In today’s society, economic ownership right is playing an increasingly prominent role. This is particularly evident in various forms of employee participation, where only the economic ownership of shares is transferred while the legal ownership remains with the Trust Office Foundation (STAK). Before transferring one's economic ownership, it may be useful to have a clear understanding of what this entails. All these insights and more are extensively discussed in this informative article!
What is economic ownership?
Economic ownership refers to the rights and interests a person has in relation to a property, even if the legal ownership title has not yet been transferred. In other words, it is the right to the benefits of ownership without being the formal owner. This concept plays a central role in various sectors, including real estate, finance, and, not to forget, employee participation. In the case of shares, the legal owner still retains ownership of the share, voting rights, and meeting rights.
What is the difference between legal ownership and economic ownership?
The distinction between legal and economic ownership is essential. Legal ownership refers to the formal registration of ownership, documented in official documents and registers. The one holding the legal ownership is the actual owner. On the other hand, economic ownership implies the enjoyment and benefits associated with ownership. The holder of economic ownership can use the property and enjoy its fruits.
Why transfer economic ownership?
The transfer of economic ownership occurs for various reasons. It allows parties to already enjoy the benefits of ownership, such as income or appreciation in value, while legal formalities are still in progress. This can be useful in complex transactions where the transfer of ownership titles takes more time. Additionally, in employee participation, it may be important to separate voting rights from the benefits of shares. By only transferring share certificates, which only transfers economic ownership right, this separation is achieved.
How do I transfer economic ownership?
Economic ownership can be transferred through contractual agreements and arrangements between parties. These agreements define the rights and responsibilities regarding the property in question. Unlike the legal transfer of shares, this does not require a notary, making it easy and cost-effective. It is crucial that such transfers are carefully documented and legally ratified to prevent future disputes. There are the three requirements for a valid transfer of economic ownership:
- Valid title: This is the legal basis of the transfer, such as a purchase or donation agreement.
- Power of disposition: The person transferring the property must have the power to dispose of this property, either by being the owner or having the owner's authorization to transfer the property.
- Delivery: This is the action performed to transfer the property. There are not very strict requirements for this; it does not necessarily have to be physically transferred.
How free are you in transferring economic ownership?
Economic ownership is not formally anchored in the law. Therefore, it cannot be strictly considered as traditional 'ownership.' This concept, a later-formed construction, aims to decouple ownership from the enjoyment and benefits associated with it. It thus offers a remarkable degree of freedom, allowing individuals to establish their own rules in the agreement. Whether you choose to transfer economic ownership partially or to a certain extent, the flexibility for customization is fully present. In this regard, economic ownership is free from rigid restrictions and open to individual interpretation.
What are the tax consequences of transferring economic ownership?
Despite the fact that the person with economic ownership is not seen as the actual owner, tax law largely considers them as such. The economic owner will bear a significant portion (or even all) of the tax obligations related to economic ownership, while the legal owner receives a corresponding deduction because their ownership is valued lower. As ownership is economically split, this also applies to the tax obligation.*
More questions?
If your curiosity is piqued and you want to know more, we are ready to answer all your questions. For example, join our webinar, where you can ask us all your questions!
*According to Dutch law