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Drafting a management agreement for a director-major shareholder involves establishing between the personal holding company and the operating BV which tasks are performed, the management fee associated with them, and the conditions under which the collaboration runs and ends. The agreement must be structured to be a genuine contract for services (Article 7:400 of the Dutch Civil Code) and not a disguised employment contract, as this distinction affects the tax authorities, liability, and termination. Below are the components that should be included and the pitfalls to avoid.
The short answer
- Parties and structure: the management BV and the operating BV, stating the management relationship.
- Activities: which tasks and responsibilities the holding company performs through the director-major shareholder.
- Remuneration: the amount of the management fee, the VAT treatment, and the payment term.
- Duration and termination: term, notice period and grounds for termination.
- Liability: apportionment of liability, indemnification and insurance.
- Additional clauses: non-competition, confidentiality, and the link to the shareholders' agreement.
Drafting a management agreement for a director-major shareholder begins with the qualification
The first thing that needs to be right is that the agreement is a genuine contract for services and not an employment contract. The boundary lies with the hierarchical relationship under Article 7:610 of the Dutch Civil Code. For a director-major shareholder with decisive control, there is no authority and therefore no employment relationship, but the wording of the agreement must not undermine this image. Avoid formulations that suggest an employer-employee relationship, such as fixed working hours, mandatory attendance, vacation days, or continued payment during illness as if it were wages.
Instead, stipulate that the holding company executes the assignment with a certain degree of independence, that it determines the method of execution itself, and that it invoices the remuneration. In this way, the agreement remains within the scope of the assignment (Article 7:400 of the Dutch Civil Code) and you avoid a dispute with the Tax Authorities or the UWV regarding a fictitious employment relationship.
Duties and compensation
The heart of the agreement is the description of what the holding company supplies and what it receives in return.
- Activities. Describe the tasks and responsibilities concretely: day-to-day management, strategy, commercial activities, finance. State whether the managing director is a director of the operating company and what powers are associated with that.
- Management fee. Specify the amount, frequency, and payment term. State that the fee is generally increased by 21 percent VAT, unless there is a VAT fiscal unity.
- Expenses. Regulate which costs are to be borne by the operating company and how they are claimed.
- Customary salary. The management fee is separate from the customary salary that the director-major shareholder draws from their own holding company pursuant to Article 12a of the 1964 Income Tax Act. Do not confuse the two in the agreement.
Duration, termination and replacement
Unlike an employment contract, statutory dismissal rules do not apply here. This makes it all the more important to include a comprehensive arrangement yourself.
- Duration. For a fixed or indefinite period, with a clear commencement date.
- Notice period. A reasonable period for both parties, so that the operating company does not suddenly find itself without management.
- Grounds for termination. Consider immediate termination in the event of serious breach, loss of shareholding, or bankruptcy.
- Replacement and illness. What happens if the director-major shareholder is absent for an extended period? Does the remuneration continue, and who takes over the duties?
- Link to the shareholders' agreement. Leaving as a shareholder often also entails the termination of the management agreement; ensure these documents align.
Liability and supplementary clauses
Because the holding company acts as director, liability is a serious point of attention. Consider the application of Article 2:11 of the Dutch Civil Code, which extends directors' liability to the director-major shareholder personally.
- Allocation of liability. Specify what the holding company is and is not liable for, and whether liability is limited to, for example, the annual fee.
- Indemnification and insurance. Arrange directors' and officers' liability insurance and, where appropriate, an indemnification by the company.
- Confidentiality. For business-sensitive information.
- Competition and relationships. Unlike with employees, statutory restrictions on non-compete clauses do not apply, but the agreements must be reasonable to remain enforceable.
Practical example
A director-major shareholder establishes a new operating company alongside his holding company and quickly drafts a management agreement himself stating that he is present five days a week, accrues vacation days, and receives continued salary during illness. During an audit, the Tax and Customs Administration notes that these wordings indicate an employment relationship. After adjustment, in which the emphasis is placed on the independent execution of the assignment by the holding company and on an invoiced management fee including VAT, the agreement once again falls within the scope of the assignment. The correction was thus prevented.
Honest recommendation
For a simple, single-person holding structure in which the director-major shareholder has full control, you can draft a usable agreement using a good template and common sense; a lawyer is not strictly necessary in this case. However, do have one drafted as soon as there are multiple shareholders or directors, as soon as liability, competition, or the distribution of fees are sensitive issues, or as soon as investors or a shareholders' agreement come into play. At those points, corporate law, tax law, and liability intersect, and an error in the text can later lead to fictitious employment, a tax adjustment, or personal liability. That is a more expensive outcome than having the agreement drafted correctly from the start.
Read more: what is a management agreement for a director-major shareholder and having a management agreement for a director-major shareholder drafted. Want to have it arranged immediately? Go to management agreement for director-major shareholders.
Frequently Asked Questions
The parties and the management relationship, a concrete description of the activities, the management fee including VAT treatment and payment terms, the duration and notice period, the grounds for termination, and the agreements regarding liability. Additionally, confidentiality, any non-compete agreements, and the link to the shareholders' agreement should be included.
Ensure that the agreement is a genuine contract for services (Art. 7:400 BW): emphasize independent performance, have the holding company invoice the remuneration, and avoid characteristics of an employment relationship such as fixed working hours, vacation days, or continued payment of wages during illness. For a director-major shareholder with decisive control, the hierarchical relationship is absent, and therefore there is no employment relationship.
No, those are two different things. The management fee is the fee that the operating BV pays to the holding company. The customary salary (Art. 12a Income Tax Act 1964) is the salary that the director-major shareholder receives from their own holding company. The fee is revenue for the holding company; the customary salary is a tax liability of the director-major shareholder.
The law does not prescribe a notice period because it is not an employment contract. The parties determine a reasonable notice period themselves, often a few months, so that the operating BV has time to arrange for management. Additionally, include grounds for immediate termination, for example in the event of serious breach of contract or loss of shareholding.
Yes. The statutory restrictions on non-compete clauses for employees do not apply here, because it concerns an agreement between undertakings. However, the agreement must be reasonable in terms of duration, geographical area, and scope to remain enforceable. Align the clause with the shareholders' agreement, if one exists.
Specify what the holding company is liable for and whether that liability is limited, for example to the annual remuneration. Take into account Article 2:11 of the Dutch Civil Code, which extends directors' liability to the director-major shareholder personally. Directors' liability insurance and an indemnification by the company are part of a complete file.
Because there is no employment relationship, statutory continued payment of wages during illness does not apply. Therefore, explicitly agree on whether the management fee continues in the event of absence, in whole or in part, for what period, and who will perform the duties. Without an agreement, disputes regarding the fee can quickly arise in the event of prolonged absence.
