The Entrepreneur-Investor Playing Field – The Shareholders Agreement (SHA)

With reference to my previous blogs in this series, I now highlight the shareholders’ agreement (SHA) as the legal foundation for the intended cooperation between the shareholders and, in most cases, the directors and the company (or group companies) themselves.

Types of Shareholders’ Agreements

In practice, three main types can be distinguished:

• Strategic joint venture / cooperation
  Parties combine their expertise in a joint venture, with a focus on operational cooperation and knowledge sharing.
• Private equity investment
  A financial investor acquires a majority or minority stake, including (among other things) protection mechanisms and (a)typical terms; the founder(s) retain part of the shares or acquire them in a NewCo through reinvestment.
• Consortium agreement
  Multiple parties cooperate in a specific project.

Relationship with the Articles of Association

• Articles of association
  Public, subject to objective interpretation, and effective vis‑à‑vis third parties.
• SHA
  Confidential, interpreted according to the Haviltex standard, and more flexible to amend.

Priority rules:

• Between shareholders: the SHA prevails (if and insofar as agreed).
• Vis‑à‑vis third parties: the articles of association are leading.

Practical tip: record critical provisions both in the articles and in the SHA.

Distributions and Dividends

• Order of priority of distributions in different scenarios (waterfall).
• Liquidation preference for certain shareholders.
• Dividend and distribution policy.

Veto rights (on distributions):

• Protection of minority shareholder(s).
• Preserving growth capital.
• Balancing returns and reinvestment.

Capital Contributions and Shares

• Anti‑dilution mechanisms.
• Pre‑emption rights: right of first refusal, right of first offer.

Transfer restrictions (basic variants):

• Pre‑emption right: obligation to offer to co‑shareholders.
• Approval right: consent required for any transfer.
• Transfer ban: temporary or (semi‑)permanent lock‑up (possibly structured as qualification requirements).

Exit mechanisms:

• Drag‑along: forcing a sale initiated by one or more shareholders.
• Tag‑along: minority entitled to co‑sell.
• Forced sale: in dispute or deadlock situations.

Governance and Control

Reserved matters (qualified majority required):

• Amendments to the articles and capital measures.
• Major investments and divestments.
• Appointment of managing and supervisory directors.
• Annual budget and multi‑year strategy.

Board:

• Proportional representation aligned with the shareholding.
• Appointment rights.
• Veto right in case of changes in the board (possibly linked to lettered share classes).

Leaver Provisions

Good Leaver scenarios:

• Retirement, disability, death.
• Termination without urgent cause.
• Consequence: typically market value for the shares.

Bad Leaver scenarios:

• Dismissal for urgent cause.
• Competition or (attributable) breach of obligations.
• Consequence: lower valuation, discount and/or forced transfer (e.g. at nominal value).

Early Leaver

Restrictive Covenants

Non‑compete clauses:

• Geographical and temporal restrictions.
• Definition of competing activities.
• Carve‑out for passive investments.

Non‑solicitation provisions:

• Prohibition on soliciting employees.
• Protection of key customer and supplier relationships.
• Reciprocity between shareholders.

Confidentiality

Dispute Resolution

Escalation ladder:

• Internal consultation between shareholders.
• Mediation or binding advice.
• Arbitration or state courts.

Forum shopping: choice between Dutch courts or international arbitration.

Practical Points of Attention

Common pitfalls:

• Vague trigger definitions for rights and obligations.
• Unbalanced power dynamics.
• Outdated provisions as the business grows.
• Lack of conflict‑escalation procedures.

Best practices:

• Periodic review at key milestones.
• Information rights outside the general meeting.
• Clear definitions and calculation methodologies.
• Balance between flexibility and legal certainty.
• Anticipation of different growth scenarios.

Conclusion

A well‑structured shareholders’ agreement anticipates the dynamics of business growth and changing relationships between shareholders. The document should look beyond the current situation and provide workable solutions for future scenarios.

Dutch freedom of contract offers ample scope for tailoring these arrangements — the art lies in crafting provisions that serve all parties without constraining the business. Professional legal advice at the front end helps prevent costly disputes later on.

See also: https://thelegalgroup.nl/aandeelhoudersovereenkomst

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