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Investors and shareholders

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Welcome to Penrose investors and shareholders

Penrose is specialised in the legal position and the rights of shareholders under Dutch law. We advise and assist international entrepreneurs, directors and shareholders with the drafting of contracts, company takeovers, joint ventures and potential conflicts between shareholders of a Dutch company. Hereafter, we have outlined some of the Dutch law topics regarding shareholders of a business in the Netherlands.

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Shareholders have specific rights. Ordinary shares give voting rights in the shareholders’ meeting and the right to profit distributions. In addition, ordinary shareholders have the right to attend and speak at the General Meeting of Shareholders, request information from the Board of Directors and place certain items on the agenda for the General Meeting of Shareholders. In addition, once issued, shares cannot easily be cancelled or redeemed without the collaboration of the relevant shareholder. This page provides information about how parties often address shareholder’ rights in their contracts.

In a shareholders’ agreement (SHA), the current and future shareholders of a company make agreements about the company’s structure and goals, the business plan and the way in which the shareholders will collaborate. The parties to a shareholders’ agreement have a large amount of freedom to shape this collaboration as they deem appropriate.


Why a shareholders’ agreement?

Shareholders who jointly participate in a company often compare their situation to a marriage, in figurative terms. It is worth making clear, enforceable agreements in advance concerning rights and obligations. This avoids any ambiguities or disputes from arising at a later stage (e.g. when a shareholder resigns), which would then require legal proceedings. A shareholders’ agreement provides clarity: the parties know where they stand, which rights they have and the obligations that they undertake and for which they are liable.


Shareholders’ agreement or articles of association

A shareholders’ agreement (unlike the company’s articles of association) cannot be consulted by the public. This allows confidential agreements to be made through the shareholders’ agreement. A breach of this confidentiality would be a punishable offence, for example by a contractual penalty. Finally, a shareholders’ agreement can easily be supplemented or amended by the contracting parties themselves, whereas an amendment to the articles of association requires a notarial instrument.


Legal advice

Concerning all of these matters, a corporate lawyer can assist the party or parties involved, advise on the possibilities and impossibilities and include the agreements made in the shareholders’ agreement. It is important to make these arrangements before the company in question has been set up or has become an investor. We often see, for example, that a startup has already been set up, has several shareholders or has even developed IP rights before a shareholders’ agreement has been reached. Negotiations on a shareholders’ agreement then become more difficult.


Matters addressed in the shareholders’ agreement

If several parties want to start or operate a company jointly, or if they want to invest as an investor in a company (with shareholders’ equity), there are a number of important matters on which the shareholders often make agreements in the shareholders’ agreement. The shareholders’ agreement could provide answers to the following questions:

  • Which types of shares (e.g. ordinary shares, preference shares or non-voting shares) and depositary receipts for shares are issued by the company and what are the voting rights and other rights of these shares and depositary receipts for shares?
  • What financial contribution or payment in kind does the shareholder make to the company?
  • Who sets out the business plan (periodically)? How is the company to be financed now and in the future?
  • How do shareholders share in the company’s profits?
  • Which rules apply in the event of a transfer of shares? When does a shareholder have to offer their shares to the other shareholders?
  • How are the tasks and control divided between the executive directors and shareholders? How are a non-performing executive directors dealt with?
  • What happens to the shares in the event of disagreement between the shareholders or the death, bankruptcy or divorce of a shareholder?
  • Are shareholders allowed to engage in competitive activities in the Netherlands or even a broader region?


Terms in the shareholders’ agreement

A shareholders’ agreement written often contains terms that may at first cause confusion or ambiguity. Some of these terms are therefore explained below.

    • Anti-dilution: a provision stating that the interests of shareholders in the company cannot simply be diluted indefinitely;
    • Bad Leaver: a provision stating that a manager (also a shareholder) is obliged to offer their shares to their co-shareholders at a predetermined price (this price is lower than in the event of a bad leaver) due to the premature or culpable termination of their employment contract or management agreement;
    • Deadlock: a provision for the event that the votes in the General Meeting of Shareholders are tied (due to a difference of opinion);
    • Distribution Waterfall: a provision that prescribes the manner and the order in which the dividend, sales proceeds or balance left after liquidation of the company is to be paid to the shareholders;
    • Drag Along: the situation in which the (majority) shareholder wishes to sell their shares to a third party and can also oblige the (minority) shareholder(s) to sell their shares (this provision complements the tag along);
    • Exit: the situation in which the company (or a material part of the company) is sold and this often allows the current shareholders to convert their interest into cash;
    • Good Leaver: a provision stating that a manager (or shareholder) is obliged to offer their shares to their co-shareholders at a predetermined price (this price is higher than in the event of a Bad Leaver) due to the premature or culpable termination of their employment contract or management agreement (for non-culpable reasons);
    • Laundry List or reserved matters: a list of board resolutions for which the prior approval of the General Meeting of Shareholders, Supervisory Board or a specific shareholder is required;
    • Lock-Up: a period within which the shareholder(s) are not authorised to sell their shares;
    • Non-Compete: a clause stating that executive directors and shareholders will not compete with the company;
    • Non-Solicitation: a clause stating that a shareholder or executive director does not do direct business (outside of the company) with, for example, employees and/or customers of the company;
    • Tag Along: the situation in which the (majority) shareholder wishes to sell their shares to a third party and the (minority) shareholder(s) are entitled to sell their shares (this provision complements the Drag Along);
    • Trigger / Leaver Event: one of the situations in which a shareholder is obliged to offer their shares to their co-shareholders (see also Bad Leaver and Good Leaver);
    • Under / non-performance: a situation in which a manager or shareholder fails to fulfil their obligations under the shareholders’ agreement or management agreement.

