Mathijs Arts

In the dynamic world of startups and innovative companies, venture capital (VC) plays a crucial role in funding growth potential. But what exactly is venture capital, how do Venture Capitalists work and what is their role in the investment ecosystem? In this article, I take a closer look at the definitions, processes and strategies behind venture capital, as well as the role VC plays in the Dutch startup economy. This article is the first in our series about venture capital. Definition of Venture Capital Venture capital is a form of financing that focuses on (innovative) start-ups and small companies with high growth potential. These target companies are in their development phase, are generally not yet profitable and depend on external money for their further growth and development ambitions. VC investors invest in these companies to further support their initial development or rapid growth. It is important to note that venture capital usually focuses on companies that have already achieved some degree of validation. This means they would have a working product, an initial customer base, or have demonstrated clear market potential. Venture capitalists rarely invest in completely untested ideas, which sets them apart from earlier funding sources such as angel investors or the 3Fs (family, friends and fools). How Does Venture Capital Work? Investors and Sources of Capital Venture capitalists are professional investors who put their capital into companies with high growth potential but also inherent risk. These investors obtain their capital from various sources, including external investors called Limited Partners (LPs) and sometimes from their own funds. LPs can be pension funds, university endowments, family offices or high net worth individuals. VC parties also often act jointly and, in the Netherlands, regularly with government-funded parties such as Regional Development Companies (Regionale Ontwikkel Maatschappijen). The consortium of collaborating investors then takes a joint position within a start-up. Phases of Investment The process of venture capital investment involves several stages: Investors use their personal networks, recommendations and online platforms to identify interesting young companies (deal sourcing). In the deal screening phase, startups are assessed based on criteria such as market potential, team expertise and innovation. A thorough due diligence is conducted to assess the feasibility and risks of the investment. This process includes a comprehensive audit of the startup to evaluate finances, operations, legal aspects, market position and more. At the investment committee stage, the final investment decision is made (FID) by a group of experts and partners. After due diligence, the venture capital firm generally prepares a term sheet and other relevant documents and structures the deal. Once the necessary documents are signed, funding is provided through capital contributions to the company (capital deployment). In practice, the actual capital investments often take in several rounds/phases, each with specific goals and conditions. The first formal investment round, also known as the seed round, focuses on product development and market validation. The subsequent series A round focuses on refining the business model and accelerating growth. All rounds (series B and beyond) after that focus on scale-up and expansion. Each round typically entails more capital and higher valuations, but often also contains more stringent requirements on the company’s performance. Conditions and Risks In return for their financial investment, venture capitalists receive partial ownership of the company and, often, a say in its operations. This then usually takes the form of a seat in the board, supervisory board or otherwise. Investors may also make other demands, such as the right to future investments, the right to get their investment back on a priority basis or the possibility to sell the company at a profit after a certain period of time. Venture capital is a risky type of investment because the companies are still in the early stages, have little or no revenue and have not yet proven that they will actually be successful. The exit strategy, or how the investor can sell its shares, may therefore be uncertain or unclear. It is crucial to understand that most venture capital investments are not successful. VC firms expect to earn their returns from a small percentage of their investments – often only 10-20% of their portfolio. These ‘winners’ must generate sufficient returns to offset losses on the other investments to still generate an attractive total return. This showcases the high risk-return ratio in the venture capital sector. Exit Strategies The main goal of investors is to earn a return on the money invested. This is usually done by selling the shares after a certain period, on average between 3-7 years, through an initial public offering, merger or acquisition by another company or investor. Although initial public offerings and acquisitions are the most common exit strategies, they depend heavily on market conditions and the performance of the startup. Not every company will achieve such a successful exit though. Venture capitalists consider different scenarios and then adjust their strategies as the company evolves. In some cases, a secondary sale of shares or a recapitalisation can provide an alternative to the usual exit routes. Role in the Startup Economy Venture capital is an essential source of funding for start-ups and innovative companies, especially when traditional bank loans are too difficult to obtain. It helps in the rapid growth and development of these companies and can lead to exponential growth across the startup ecosystem. Networking and relationships play a crucial role in deal flow. VCs often invest in startups with founders they know or through recommendations from trusted sources. A strong network can significantly