The Shareholders' Agreement: what to arrange and why

What is a shareholders' agreement and why do you sign one?

A shareholders' agreement is a private contract between the shareholders of a company. While the articles of association primarily establish the formal structure and public rules of the B.V., the agreement provides room to make personal arrangements regarding collaboration and control. It acts as a safety net for situations where the legal rules of the Dutch Civil Code are too rigid or simply provide insufficient guidance.

The primary goal of this document is to prevent impasses and protect the continuity of your business. By working out scenarios in advance, you prevent emotions or business disagreements from paralyzing decision-making. It creates peace and clarity in the relationships between the parties involved, which is essential for healthy long-term business operations.

Which topics should you regulate (mandatory or wise)?

In the agreement, you record arrangements specific to your situation. Frequently used topics include voting agreements, which determine how and when shareholders exercise their voting rights, and transfer restrictions that prevent shares from ending up with third parties. Dividend policy is also a crucial element, ensuring no disputes arise regarding the appropriation of profits.

Furthermore, it is essential to make arrangements regarding the departure or entry of shareholders, such as a drag-along or tag-along provision. Confidentiality and non-compete clauses are also indispensable to protect intellectual property and business goodwill. This prevents a departing partner from immediately taking your clients, a common subject of dispute in case law concerning the breach of interests ECLI:NL:PHR:2018:1152.

Founders agreement: the first step before the formal agreement

For starting entrepreneurs, a full shareholders' agreement can sometimes be too extensive or costly. In that case, a founders' agreement serves as an excellent alternative or a precursor to a more comprehensive arrangement. It establishes the basic agreements between the founders, such as capital contributions, labor, and share distribution at the start.

Although it is more informal, it forces you as founders to think about the future. Consider the scenario in which one of the founders decides to stop prematurely. By laying this down at an early stage, you prevent later discussions about valuation and share transfers that could hinder the growth of the business.

What if there is no or an incomplete agreement?

If there is no shareholders' agreement, you are entirely dependent on the law and the articles of association. In practice, this means you often hit a dead end as soon as shareholders have fundamentally different interests. In deadlock situations, the law rarely provides a quick solution, which can sometimes even lead to the dissolution of the company.

Without clear agreements on right-of-first-refusal or exit scenarios, a departing shareholder could theoretically sell their shares to anyone they choose. This can lead to unwanted outsiders entering your private limited company. Without contractual protection, you are often left legally powerless in such cases.

Points of attention at a glance

• Record the procedure for offering shares to maintain control within the circle of current shareholders.
• Clearly define what constitutes a 'good leaver' or 'bad leaver' situation for departing shareholders.
• Make arrangements for what happens if a deadlock in decision-making occurs.
• Include an effective non-compete and non-solicitation clause to protect trade secrets and clients.
• Determine a dividend policy that accounts for both growth needs and shareholder desires.
• Ensure clear agreements regarding mandatory cooperation in the event of a sale of the entire company.
• Periodically evaluate the agreement to see if it still aligns with the current business phase.

What to do now?

A shareholders' agreement is custom work and not a standard document you just download. It is a crucial instrument that helps your company navigate through turbulent times. Therefore, engage a specialized corporate law attorney at an early stage to carefully tailor the agreement to your specific wishes and the structure of your business.