Renewable energy projects on land in the Netherlands face delays due to social resistance, driven by concerns over aesthetics, environment, and economics. Local energy communities have been identified as potential solutions to enhance social acceptance and overcome these barriers. The Dutch Climate Agreement targets 50% local ownership in onshore solar and wind projects to enhance public acceptance and project feasibility. Existing research highlights economic, institutional, and organizational barriers, yet limited research has been done on the internal governance structures of local energy communities. Moreover, no prior studies have explored the discrepancies between formal regulatory frameworks influencing design decisions and their practical application in Dutch local energy projects. This study employs Williamson’s four-layer model and Elinor Ostrom’s IAD framework to explore institutional design options for local energy communities in the Netherlands. Key findings reveal that European directives and Dutch laws support energy communities without specifying legal structures, allowing flexibility in governance structures. Practical implementations of institutional design options vary based on project needs and dynamics. However, most local energy communities adopt cooperative models and often establish separate entities like private limited companies to manage project associated risks. Based on the findings it is recommendated to organize local energy communities as cooperatives, addressing knowledge and resource gaps through partnerships with experienced entities, and establishing separate project entities to ensure local ownership and mitigate financial risks. This study provides practical insights for stakeholders navigating the complexities of local energy community projects.