Shareholders’ Agreements: Key Clauses for Dutch Companies

The clauses that make a Dutch shareholders’ agreement worth having are the ones that decide what happens when the relationship between the shareholders breaks down. Everything else can usually be negotiated at the time; these cannot.

Five belong in almost every agreement. Transfer restrictions and pre-emption rights, which determine whether a shareholder can sell and to whom, and how the price is set when they do. Drag-along and tag-along, which allow a majority to deliver the whole company to a buyer and protect a minority from being left behind with a new controlling shareholder. Leaver provisions, distinguishing between a shareholder who departs in ordinary circumstances and one who leaves in breach, and attaching a different valuation to each. A deadlock mechanism, because two equal shareholders who disagree can otherwise paralyse the company entirely. And reserved matters, giving a minority a veto on defined decisions that the statutory majority rules would otherwise leave entirely to the majority.

Two structural points determine whether any of it works. A new shareholder is bound by the articles of association automatically but by the agreement only if they accede to it, so an accession obligation, secured by a corresponding provision in the articles, is essential. And a resolution taken in breach of the agreement is generally still valid as a matter of company law, leaving the injured party with a claim for breach of contract — which is the argument for a substantial penalty clause and for putting the provisions that must bind the company itself into the articles.

This article sets out each clause, how it is drafted to be enforceable, and where Dutch company law limits what an agreement can achieve.

Table of Contents

• What is a shareholders’ agreement?
  • What does a shareholders’ agreement usually cover?
  • How does the agreement relate to the articles of association?
• Which clauses belong in a Dutch shareholders’ agreement?
  • How do you restrict share transfers?
  • How do you arrange decision-making and deadlock?
  • How do you arrange dividends and financing?
• What does the agreement do for each type of shareholder?
  • How does it protect a minority shareholder?
  • What does it offer a majority shareholder or investor?
  • How does it handle a shareholder who leaves?
• How do you draft and enforce the agreement?
  • What should you settle when drafting?
  • How is the agreement enforced?
  • What can you do if the agreement does not solve the dispute?

What is a shareholders’ agreement?

A shareholders’ agreement (aandeelhoudersovereenkomst) is a contract between the shareholders of a company, and often the company itself, about how they will work together. It sits next to the articles of association (statuten) and fills in what the law and the articles leave open.

Dutch law does not require a shareholders’ agreement. A private limited company (besloten vennootschap, BV) can function on the basis of its articles and the statutory rules in Book 2 of the Dutch Civil Code (Burgerlijk Wetboek, BW). The agreement becomes valuable as soon as there is more than one shareholder and their interests may one day diverge: founders who start together, a family business with several branches, or a company that brings in an investor.

The main reason to sign one is privacy and flexibility. The articles are laid down in a notarial deed and filed with the Dutch Chamber of Commerce (KVK), where anyone can consult them. A shareholders’ agreement is a private contract. You can change it without a notary, and you can agree on commercial details, such as valuation formulas or the personal commitments of founders, that you would rather not make public.

What does a shareholders’ agreement usually cover?

Most agreements cover four subjects: who may hold shares, how decisions are taken, how money flows to the shareholders, and what happens when someone leaves. The weight given to each depends on the company and on the balance of power between the shareholders.

In practice, you will usually find clauses on:

• transfer restrictions, pre-emption rights and the price mechanism for shares;
• drag-along and tag-along rights for the sale of the whole company;
• voting arrangements, reserved matters and the appointment of directors;
• a deadlock procedure for equal or blocked shareholders;
• dividend policy and the obligation, if any, to provide further financing;
• leaver provisions, non-compete and non-solicitation obligations for shareholders who are also active in the business;
• information rights, confidentiality, penalty clauses, governing law and dispute resolution.

Not every company needs all of these. Two founders with equal stakes mainly need a deadlock mechanism and good leaver provisions. A company with an outside investor will negotiate mostly about reserved matters, anti-dilution and exit rights.

How does the agreement relate to the articles of association?

The articles bind every shareholder and the company automatically; the agreement only binds the parties who signed it. That difference determines where each provision belongs.

