A shareholders’ agreement protects you in the situations the articles of association do not cover: a shareholder who wants to leave, two equal shareholders who cannot agree, a buyer who wants all the shares while a minority refuses, and a shareholder who dies or divorces. Its main limitation is that it binds only the parties who signed it, while the articles bind everyone.
Each of these situations has a standard contractual solution: an exit and valuation mechanism, a deadlock procedure, drag-along and tag-along rights, and provisions on transfer after death or divorce. Agreeing on them at the start is far easier and cheaper than fighting about them later. Our article on the shareholders’ agreement explains in more detail how it relates to the articles. Below we focus on the benefits for shareholders of a Dutch private limited company (besloten vennootschap, BV).
What is a shareholders’ agreement under Dutch law?
It is a private contract between the shareholders, and often the company itself, about their mutual rights and obligations. It supplements the articles of association (statuten) and is not filed with the Chamber of Commerce (KvK), so it stays confidential.
The articles of association are the company’s constitution. They are laid down in a notarial deed, are public through the trade register and bind all shareholders, including future ones. They can only be amended by a resolution of the general meeting followed by a notarial deed (Article 2:293 of the Dutch Civil Code (BW)). The shareholders’ agreement is more flexible: the parties can agree what they want, within the limits of mandatory company law, and change it by mutual consent.
That flexibility has a price. A new shareholder is not bound by the agreement until they sign it or accede to it. For that reason, well-drafted agreements require every new shareholder to accede before shares can be transferred to them, and important arrangements are also laid down in the articles where possible.
How does it help when a shareholder wants to leave?
It sets out in advance when a shareholder may or must sell, to whom and at what price. Without such arrangements, an exit often ends in a dispute about the value of the shares.
Since the Flex BV Act of 1 October 2012, Dutch law no longer requires a BV to restrict share transfers. The articles may contain an offer obligation (aanbiedingsplicht) or an approval requirement, but they do not have to (Article 2:195 BW). A shareholders’ agreement can add rules that do not fit well in the articles, such as a lock-up period during which no one may sell, or a right of first refusal with detailed procedures.
The price is often the core of the dispute. An agreement can prescribe a valuation method, such as a multiple of earnings or a valuation by an independent expert, and set out who appoints that expert. It can also distinguish between a good leaver and a bad leaver. A shareholder-director who leaves because of illness may receive market value, while a shareholder who is dismissed for serious misconduct or joins a competitor receives a lower price.
Remember that the transfer itself always requires a notarial deed (Article 2:196 BW). The agreement creates the obligation to sell and buy; the notary carries out the transfer.
What happens if shareholders reach a deadlock?
With equal shareholdings, a disagreement can bring decision-making to a complete standstill. A shareholders’ agreement can provide a way out before the company suffers.
Common arrangements are an escalation procedure, in which the directors and then the shareholders first try to reach agreement, followed by mediation. If that fails, a buy-sell clause can apply. One shareholder names a price, and the other chooses whether to buy or sell at that price. This forces a fair price, because the party naming it does not know on which side it will end up.
Without such clauses, shareholders must rely on the statutory options. The dispute settlement procedure (geschillenregeling) in Articles 2:335 to 2:343 BW allows a shareholder to be forced to transfer their shares or to be bought out if their conduct seriously harms the company. An inquiry procedure (enquêteprocedure) before the Enterprise Chamber (Ondernemingskamer) of the Amsterdam Court of Appeal can lead to far-reaching interim measures. Both procedures are slow and costly compared with a clear contractual mechanism.
How do drag-along and tag-along rights work?
A drag-along right allows a majority that wants to sell the company to force the minority to sell its shares on the same terms. A tag-along right allows a minority to join a sale by the majority on the same terms.
Buyers usually want all the shares, so a single minority shareholder who refuses can block a sale. The drag-along clause solves that. It usually applies only above a certain threshold, for example when shareholders holding a set majority accept an offer from an independent third party. To make it enforceable, the agreement often includes an irrevocable power of attorney that allows the other shareholders to sign the transfer deed on behalf of an unwilling shareholder.
The tag-along right protects the minority against the opposite risk: that the majority sells at a premium and leaves the minority behind with a new, unknown majority shareholder. Dutch law does have a statutory squeeze-out procedure, but it requires a shareholding of at least 95 per cent (Article 2:201a BW), so it rarely helps in a normal sale.
How does the agreement protect minority shareholders?
By giving the minority a say on decisions that affect its investment. The law already gives minority shareholders some protection, but a shareholders’ agreement can go much further.
The most common tool is a list of reserved matters: decisions that require the consent of a qualified majority or of each shareholder. Typical examples are issuing new shares, amending the articles, selling the business, taking on large loans and appointing or dismissing directors. The agreement can also give a shareholder the right to nominate a director or supervisory director. Under the articles, a class of shares can even be given the right to appoint a director directly (Article 2:242 BW).
