One-tier board or two-tier board?
Under Dutch law a limited liability company (B.V.) can opt for the ‘one-tier’ board, which is an alternative model to the two-tier board. In the one-tier board model, the executive directors and the supervisors or the non-executive directors are combined in one management body. In the two-tier board model, the directors and the supervisory board are two separate bodies.
This article discusses the advantages and disadvantages of the one-tier board model under Dutch law.
In a one-tier board, the non-executive directors receive information faster and they are closer to the action. This enables them to have more influence and to take swift action if necessary. In a two-tier board, the supervisory board members are further from the information stream, as they depend on the information supplied by the board of directors for proper supervision of the same board of directors. The dependence on this information paradox is less with the one-tier board, so this would be preferred to the two-tier board. More frequent board meetings, with direct information, leads to better supervision.
Liability non-executive director
There are several differences between the liability of a non-executive director of the one-tier board and the supervisory board members of the two-tier board. The non-executive directors have a larger liability risk under Dutch law. The collective management is responsible for the management of the company. You can read about personal liability of directors in my last article. In contrary to the supervisory board member, non-executive directors are part of the board of directors. This means – executive and non-executive – are jointly liable for improper management. The liability of a non-executive director can be limited, by specifying the division of duties between the directors in the company’s articles of association or in company regulations.
In general, a one-tier board leads to better supervision, but a non-executive director runs considerably larger liability risks than a supervisory board member.
If you have any questions about one-tier board and two-tier board company’s, you can contact Vincent van Oosteren or one of our other lawyers.