A new shareholder becomes bound by the articles the moment they acquire shares. They do not become bound by the agreement unless they accede to it. A well-drafted agreement therefore obliges each shareholder to make any buyer of their shares sign a deed of accession. Since the flexibilisation of BV law in 2012, the articles of a BV can also attach obligations to shareholdership (article 2:192 BW). That makes it possible to anchor key obligations, such as the duty to accede to the agreement or to offer shares in defined situations, in the articles themselves, so that they also bind future shareholders.

The second difference concerns resolutions. If the shareholders adopt a resolution that conflicts with the agreement but complies with the law and the articles, that resolution is generally valid under company law. The shareholder who was wronged then has a claim against the other parties for breach of contract, but cannot simply have the resolution set aside. Provisions that must bind the company itself, such as a qualified majority for certain decisions, therefore belong in the articles as well. Where the two documents conflict, most agreements state that the agreement prevails between the parties and oblige the shareholders to amend the articles accordingly.

Which clauses belong in a Dutch shareholders’ agreement?

The essential clauses are those on share transfers, decision-making, deadlock, money and exit. Each of them is discussed below, with the statutory rule it builds on or departs from.

How do you restrict share transfers?

Under Dutch law, the shares in a BV are subject to an offer obligation unless the articles provide otherwise. Article 2:195 paragraph 1 BW provides that a shareholder who wants to sell must first offer the shares to the other shareholders, in proportion to their holdings. The articles can replace this with a different arrangement, such as approval by the general meeting, or exclude transfer altogether for a fixed period (article 2:195 paragraph 3 BW).

The shareholders’ agreement then fills in the details. Typical points are:

• Pre-emption right on sale. Who has the first right to buy, in what order, and within which period. The agreement should fix the price mechanism: an agreed formula, a valuation by an independent expert, or the price offered by a bona fide third-party buyer.
• Permitted transfers. Transfers that do not trigger the offer obligation, for example to a shareholder’s own holding company. The agreement should then provide that the shares go back if the holding company leaves the shareholder’s control.
• Lock-up. A period, often linked to the start-up phase or an investment round, during which founders may not sell at all.

Two exit clauses deal with the sale of the company as a whole. A drag-along right allows a defined majority to oblige the other shareholders to sell on the same terms to a third party who wants to acquire 100% of the shares. A tag-along right works the other way: if a majority shareholder sells to a third party, the minority may join in and sell its shares on the same terms. Neither right exists by law; both are purely contractual and need to be drafted precisely. Set out the threshold that triggers the right, what “the same terms” means when a buyer pays partly in shares or with an earn-out, and which warranties a dragged shareholder must give.

Keep in mind that a share transfer in a BV always requires a notarial deed (article 2:196 BW). The notary will check whether the transfer restrictions in the articles have been complied with, but not whether the shareholders’ agreement has been observed. That is another reason to include the most important transfer provisions in the articles as well.

Pre-emption on the issue of new shares follows a separate rule. Unless the articles provide otherwise, every shareholder has a pre-emptive right on new shares in proportion to their holding (article 2:206a paragraph 1 BW). The general meeting can limit or exclude this right for each individual issue. An investor will usually want contractual protection against dilution on top of this statutory right.

How do you arrange decision-making and deadlock?

By law, the general meeting decides by an absolute majority of the votes cast, unless the articles require a larger majority. A shareholders’ agreement can change the balance by giving one or more shareholders a veto on specific decisions, known as reserved matters.

Typical reserved matters are amendments to the articles, the issue of new shares, the appointment and dismissal of directors, the adoption of the budget, large investments or loans, the sale of important assets, and transactions between the company and a shareholder. The list should be concrete. A general clause such as “all important decisions” invites disputes about what counts as important.

The agreement often also arranges the composition of the management board (bestuur) and, where there is one, the supervisory board (raad van commissarissen). Each shareholder group may, for example, nominate one director, with the other shareholders undertaking to vote for that candidate. In a BV, the articles may even give holders of a specific class of shares the right to appoint a director directly.

