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A private limited company (BV) can repurchase its own shares — subject to conditions. The board must perform the distribution test (Article 2:207 of the Dutch Civil Code): the BV must still be able to meet its ongoing obligations after the repurchase. In practice, this is used to buy out a departing shareholder, reduce capital, buy out an employee in a participation plan, or restructure ownership structures. It is not complicated, but requires careful handling.
The short answer
Share buyback in five elements:
- Permitted under Article 2:207 of the Dutch Civil Code, provided the distribution test passes.
- Board decision required: the board reviews the financial position.
- Shareholders' resolution required: the general meeting authorizes the management board (often combined in the incorporation resolution).
- a maximum of 50% of the capital in its own shares — for the remainder, distribution or cancellation is required.
- A notarial deed is required for the transfer of the shares.
When do private limited companies buy back their own shares?
Four common scenarios:
- Buyout of a departing shareholder. A co-founder is leaving, and the other shareholders do not wish to pay the additional amount. The BV buys back the shares — financed from its own retained earnings.
- Dissolving employee participation. An employee holding shares leaves the company; the BV buys back the shares based on a pre-agreed price (good leaver / bad leaver). See good leaver vs. bad leaver.
- Capital reduction. A private limited company with excess capital buys back shares to distribute money to shareholders — sometimes more tax-efficient than a dividend.
- Family transfer. In the phased transfer of a family business, the BV buys back shares from the older generation.
The benefit test
The heart of the scheme. For the purchase, the board must reasonably expect that the BV will still be able to meet its ongoing obligations after the transaction. Specifically, the board considers:
- Liquidity position: does the BV have enough cash or available credit?
- Solvency: is the equity sufficient after the purchase?
- Expected cash flow for the next twelve months.
- Current obligations and any claims.
If the test fails, the purchase is not legally permitted and directors can be held personally liable for damages. Read also when directors' liability comes into play.
Step-by-step plan
- Shareholder resolution authorizing the Board to repurchase shares (often already provided for in the Articles of Association for a general mandate).
- Board decision regarding procurement, with the payout test documented in the decision.
- Negotiation of the price with the selling shareholder (or application of a pre-agreed formula).
- Notarial deed of transfer — mandatory for shares in a private limited company.
- Processing in the accounts and shareholders' register. Own shares appear as a negative item in equity.
What do you do with the repurchased shares?
Three options:
- Hold in portfolio. The BV may hold up to 50% of the capital in its own shares. The voting rights on these shares are suspended as long as they are held by the BV itself.
- Resale to a new shareholder. For example, a new employee participant or an investor.
- Cancellation (capital reduction). Reduces the total number of outstanding shares. Requires an amendment to the articles of association and a notarial deed.
Tax considerations
- Purchase against share capital: in principle tax-free.
- Purchase against retained earnings: can be viewed as a dividend distribution — dividend tax of 15% on the portion exceeding the average investment.
- Substantial interest: for the shareholder, the profit on his shares is taxed in box 2.
The tax treatment of share buybacks versus dividends differs — have an accountant or tax specialist review larger transactions.
Honest recommendation
Share buybacks are a useful tool for departing shareholders and for flexibility in the share structure. Do not proceed without a documented distribution test — directors' liability is real. For larger amounts: engage a lawyer as well as a tax specialist.
For the broader structure: shares in the BV. For exit schemes: good leaver vs. bad leaver.
Frequently Asked Questions
Yes, provided the conditions of Article 2:207 of the Dutch Civil Code are met. The Board of Directors must perform the distribution test (the BV must still be able to meet its obligations after the buyback) and a shareholders' resolution is required. A maximum of 50% of the capital may be held in treasury shares.
The Board assesses whether the BV can reasonably meet its current obligations after the purchase — liquidity, solvency, and expected cash flow. Without a successful test, the purchase is not legally permitted, and there is a risk of directors' liability.
In the event of the buyout of a departing shareholder, the dissolution of employee participation, a capital reduction using surplus assets, or a phased family transfer. In any case, if the other shareholders are unwilling or unable to purchase additional shares themselves.
With a dividend, all shareholders receive pro rata; with a share buyback, only the selling shareholder receives their share. For tax purposes, a buyback against retained earnings can be treated as a dividend distribution; against share capital, it is in principle tax-free. Have a tax specialist review the matter.
Yes, for the transfer of the shares. Shares in a BV are transferred via a notarial deed; without a notary, there is no valid transfer. The notary's fees depend on the complexity.
Hold in portfolio (max 50% of capital, no voting rights), resell to a new shareholder, or withdraw via a capital reduction with an amendment to the articles of association. The choice depends on what you want to do with the structure later.
Yes, if the distribution test was not performed correctly or if the purchase leads to insolvency. Directors who knew or ought to have known that the BV could not handle the purchase can be held liable for the deficit. Document the test carefully.