An investor can shape their investment in a company in various ways, for instance by subscribing for shares, preference shares or (convertible) bonds or by granting a loan (or a combination of these options). A convertible loan or bond (a convertible) is an agreement between the company and the investor or bondholder granting the bondholder the right to convert the loan or bond into shares in the company under predetermined conditions.

If an investor subscribes for shares or preference shares, they usually enter into a participation agreement with the company. The participation agreement addresses matters such as the amount of the investment and the conditions that apply to the investment. At the same time as the participation agreement, the investor often becomes a party to the shareholders’ agreement (or a shareholders’ agreement is entered into if it is not yet in place).


Matters addressed in the participation agreement

The participation agreement may regulate the following matters:

  • the size of the investment;
  • the type of shares issued and the preference given to profit distributions or distributions in the event of sale or bankruptcy;
  • the investor’s control rights, for example with regard to the appointment of board members and the approval of certain board resolutions;
  • the guarantees or securities stipulated by the investor, and who is liable in the event of a breach of these guarantees.

In a joint venture agreement (JVA), two or more companies (the joint venture partners) agree on a mutual collaboration whereby they jointly develop a new company. Often, a new private limited company or other entity is set up for this purpose (the joint venture), in which the joint venture partners are the shareholders. A joint venture agreement therefore has features of both a collaboration agreement on the one hand and a shareholders’ agreement on the other.


Contribution to joint venture

In general, the partners in a joint venture have been active in the market for some time and expect to achieve synergy and/or economies of scale through the collaboration. It is therefore customary for the partners – in addition to capital contributions in the form of money – to agree on the contribution and/or provision to the joint venture of goods, services, intellectual property rights, know-how and liability on both sides.


Matters addressed in the joint venture agreement

The joint venture agreement may regulate the following matters:

  • What is the distribution of tasks between the joint venture partners and which contribution(s) do they make to the joint venture?
  • Will the joint venture have its own legal structure and what will it look like? Are the joint venture partners liable for the debts of the joint venture?
  • Does the joint venture operate under a joint or independent name?
  • Do employees enter the employment of the joint venture or are they borrowed from the joint venture partners?
  • To whom do copyrights or other intellectual property rights developed by or in collaboration with the joint venture belong?
  • How and when can the joint venture be terminated? What happens in the event of bankruptcy?
  • After termination of the joint venture, do the partner(s) have the option to independently operate the products/services developed by the joint venture?

Sometimes it may be undesirable or fiscally unappealing to issue shares to which both profit entitlement and voting rights are attached. This may occur when an entrepreneur wants their employees to participate in the company, for example. However, issuing ordinary shares, for example, can also be undesirable in a family business, where some family members need to be prevented from having any or too much influence. In practice, therefore, alternative forms have been developed that can only entitle the holder to profit or other distributions, such as depositary receipts for shares, stock appreciation rights (SAR), options, convertibles and non-voting shares.


Depositary receipts for shares

A depositary receipt for share entitles the holder to the dividend attached to a share in the company. The legal ownership of these shares is held by a friendly shares trust office. In practice, it is usually a foundation called a stichting adminstratiekantoor (Trust Office Foundation or STAK). The STAK then issues depositary receipts for these shares and remains authorised to exercise the voting rights attached to the shares.



An option or option plan is obtained by means of an option agreement, usually between the company and the option holder (e.g. an employee), whereby the option holder is given the right to buy or sell shares under predetermined conditions. A vesting schedule or cliff often applies, in which case the options can only be exercised after a certain period of time or when targets have been reached.


Stock appreciation rights (SAR)

A stock appreciation right (SAR) is an agreement between the company and an employee, for example, whereby the employee is given the right to benefit from the increase in value of one or more shares in the company. This means that no shares or depositary receipts for shares need to be issued.


Non-voting shares

A non-voting share is a share in a private limited company (BV) to which no voting rights are attached. Holders of non-voting shares are therefore only entitled to profit distributions. However, they are also entitled to attend and speak at the General Meeting of Shareholders. A public limited company (NV) may not issue non-voting shares.

At Penrose, Dutch lawyers specialised in working with investors and shareholders are happy to work with you and answer any questions you may have. Our lawyers’ contact details are available here.

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