A deadlock arises when shareholders with equal power, or a minority with a veto, cannot agree. Without a solution in the agreement, the company can be paralysed. Common deadlock mechanisms are:

• Escalation. The issue first goes to a meeting of the shareholders themselves, and then to an independent mediator.
• Casting vote. An independent chair or supervisory director decides. This only works if the parties trust that person.
• Russian roulette or shoot-out. One shareholder names a price per share; the other must either sell at that price or buy at that price. This ends the deadlock quickly but favours the party with the most financial resources.
• Texas shoot-out. Both shareholders submit a sealed bid; the highest bidder buys the other out.
• Sale of the company or dissolution as a last resort.

A buy-sell mechanism is effective but final. Agree in advance what counts as a deadlock, for example a decision that has been blocked at two consecutive meetings, and how long the parties have to reach a solution before the mechanism is triggered.

How do you arrange dividends and financing?

The general meeting decides on distributions, but only to the extent that equity exceeds the reserves required by law or the articles (article 2:216 paragraph 1 BW). A resolution to distribute has no effect until the management board has approved it. The board must refuse approval if it knows, or should reasonably foresee, that the company will not be able to keep paying its debts as they fall due after the distribution (article 2:216 paragraph 2 BW).

This statutory test cannot be set aside by agreement. Directors who approve a distribution that leaves the company unable to pay its debts are jointly and severally liable to the company for the shortfall (article 2:216 paragraph 3 BW). A shareholders’ agreement can therefore lay down a dividend policy, for example the distribution of a fixed percentage of profit, but always subject to the board’s statutory test.

Other financial clauses deal with:

• whether shareholders must provide additional capital or loans, and on what terms;
• what happens to the stake of a shareholder who does not participate in a capital call (dilution);
• preference rights for an investor, such as a liquidation preference on a sale;
• the information the shareholders receive, such as monthly figures, the budget and the annual accounts.

Be careful with any arrangement that gives some shareholders a larger share of profit than their shareholding. Under BV law, this is possible through different classes of shares, but it must be laid down in the articles to be effective towards the company.

What does the agreement do for each type of shareholder?

A shareholders’ agreement is not neutral: each party negotiates for the protection that matters most to its own position. A minority shareholder wants a voice and an exit; a majority shareholder or investor wants control and the ability to sell.

How does it protect a minority shareholder?

Without an agreement, a minority shareholder has limited influence. The majority can appoint the board, adopt the annual accounts and decide on distributions. The minority’s statutory rights are mainly the right to attend and speak at the general meeting, the pre-emptive right on new shares and the right to challenge resolutions that conflict with the law, the articles or the requirements of reasonableness and fairness (redelijkheid en billijkheid, article 2:8 BW).

A shareholders’ agreement can strengthen this position with:

• reserved matters for decisions that directly affect the minority’s investment;
• the right to nominate a director or supervisory director;
• information rights beyond the statutory minimum;
• a tag-along right, so the minority is not left behind with a new controlling shareholder;
• anti-dilution protection and a clear price mechanism for its shares.

What does it offer a majority shareholder or investor?

For the majority, the main value lies in being able to act. A drag-along right ensures that a small shareholder cannot block the sale of the whole company. Good transfer restrictions prevent shares from ending up with a competitor or another unwanted party.

An investor will also want the founders to stay committed to the business. Typical clauses are vesting or leaver provisions, non-compete and non-solicitation obligations, and an obligation for the founders to devote their full working time to the company. In return, the investor usually accepts reserved matters for the founders on key decisions, so that both sides need each other on fundamental questions.

How does it handle a shareholder who leaves?

Leaver provisions decide what happens to the shares of a shareholder who stops working in the business. They usually oblige that shareholder to offer their shares to the other shareholders or to the company, at a price that depends on the reason for leaving.

The common distinction is between a good leaver and a bad leaver. A good leaver, for example someone who leaves because of long-term illness, retirement or dismissal without fault, receives the market value. A bad leaver, for example someone who resigns within a short period or is dismissed for a serious breach, receives a lower price, often the nominal value or the lower of nominal and market value.

Define the leaver events precisely and link them to objective facts. Disputes about whether someone is a good or bad leaver are among the most common shareholder disputes. Consider also how the leaver provisions relate to the employment or management agreement of the departing shareholder: an arrangement that has the effect of a penalty in an employment context may be tested by the courts against employment law protection.

