Delaware Fiduciary Duties vs Dutch Director Duties

What directors must consider in Delaware-Dutch corporate structures

Delaware and Dutch corporate law both give directors a central role in corporate decision-making. But they do not frame that role in exactly the same way.

In a Delaware corporation, directors are usually discussed through the language of fiduciary duties, especially the duty of care and the duty of loyalty. In a Dutch BV, directors are usually discussed through the language of proper performance of duties, the interests of the company and its business, conflicts of interest and, in more serious cases, director liability.

For US founders, investors, Delaware parent companies and international counsel, the difference matters in practice. A person who sits on the board of a Delaware parent and also acts as director of a Dutch subsidiary may be dealing with two related but distinct legal roles. The interests of the parent, stockholders, investors and group may be relevant, but the Dutch BV retains its own legal personality, board responsibility and Dutch-law decision-making requirements.

This article is part of the Delaware Meets Dutch Law series. It connects to Delaware Parent, Dutch Subsidiary, Can a Delaware Parent Instruct the Board of a Dutch Subsidiary? and Dutch BV Governance for US and International Investors.

Delaware fiduciary duties in broad terms

In a Delaware corporation, the board manages the business and affairs of the corporation. Directors owe fiduciary duties to the corporation and its stockholders.

The two core duties are usually described as the duty of care and the duty of loyalty.

The duty of care requires directors to act on an informed basis and with appropriate attention to the decision before them. The duty of loyalty requires directors to act in the interests of the corporation and its stockholders, and not to put personal interests or conflicting interests ahead of those interests.

Delaware law is highly developed in this area. Concepts such as the business judgment rule, enhanced scrutiny, entire fairness, interested-director transactions and stockholder approval are familiar to US corporate lawyers and investors.

The practical point is that Delaware directors operate within a framework that gives the board broad authority, but also tests whether that authority has been used loyally, carefully and in the correct decision-making context.

Dutch director duties in broad terms

In a Dutch BV, directors must perform their duties properly and must act in the interests of the company and the business connected with it. That interest is not always identical to the interest of the shareholder, even where there is only one shareholder.

A Dutch BV may be wholly owned by a Delaware parent. The parent may appoint and dismiss directors, approve reserved matters, fund the group and set the commercial strategy. But the Dutch directors still act as directors of the Dutch BV.

That means they should consider the position of the Dutch company itself: its business, continuity, employees, creditors, contractual obligations, tax position, regulatory position, IP, cash flows and role within the wider group.

This does not mean Dutch directors must ignore group strategy. In many international groups, the Dutch BV exists to support the group’s broader business. Group interests can be relevant. But Dutch directors should still be able to explain why a decision is appropriate from the perspective of the Dutch BV and its business.

The interests directors must consider

The most important difference is often how the relevant corporate interest is framed.

In Delaware, directors of a corporation are commonly understood to owe duties to the corporation and its stockholders. In many transactional contexts, the focus is on whether the board has acted loyally and carefully in pursuing value for stockholders, subject to the applicable standard of review.

In the Netherlands, the board of a Dutch BV must focus on the interests of the company and the business connected with it. That can include shareholder interests, but it is not limited to them. Depending on the circumstances, employees, creditors, contractual counterparties, continuity of the business and the company’s role within the group may also be relevant.

This difference becomes important in Delaware-Dutch structures. A Delaware parent may want the Dutch subsidiary to transfer IP, provide a guarantee, distribute cash, sign an intercompany agreement, terminate local operations or assume group liabilities. The Dutch board should not approach that decision only as an implementation request from the parent. It should consider whether the decision is defensible for the Dutch BV.

Shareholder influence and board responsibility

Both Delaware and Dutch law recognise shareholder influence, but neither system should be reduced to “the shareholder decides everything”.

In Delaware, stockholders elect directors and may approve certain fundamental matters, but the board manages the business and affairs of the corporation. Stockholder influence is therefore powerful, but the board’s management role remains central.

