amount, you may reclaim it from the NV on the basis that the payment lacks a legal basis (Section 6:203 Civil Code).

Karel Frielink
Attorney (Lawyer) / Partner

(18 January 2011)

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