Newsletter Vestius april 2018

You know the drill, parties starting up a company together and are full of good intentions; the sky is the limit. Often, however, without recording proper arrangements. Why should they? They know and trust each other. It is understandable for parties to act on trust and not to assume that they might not get along as well as time goes by. The reality is, unfortunately, that this does happen.

There are various reasons why we recommend that the agreements be recorded in writing in a ‘shareholders’ agreement’. In this article we will discuss the most important reasons why a proper shareholders’ agreement is essential to a private limited company.

First of all, it is the responsibility of the managing board of a company to ensure that a clear governance structure is in place. Governance means the rules that impact the way in which people lead, manage, coordinate and supervise a company. Governance also pertains to the relationships between the different stakeholders of the company and the objects of the company. In fact, the lack of a proper governance structure may even lead to the Enterprise Chamber ruling that a company is guilty of mismanagement, with all the consequences this entails for directors and shareholders of the company.

Secondly, a proper shareholders’ agreement is important for preventing the company from becoming rudderless due to all kinds of deadlocks within the board or the general meeting.

Thirdly, there is a real chance that the collaboration will have seen its best days after a while. This is often due to disappointing results, different expectations of one another and/or the company, lack of a shared vision, incompatibilité d’humeurs or a difference in decisiveness and financial leeway. Parties are then forced to part ways as a result of which their collaboration comes to an end. If that happens, there is always a discussion then about the value of the shares. A proper shareholders’ agreement will contain a clause on how the shares should be valued to avoid conflicts about this if the parties do go their separate ways.

For these reasons, we advise drawing up a proper shareholders’ agreement. In such shareholders’ agreement we include clauses about the appointment and dismissal of directors (and supervisory directors), about the specific powers that directors (and supervisory directors) have and which important board resolutions require the approval of the general meeting. Usually, we also include clauses providing for the quorum required in the general meeting for adopting certain (important) shareholders’ resolutions (specially to protect the minority shareholder) and a clause that regulates how to act in the event of disputes between the different bodies of the company. All this will prevent deadlocks at management and shareholder level.

In our experience the costs of drawing up a shareholders’ agreement more than compensate for the misery it can prevent. Conflicts between the various bodies within the company are often disastrous for the company, as well as being time-consuming and costly.

Vestius Advocaten has gained extensive experience in drawing up and negotiating shareholders’ agreements and implementing good governance.

For more information or advice on this subject please contact Henk Brat or Paul Hendriks .