Shareholders' Agreement: Why You Need One

You're starting a business with your partner. You're enthusiastic, share the same vision and complement each other perfectly. A shareholders' agreement? 'We don't need one, we trust each other.' Until a conflict arises. Then you'll wish you had one.

What is a shareholders' agreement?

A shareholders' agreement is a contract between the shareholders of a BV. It governs their mutual relationships, rights and obligations. Unlike the articles of association (which are public), the shareholders' agreement is a confidential document.

The agreement supplements the articles of association and often contains more detailed arrangements. When setting up a BV with multiple shareholders, this document is essential.

Why is a shareholders' agreement so important?

The main reason: it prevents conflicts and resolves them if they do arise. Without clear agreements, situations can escalate that could have been easily resolved with a good agreement.

Consider situations such as:

• A shareholder wants to sell their shares to a third party
• Shareholders disagree on the strategy
• A shareholder is no longer putting in the agreed effort
• A difference of opinion arises about profit distribution
• A shareholder dies or becomes incapacitated
• An investor comes on board and wants a say in decisions

What does a shareholders' agreement contain?

A good shareholders' agreement covers the following topics:

1. Decision-making and governance

Who makes which decisions? The agreement specifies which decisions the shareholders' meeting must take and with what majority. It also governs how often meetings are held and how they are conducted.

Important decisions that often require unanimity or a qualified majority include:

• Amending the articles of association
• Issuing new shares
• Significant investments above a certain amount
• Taking out loans
• Changing the strategy
• Appointing and dismissing directors

2. Transfer of shares

The rules surrounding the sale of shares are crucial. Common clauses include:

• Right of first refusal: Shares must first be offered to existing shareholders
• Approval requirement: Transfer only with the approval of other shareholders
• Tag-along: The right to sell along with another shareholder
• Drag-along: The obligation to sell along with the majority in a full company sale
• Lock-up: A prohibition on selling shares for a certain period

3. Good leaver / bad leaver

What happens when a shareholder-employee leaves? This distinction is essential:

• Good leaver: Departure due to retirement, illness, death or dismissal without fault. A good leaver is often entitled to the full value of their shares.
• Bad leaver: Departure due to resignation, summary dismissal or a serious breach of obligations. A bad leaver often receives a lower price for their shares.

4. Non-competition and exclusivity

Shareholders can agree that they will:

• Not compete with the company
• Devote their full time to the business
• Not take on any other positions without permission
• Keep confidential information secret

5. Deadlock provision

What if shareholders cannot reach an agreement? A deadlock provision offers a way out. Possible mechanisms include:

• Mediation or arbitration: Engaging a neutral third party
• Russian roulette: One party offers a price, and the other chooses whether to buy or sell at that price
• Texas shoot-out: Both parties submit a sealed bid, and the highest bidder buys
• Escalation procedure: First negotiation, then mediation, then arbitration

6. Profit distribution and financing

The agreement can contain provisions on:

• Minimum or maximum dividend distribution
• Reserves policy
• Financing obligations of shareholders
• Obligation to make additional capital contributions when needed

7. Information rights

Shareholders have a right to information. The agreement specifies what information, how often and in what form. This can include quarterly reports, annual accounts and access to the books.

Difference with articles of association

The articles of association and the shareholders' agreement complement each other:

When should you draw one up?

The best time to draw up a shareholders' agreement is when the BV is incorporated. At that point, relationships are good and there is no conflict. Everyone is motivated to make fair arrangements.

A shareholders' agreement can also be drawn up at a later stage:

• When new shareholders join
• During an investment or funding round
• When the business structure changes
• After a conflict (to prevent recurrence)

Common mistakes

In our practice, we regularly see these mistakes:

1. No agreement at all: 'We trust each other.' Until that trust is broken.
2. Too vague: An agreement with general terms like 'in good consultation' without concrete mechanisms.
3. Not updated: The situation changes, but the agreement remains the same.
4. Contradicts the articles of association: Problems arise when the agreement and the articles of association conflict.
5. Incomplete parties: Not all shareholders have signed.

What does a shareholders' agreement cost?

The cost depends on the complexity: the number of shareholders, the structure and whether investors are involved. An agreement for two founders is straightforward; with multiple shareholders or investors, the work increases.000 to 10,000 euros or more.

Want to know more about lawyer's fees? We always provide an estimate in advance.

Conclusion

A shareholders' agreement is not a luxury but a necessity for every BV with multiple shareholders. It's the insurance you hope you'll never need, but you'll be very glad to have it when you do.

At Helder Advocatuur, we help entrepreneurs daily with drafting and reviewing shareholders' agreements. We ensure that all important topics are covered and that the agreement is tailored to your specific situation.