In a Dutch BV, the general meeting can also have strong powers. It may appoint and dismiss directors, approve certain major decisions, amend the articles of association and exercise reserved matter rights if the governance documents provide for that. The articles may also contain an instruction right requiring the board to follow instructions from another corporate body.

But there is an important Dutch limitation. The Dutch board should not follow an instruction if doing so would conflict with the interests of the company and the business connected with it.

For a Delaware parent, this means that shareholder control over a Dutch BV should be structured carefully. Parent approval rights, reserved matters, group policies and board appointment rights can be useful. But they do not remove the Dutch board’s own responsibilities.

Conflicts of interest

Conflicts of interest are treated differently in each system.

In Delaware, conflicts are usually analysed through the duty of loyalty and the applicable standard of review. If directors stand on both sides of a transaction, receive a personal benefit or are not sufficiently independent, the transaction may require special handling. Depending on the context, disinterested director approval, stockholder approval, committee process, disclosure and fairness review may become important.

In a Dutch BV, the statutory conflict rule is more procedural. A director with a direct or indirect personal interest that conflicts with the interest of the company and its business should not participate in the deliberation and decision-making on that matter.

That does not mean every group-level conflict automatically prevents a Dutch director from acting. A director may be appointed by the parent, be employed elsewhere in the group or understand the parent’s commercial objectives. The key question is whether the director has a personal conflicting interest that conflicts with the Dutch BV’s interest.

In Delaware-Dutch groups, conflict situations should be identified early. Examples include intercompany loans, IP transfers, management fees, guarantees for parent debt, distributions to the parent, founder-related arrangements, management incentives and transactions between entities with overlapping directors.

Business judgment and Dutch board discretion

US lawyers often refer to the business judgment rule. Broadly, where Delaware directors make a business decision on an informed basis, in good faith and without disabling conflicts, courts generally give substantial deference to the board’s decision.

Dutch law does not use the business judgment rule in exactly the same doctrinal way. But Dutch courts also recognise that directors need room to make business decisions. Not every unsuccessful decision creates liability. Entrepreneurship involves risk, and hindsight should not turn every bad outcome into improper management.

The Dutch question is more often framed around whether the director properly performed his or her duties and whether a serious reproach can be made. That is a high threshold, but not an empty one.

For practical purposes, the message is similar but not identical: a well-informed, properly documented and conflict-aware decision is much easier to defend than an informal decision taken only because the parent or investor wanted it.

When Dutch directors may face personal liability

Dutch directors can face personal liability in several situations, but the threshold is generally high.

Internal liability towards the company may arise if a director has not properly performed his or her duties and can be seriously blamed for that. External liability may arise in specific circumstances towards creditors or other third parties, for example where a director causes the company to incur obligations that the company cannot meet, or frustrates payment and recovery. In insolvency, specific statutory director liability rules may also become relevant.

For Delaware-Dutch structures, common risk areas include distributions without proper liquidity analysis, guarantees without corporate benefit, intercompany transactions on unclear terms, failure to respect conflicts procedures, poor recordkeeping, and decisions that benefit the parent while leaving the Dutch BV undercapitalised or unable to meet its obligations.

The point is not that Dutch directors should refuse group transactions. The point is that they should assess, approve and document them at the Dutch entity level.

Practical examples in Delaware-Dutch groups

A Delaware parent may ask the Dutch BV to transfer IP to the parent. From the parent’s perspective, that may simplify fundraising or exit planning. From the Dutch BV’s perspective, the board should ask whether the transfer is on appropriate terms, whether the BV retains the rights it needs to operate, whether employee-created IP is properly covered, and whether tax, accounting and contractual issues have been reviewed.

A Delaware parent may ask the Dutch BV to provide a guarantee for parent-level debt. The Dutch board should consider corporate benefit, financial exposure, the Dutch BV’s ability to meet its own obligations, the terms of the guarantee and whether approvals are required.

