Statutory director or nominal director?

Job titles, such as managing director, CEO, director, and authorised director, are common. From a legal point of view there are just two different jobs. So what are the differences and who is authorised to do what?

Statutory directors

Statutory directors are appointed by the General Meeting of Shareholders (algemene vergadering van aandeelhouders; AvA) or by the Supervisory Board under the law or under the articles of association. Statutory directors do not necessarily have to be natural persons but may also be legal persons, such as a bv (private limited company) putting forward a person that acts as a director. Such a director will be authorised to represent the company. He may also only be authorised together with another director. In addition to their function, statutory directors are also often employees of the company. Statutory directors are listed in the Commercial Register of the Chamber of Commerce.

Nominal directors

A nominal director is appointed by the employer. In contrast to a statutory director, a nominal director will be a natural person, not a legal person. A nominal director is an employee only, i.e. the “regular” dismissal rules apply to him.

Authority to represent

In contrast to a statutory director, a nominal director does not have automatically authority to represent the company. Still, he may conclude agreements on behalf of the company if he is authorised by a statutory director. Such an authorisation is often listed in the Commercial Register of the Chamber of Commerce indicating its scope. Please be aware that there may be appearance of authority to represent. In certain cases the director may not be authorised but the company will still become bound.

Dismissal

To directors, the most important difference between both functions is the procedure of the dismissal. In order to dismiss a statutory director no dismissal permit by UWV (Employee Insurance Agency) or rescission by the Subdistrict Court is required. In order to lawfully dismiss a director under company law, a legally valid resolution by the General Meeting of Shareholders or the Supervisory Board is required only. However, there has to be a reasonable ground for the dismissal, otherwise the director may claim high compensation payments. Be aware that this dismissal is subject to certain formal requirements, such as:

  • The General Meeting of Shareholders was given valid notice to convene.
  • The General Meeting of Shareholders is required to hear the director before the dismissal.
  • The director needs to be able to advise the General Meeting of Shareholders on the dismissal.

A valid dismissal of a statutory director under company law will also lead to the termination of the employment contract. Besides, the director cannot claim reinstatement of the employment, for instance due to absence of a legal ground. In addition, the reflection period of 14 days an employee is entitled to after having signed a settlement agreement does not apply. There are two exceptions to this rule:

  • In the event a prohibition against termination applies, for instance if the director is dismissed during illness.
  • In the event the parties have made different agreements regarding the consequences of the dismissal. For instance, if it has been agreed that the employment contract will continue to exist.

In theory, the director may try to have the decision to dismiss invalidated on the basis of its being against the law, the articles of association, or reasonableness and fairness. This is not likely to be successful. Invoking a formal shortcoming of the dismissal may be more successful.

Conclusion

In the event you, as a statutory director, will be dismissed often the entire connection with the company will be over, thus including the employment ties. Therefore, it is of major importance to you, as a director, to know whether a particular function makes you a statutory director. Because this would mean losing a significant part of your employment protection.

As a statutory director may also be a legal person, it may be financially attractive to conclude a management agreement instead of an employment contract. A management agreement is a contract for services with the statutory director or his bv. We will gladly inform you of the advantages and disadvantages of this and draft a management agreement for you.

More information

Would you like us to draft or examine a dismissal resolution? Or do you need advice on the proceedings? We will gladly be of service to you! We can also draft a power of attorney for a nominal director and assess whether your negotiation partner is authorised. Please contact us:

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