This article elaborates on the transition from fully managed by a Trust Company to a full own operation when having a company in the Netherlands.
First phase: trust management in the Netherlands
So, you have incorporated a Dutch company in the Netherlands and at the time of incorporation decided that trust services would be the best solution for your newly incorporated firm.
It saved you time to look for personnel, offices and set up processes. It gave you most of the needed services, under one roof. Accounting, legal, management and directors. It all came as one package and, in many times, did the incorporation phase for you as well. It was comfortable and was the right decision at the moment.
Time passes, you have some scope of operations, and you start hesitating if the trust management solution is still the best option for your firm in the Netherlands.
Once your operations increase, you realize the following characteristics of the trust management firm:
- While nominee directors and location may come as a cheaper option, compared with your own full-time directors, the entire package of services is relatively more expensive, compared with own operations. In addition to the agreed standard fees, you find yourself pay much more for every decision or act you need the firm to exercise. These expenses are mostly not budgeted correctly in advance and tend to cause some tension with the trust management provider.
- The trust firms are highly regulated and therefore, every decision or action you may need, involves a review and decision process on the trust firm side. The trust firm needs to fully understand every request and action you may need and need to justify approving it to any regulator’s inspection. Therefore, it is difficult to operate in a fast pace in many times and approval and decision making are sometimes involving bureaucratic processes you are not used to.
- While the trust management directors are perfect for the starting phase, they are less qualified for the task, when your firm gains operation. Some trust firms have specific directors for specific industries, which is very helpful at the first phase, however, in general, they are lacking the operational experience to lead your firm when you involve customers, providers and general operations.
- One prominent issue where traditional trust management is very limited, is HRM. They may do the salary administration for your firm, but they will not manage your employees. This is mostly your responsibility to cover.
- If the trust company opened your firm’s bank account initially, these bank accounts are subject to specific regulations and agreement between the trust firm and the bank. It is crucial to understand, that if you ever leave the trust firm, the bank will close these accounts. There is no way you could leave them functioning, unless you move to another trust firm that has an agreement with the same bank. In any other case, these bank accounts will be terminated.
The intermediate phase: hybrid board of trust management and own directors
In this phase, instead of dismissing the trust company and appointing your own directors, you actually appoint external directors that will work together with the trust company on behalf of your company.
I am not referring to foreign directors that may have been on the board since the incorporation, but to local hired directors.
I am surprised how the vast majority of firms will not even consider that phase and will in fact, make a clear-cut transition from trust management provider to own management and directors.
I have two important recommendations at this stage:
- Consider a transition period of mixed board for a while, instead of moving to own operations directly.
- Make sure you communicate your intentions clearly to the trust management provider and have an agreed transition. The trust providers mostly are professionals and do understand that when your firms grow, their advantage as a management provider declines over time. Since they control every aspect of your operations, I can’t stress enough, that the transition process cannot be done in a surprise or in any negative way. In other words, you are not going to get into arguments with your trust service provider. Smooth transition is crucial here.
This mixed board phase is an interesting situation in which the board of directors of your company contains now the traditional trust services provider on one hand and local directors appointed by you directly to the board, on the other hand.
This situation has several advantages. First, there is no interruption or a gap between the former board of the company and the newly formed board. It is a smooth transition.
Secondly, you enjoy both worlds. You have your own qualified local directors on the board and you are still highly regulated compared with other firms. This phase enables you to be sure you are operating exactly according to the local regulations, with the extra safety provided by the trust firm.
The newly appointed directors are probably operations oriented and familiar with the industry of your company. They should have a focusing and accelerating effect on the new board. They are much more integrated with your global operations.
The length of this phase depends on many variables and if it works well for the shareholders, it can last forever. Although it does not seem so, working with a highly regulated trust firm on the BOD, gives some peace of mind to both directors and shareholder. It is a useful combination in many aspects.
At that phase, you open the new bank accounts. It will take a long time and it is essential to stress here that banks have become one of the obstacles to businesses operations worldwide. We have seen KYC processes that take forever and interference of banks in operations with questions and requests for paperwork. So be prepared that it will take a while before you have an operational bank account.
The main disadvantage is that the board is still slow compared with the expectations of the shareholders, in most times. To some shareholders, being more regulated , is an advantage.
It is also time to think of your own office space. This is a substance requirement if you want your firm to be considered as a Dutch firm in terms of tax.
The last phase, moving to a board of independent directors
By now, your company has worked in a hybrid mode, involving both trust services provider’s directors and your own selected local directors. Be advised that in any bord in the Netherlands, the legal requirement is to have half of the directors of the board as tax residents in the Netherlands. The meaning is that you could have foreign directors on the board, but you need to have an equal number of “local” directors.
As mentioned before, it is essential to have a smooth transition to a fully independent board. This has to be communicated to the trust management provider in advance and to have their consent.
If you arrived at this stage from the intermediate stage of a hybrid board, I see no reason of not having a smooth transition.
You have moved the company’s archive, accounting and administration to your new location. You also took all the steps of informing every one of your new office address.
By now you have your own bank accounts and own office address and you are ready to take off with fully independent and own appointed board of directors or that one director you appointed.
Good luck and Godspeed!
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