Pre-emptive rights on new shares protect a shareholder against dilution. Information rights, such as monthly figures and access to the annual budget, allow a minority shareholder who does not sit on the board to monitor the company. Statutory minority protection remains available as well, including the right to request an inquiry at the Enterprise Chamber.
Can the agreement deal with dividends?
Yes, within the limits of the law. Shareholders can agree on a dividend policy, for example that a percentage of the profit is distributed each year, subject to the company’s needs.
Those limits matter. A BV may only make a distribution if its equity exceeds the reserves that must be maintained by law or under the articles, and the board must approve it (Article 2:216 BW). The board may only approve if the company can continue to pay its due debts after the distribution. Directors who approve a distribution while they knew or should have foreseen that this was not the case can be held personally liable. A dividend clause in a shareholders’ agreement cannot override these rules.
The Flex BV Act also allows shares without voting rights or without profit rights (Article 2:228 and Article 2:216 BW). This makes it possible, for example, to give employees an economic interest without voting rights. Such share classes must be laid down in the articles, and the shareholders’ agreement then sets out the related arrangements.
What happens on death or divorce of a shareholder?
Without arrangements, the shares pass to the heirs or become part of the division of the marital property. A shareholders’ agreement can provide that the shares must then be offered to the other shareholders.
For a family business or a start-up with a few founders, this is often a key reason to make an agreement. Heirs or an ex-spouse may have no knowledge of the business and different interests from the remaining shareholders. An offer obligation, combined with a clear valuation method, allows the other shareholders to buy back the shares at a fair price. Because heirs are not parties to the agreement, the obligation should also be included in the articles.
What should start-ups include?
Founders should agree on vesting, intellectual property and future funding rounds. These points cause most disputes between founders.
Vesting means that a founder earns their shares over time, often over several years. A founder who leaves early must sell back the unvested part, usually at nominal value. The agreement should also state that all intellectual property developed for the company belongs to the company, and that founders will cooperate in future funding rounds. Investors in a later round will usually require a new shareholders’ agreement, often with preferences for themselves, so the founders’ agreement should allow for that.
A non-compete and non-solicitation clause for shareholders is also common. For a shareholder who is also an employee, the employment law rules on non-compete clauses apply as well.
What if the agreement and the articles conflict?
Then the articles prevail in company law terms, but a shareholder who acts contrary to the agreement can still be in breach of contract. Consistency between the two documents is therefore essential.
A resolution of the general meeting that complies with the articles is in principle valid, even if a shareholder voted in breach of the shareholders’ agreement. The other shareholders can then claim performance or damages, and a penalty clause in the agreement adds pressure. In some cases a resolution adopted in breach of the agreement can be annulled because it conflicts with the requirements of reasonableness and fairness that apply within the company (Article 2:8 and Article 2:15 BW). That route is uncertain, so it is better to prevent the conflict.
In practice, the agreement therefore contains a clause stating that it prevails between the parties, and that the shareholders will vote to amend the articles if necessary. Review both documents together whenever one of them changes.
When should you make a shareholders’ agreement?
Preferably when the company is set up or when a new shareholder joins. At that moment the interests are still aligned, and everyone is willing to agree on fair arrangements.
Once a conflict has arisen, it is often too late: a shareholder who benefits from the absence of rules has little reason to sign. If you already have a company with several shareholders but no agreement, it is still worth raising the subject while relations are good. Also update the agreement at every funding round, change in shareholdings or change in the management.
The statutory rules for the BV are in Book 2 of the Dutch Civil Code, available on wetten.overheid.nl. Tax consequences of share transfers, such as those for substantial shareholders, fall outside the scope of this article; for those, consult a tax adviser.
In summary
- A shareholders’ agreement is a confidential contract that supplements the public articles of association, but it binds only the parties who signed it.
- It regulates exits, valuation, good and bad leavers, and deadlocks between equal shareholders.
- Drag-along and tag-along rights make a sale of the company possible and protect the minority.
- Reserved matters, nomination rights and information rights give minority shareholders influence and insight.
- Important arrangements, such as offer obligations on death or divorce, should also be included in the articles.
Frequently asked questions
Is a shareholders’ agreement required for a Dutch BV?
No. The law only requires articles of association. A shareholders’ agreement is voluntary, but it is strongly advisable as soon as a company has more than one shareholder.
What are the main benefits of a shareholders’ agreement?
Clear rules on exits and valuation, a way out of deadlocks, drag-along and tag-along rights, protection for minority shareholders and arrangements on death or divorce of a shareholder.
How does a shareholders’ agreement protect a minority shareholder?
Through reserved matters that require its consent, the right to nominate a director, pre-emptive rights on new shares, information rights and a tag-along right when the majority sells.
Does a new shareholder have to comply with the existing agreement?
Only if they sign it or accede to it. That is why agreements usually require every new shareholder to accede before shares are transferred to them.
Law & More drafts and reviews shareholders’ agreements and articles of association for Dutch and international shareholders, in English and Dutch.
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