Shareholder offer arrangements and exit strategies: what you need to arrange

What is an offer arrangement and when does it apply?

An offer arrangement forms the core of the agreements between shareholders in a private limited company. When a shareholder decides to sell their shares, this arrangement determines the rules for that transfer. The goal is to maintain control over who joins the circle of shareholders.

Without proper agreements, you risk shares ending up with an unwanted third party. This can lead to disturbed relationships or a deadlock in decision-making. By recording this in the shareholders' agreement (SHA), you create stability and clarity for everyone involved.

Consent rights and blocking provisions

A blocking provision ensures that shares cannot simply be transferred to third parties. Before a shareholder offers shares to an outsider, they must first offer them to existing shareholders. This is also known as a right of first refusal.

In addition, consent rights may apply, requiring other shareholders or the board to explicitly agree to a new buyer. This combination protects the existing cooperation against unwanted intruders. In corporate law, it is essential that these procedures are strictly followed to ensure legal validity.

Tag-along and drag-along

In an exit scenario, as a minority shareholder, you do not want to be left behind in a company with a new, unknown majority. A 'tag-along' right gives you the option to sell your shares under the same conditions as the majority. This ensures your exit at a fair market price.

Conversely, a 'drag-along' right gives the majority shareholder the power to force the minority to sell their shares in the event of a third-party sale. This prevents a small shareholder from blocking a lucrative exit. It is crucial that these provisions are well-balanced to prevent abuse of power.

Buy-out and squeeze-out

Sometimes, irreparable conflicts arise that hinder the company's progress. In such cases, a legal buy-out procedure can offer a solution. The law provides opportunities for majority shareholders to buy out minority shareholders when their behavior seriously harms the company.

This is a significant measure that proceeds through the court, as clarified in ECLI:NL:PHR:2020:450. It is therefore always desirable to include contractual buy-out arrangements in your SHA. This saves expensive legal proceedings and allows you to determine the valuation method yourself.

Key points at a glance

• Always record the offer obligation in writing in the shareholders' agreement.
• Ensure an objective valuation method for shares in the event of an exit.
• Clearly define when a 'trigger event' such as bankruptcy or death occurs.
• Determine whether the blocking provision also applies to transfers to family members or holding companies.
• Take into account the tax consequences of the valuation during transfer.
• Check whether the articles of association are aligned with the agreements in the shareholders' agreement.
• Periodically evaluate the exit clauses when the shareholder structure changes.

What should you do now?

Drafting a solid offer arrangement is custom work that requires precision. Generic templates are often insufficient because every company has its own dynamics. Therefore, engage a specialized corporate law attorney at an early stage to review your SHA and make it legally airtight.