Whether it is a startup or a company that has been around for a long time, it is important that shareholders make good agreements. By recording the agreements, shareholders gain certainty about where they stand with regard to their fellow shareholders.
Agreements that shareholders make among themselves are often included in a shareholder agreement. In the article “A shareholder agreement to make your startup investor-proof” I will discuss the legal difference between the articles of association and the shareholder agreement and give examples of subjects that can be regulated in the shareholder agreement. In this article I give some practical recommendations for some of these topics.
Financing of the company by the shareholders
A subject that must be included in the shareholder agreement is financing. The parties will have drawn up a budget from which the necessary financing results. It is wise to make agreements on how this financing requirement will be met.
From a legal point of view, financing can take place via the issue of shares, share premium payments on existing shares or the granting of loans, whether subordinated or convertible (see also my article “The convertible loan: in whose interest?” for more information about the convertible loan as a financing method).
We advise you to make agreements about the way in which the various forms of financing are applied. For example, the shareholders’ agreement may stipulate that financing takes place in order of priority by first having to use the available reserves, then shareholder loans, obtaining bank financing, issuing new shares to existing shareholders and finally issuing new shares to new shareholders. With the inclusion of this clause, there is clarity about the way in which financing takes place without the shareholders having any further obligations to provide further financing. It also prevents the risk of dilution of shares.
Shareholders’ right to information
An individual shareholder does not have an independent right to information (see, among other things, the Supreme Court’s ruling). However, agreements can be made about this in the shareholders’ agreement. The shareholders’ agreement may include a specific obligation for the management board to provide information to the shareholders. A common agreement is that the management board will provide the shareholders with a monthly report on the progress of the company, including the company’s results, personnel policy, investments, and so on.
Blocking the transfer of shares
It may happen that just after a shareholder joins a company other shareholders wish to retire. Pursuant to Article 2:195(3) of the Dutch Civil Code, it is possible to exclude the transfer of shares for a certain period of time by means of the articles of association. This is also referred to as the ‘lock-up’. A transfer of shares contrary to this lock-up is invalid. A more extensive arrangement about the lock-up can be included in the shareholders’ agreement. The opposite of the lock-up can also be agreed, for example that shareholders will promote the sale of their shares. Many variants are conceivable.
Conclusion
This article contains various practical recommendations for subjects that can be regulated in the shareholders’ agreement. However, many subjects have not yet been discussed, such as the filling of management board positions, dividend policy, dispute resolution, non-competition and so on. It is advisable to seek expert advice on this subject. Do you have questions about the shareholders’ agreement or other corporate law issues? If so, please contact Justin de Vries.