A Delaware parent may want to upstream cash. The Dutch board should consider the Dutch distribution rules, liquidity position, creditor interests and whether the Dutch BV will remain able to continue its business after the distribution.

A Delaware parent may want to impose a group-wide restructuring. The Dutch board should consider local employment, works council, contract, tax and operational issues before implementing Dutch steps.

In each example, the issue is not whether group strategy matters. It does. The issue is whether the Dutch board has made its own Dutch-law decision and can explain it.

How to document decisions properly

Good documentation is often the difference between a defensible decision and a later dispute.

For Delaware-Dutch groups, board materials should identify the relevant entity, the capacity in which each person acts, the decision required, the relevant interests, any conflict issues, approvals needed and the implementation steps.

Dutch board minutes do not need to be long for every routine decision. But for material transactions, related-party arrangements, distributions, IP transfers, guarantees, restructurings or exit-related steps, the file should show that the Dutch board considered the Dutch BV’s position.

The governance structure should also separate different concepts:

• parent approval;
• Dutch board approval;
• shareholder approval;
• conflict abstention;
• external signing authority;
• notarial implementation;
• and post-closing or post-implementation filings.

These steps often appear close together in a transaction timeline, but they are not the same legal act.

Practical conclusion

Delaware fiduciary duties and Dutch director duties are compatible, but they are not interchangeable.

A Delaware parent can exercise shareholder control over a Dutch BV. Investors can negotiate reserved matters. Founders can sit on boards at different levels. Group strategy can be coordinated centrally.

But the Dutch BV remains a separate legal entity. Its directors must act in accordance with Dutch law, the articles of association, governance documents and the interests of the Dutch company and its business.

For US founders, investors and international counsel, the safest approach is practical: identify the capacity in which each person acts, separate parent approval from Dutch board approval, check conflicts, document the Dutch corporate interest and implement decisions at the correct entity level.

That is not bureaucracy. It is what makes a Delaware-Dutch structure work.

FAQ

Are Dutch director duties the same as Delaware fiduciary duties?
No. They are related in function but different in legal framing. Delaware law uses fiduciary duty concepts such as care and loyalty. Dutch law focuses on proper performance of duties, the interests of the company and its business, conflicts of interest and director liability where a serious reproach can be made.

Can a Dutch director simply follow the Delaware parent’s instructions?
Not always. A Dutch BV may have shareholder approval rights or instruction mechanisms, but the Dutch board must still consider the interests of the Dutch company and its business.

Can the same person sit on both the Delaware parent board and the Dutch subsidiary board?
Yes, but capacity matters. The person should be clear whether he or she is acting as Delaware parent director, Dutch BV director, shareholder representative, officer or authorised signatory.

How should conflicts be handled in a Dutch BV?
A Dutch director with a direct or indirect personal conflict with the company’s interest should not participate in the relevant deliberation and decision-making. The governance documents should also be checked for additional procedures.

Does Dutch law have a business judgment rule?
Not in exactly the same Delaware doctrinal form. Dutch directors have room to make business decisions, and liability generally requires a serious reproach, but decisions should still be informed, properly considered, conflict-aware and documented.

About Dirk de Waard

Dirk de Waard is a Dutch corporate, M&A and venture capital lawyer, a dual Dutch-US national and partner at Venture Lawyers in Amsterdam. He advises US companies, founders, investors and international counsel on Delaware-Dutch corporate groups, Dutch subsidiary governance, board authority, director duties, intercompany arrangements and Dutch legal implementation.

ViottaLaw is Dirk’s personal insights platform. Legal services are provided through Venture Lawyers.

Operating a Delaware-Dutch structure?

Director duties should be mapped at each entity level. Parent approval, Dutch board responsibility, conflicts, signing authority, intercompany arrangements, distributions and corporate records should all fit together.

Dirk de Waard advises US companies, investors, founders and international counsel on the Dutch aspects of Delaware-Dutch corporate structures. Contact Dirk at dirk.dewaard@viottalaw.com to review or implement the Dutch governance framework.