An illustrative example: two founders each hold 50% of a BV. One of them leaves after eighteen months to join a competitor. If the agreement defines this as a bad leaver event and sets the price at nominal value, the remaining founder can acquire the shares at a low price and continue the business. Without such a clause, the departing founder keeps half the company and can block every decision that requires a majority.

How do you draft and enforce the agreement?

A shareholders’ agreement only protects you if it can be enforced. That depends on precise drafting, alignment with the articles and effective sanctions.

What should you settle when drafting?

Start with the articles. Check which statutory rules they already set aside and which provisions of the agreement must also be reflected in them. Then work through the following points:

• Parties. Include the company as a party, so that it is bound by the provisions that concern it, for example the obligation not to register a transfer in breach of the agreement in the shareholders’ register.
• Accession. Oblige every new shareholder to accede to the agreement, and anchor that obligation in the articles where possible.
• Price mechanism. Choose a valuation method that is workable without a lengthy expert procedure, and set a deadline for the valuation.
• Duration and termination. An agreement for an indefinite period can, under Dutch law, in principle be terminated. Many agreements therefore provide that they remain in force as long as the parties hold shares, and exclude termination.
• Penalty clause. A penalty (boete) for breach of key obligations gives the agreement teeth. Under articles 6:91 and 6:94 BW, a court may reduce a penalty if fairness clearly requires this, so set an amount that is proportionate to the interest it protects.
• Governing law and forum. For a Dutch company with foreign shareholders, choose Dutch law and decide whether disputes go to the Dutch courts or to arbitration, for example under the rules of the Netherlands Arbitration Institute (NAI).

How is the agreement enforced?

A breach of the agreement is a breach of contract. The injured shareholder can claim performance, damages or forfeiture of the agreed penalty. In urgent cases, for example to prevent a share transfer or a vote in breach of the agreement, you can ask the preliminary relief judge (voorzieningenrechter) for an injunction in summary proceedings (kort geding).

Voting agreements can also be enforced: a court can order a shareholder to vote in a certain way, if necessary on pain of a penalty payment (dwangsom). Speed matters here. Once a resolution has been adopted, it is generally valid under company law, even if it was taken in breach of the agreement. A resolution can only be annulled on the grounds listed in the law, for example if it conflicts with the requirements of reasonableness and fairness under article 2:8 BW. Whether a breach of the agreement is enough for that depends on the circumstances of the case.

Escalation clauses can help to avoid litigation. Many agreements provide that the parties first consult each other, then try mediation, and only then go to court or arbitration. Make sure such a clause does not prevent you from seeking interim relief in urgent cases.

What can you do if the agreement does not solve the dispute?

If the agreement offers no way out, Dutch law has its own procedures for serious shareholder conflicts. The statutory dispute resolution procedure (geschillenregeling, articles 2:335 and following BW) allows a court to order a shareholder whose conduct harms the company to transfer their shares (expulsion), or to order the other shareholders to take over the shares of a shareholder whose rights or interests have been harmed by their conduct to such an extent that continued shareholdership cannot reasonably be required (exit).

In addition, the Enterprise Chamber of the Amsterdam Court of Appeal (Ondernemingskamer) can conduct an inquiry into the policy and conduct of business of a company if there are well-founded reasons to doubt sound policy (enquêterecht). During those proceedings, it can take immediate measures, such as suspending directors or appointing a temporary director.

These procedures are costly and take time, and the court decides on the price if the parties cannot agree. A shareholders’ agreement with a clear exit and deadlock arrangement gives you more control over the outcome and usually avoids such proceedings altogether.

In summary

• A shareholders’ agreement is a private contract that supplements the articles of association; it binds only the parties who signed it or acceded to it.
• The key clauses are transfer restrictions and pre-emption rights, drag-along and tag-along, leaver provisions, a deadlock mechanism and reserved matters.
• Provisions that must bind the company or future shareholders belong in the articles as well; an accession obligation is essential.
• Statutory rules, such as the distribution test of article 2:216 BW and the notarial deed for share transfers, cannot be set aside by agreement.
• Enforcement depends on precise drafting, a proportionate penalty clause and quick action, if needed in summary proceedings.

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