improve access to high-quality investment opportunities. Networks not only play a crucial role in deal flow, but also influence the quality of due diligence and strategic decisions. Strong networks enable VCs to gather in-depth, reliable information on potential investments. They also facilitate access to industry experts, potential customers and partners, which significantly increases the value a VC can add to a startup. Moreover, good networks can help find suitable executives or board members for portfolio companies. VC firms based in thriving entrepreneurial regions, such as Silicon Valley, New York, Berlin, Stockholm or Tel Aviv and closer to home ‘Brainport Eindhoven’, BioScience Park in Leiden, the Amsterdam region or metropolitan region of The Hague-Rotterdam, generally have better access to deal flow than firms in less active areas. Said regions offer a rich ecosystem of startups, talent and resources. VC firms that specialise in specific sectors or industries are more likely to get a better deal flow as they have deeper understanding of the market and are better able to identify promising startups. Specialisation can also help make due diligence more efficient and make better investment decisions . The main sectors currently attracting VC investment are information technology, healthcare/biotechnology, fintech and consumer products and services. Conclusion To summarise, venture capital is a complex but essential part of the startup economy. By understanding the phases of deal flow, the key players in the VC ecosystem, and the factors that influence deal flow, both entrepreneurs and investors can develop strategies to be more successful. Mitigating challenges such as a limited deal flow, investor competition, time constraints and risk management is crucial to achieving success in the world of venture capital. By using technology, building strong networks, and implementing efficient processes, VC firms and entrepreneurs can effectively navigate the dynamics of deal flow and increase their chances of success. With the right strategies and mitigation measures, both entrepreneurs and investors can benefit from the potentially high returns that venture capital has to offer. Contact Do you have questions about bad leaver or good leaver clauses or want to exchange views? If so, please contact Mathijs Arts, Reinoud van Ginkel or one of our other Mergers and Acquisition (M&A) specialists.  

Introduction The Institute of Directors (IoD) recently published a new version of the Code of Conduct for Directors. The IoD is a British professional organization for company directors, senior business leaders, and entrepreneurs. Established in 1903, it is the longest-running organization for professional leaders in the UK. Approximately 75% of FTSE 100 companies have an IoD member on their board or in a senior management role. The voluntary Code of Conduct is described by the IoD as a practical tool to help directors make “better choices.” It represents a voluntary commitment by directors and their organizations to support and foster a positive organizational culture, ethics, and integrity. This article compares the IoD Code with the Dutch Corporate Governance Code 2022 (NCGC). The comparison focuses solely on relevant governance aspects related to ESG objectives. Comparison Sustainability and ESG (Environmental, Social, Governance) have become critical focus areas in corporate governance. As noted, we compare ESG-related guidelines from the NCGC and the IoD Code of Conduct for Directors 2024 (IoD Code). Both codes provide governance frameworks but approach the subject from different cultural and legal contexts. The NCGC applies to Dutch listed companies and has a “comply or explain” character. The IoD Code, on the other hand, is voluntary for directors and organizations affiliated with the IoD. 1. Sustainable Value Creation The NCGC emphasizes the importance of long-term sustainable value creation (Chapter 1.1). Directors are expected to develop strategies that consider social and environmental impacts, based on “People, Planet, Profit.” It highlights double materiality: how the company influences sustainability and how sustainability influences the company. The IoD Code addresses the principle of Responsible Business. It encourages directors to integrate ethical and sustainable business practices into their decision-making, with explicit attention to broader societal and environmental impacts. Comparison Both codes stress the importance of sustainability, but the NCGC includes more specific requirements, such as mandatory reporting on sustainability effects. The IoD Code is less detailed but strongly focuses on ethical behavior by directors. 2. Risk Management and Governance The NCGC extensively addresses risk management, including identifying ESG-related risks such as climate change and social inequality. Directors are required to implement adequate internal control systems and evaluate them regularly. In the IoD Code, risk management is embedded within broader principles of responsibility and transparency. Directors are encouraged to manage risks responsibly and to avoid prioritizing short-term shareholder profits over long-term resilience. Comparison The NCGC offers more concrete guidelines on managing ESG risks, while the IoD Code emphasizes ethical principles that influence risk management. 3. Stakeholder Engagement The NCGC explicitly requires companies to develop policies for effective dialogue with stakeholders, including the involvement of employees in decision-making. The IoD Code highlights the importance of transparency and open communication with stakeholders, including mechanisms such as speak-up policies to report misconduct. Comparison While both codes value stakeholder engagement, the NCGC places more emphasis on structured and strategic dialogue, whereas the IoD Code focuses more on ethical behavior and transparency. 4. Diversity and Inclusion The NCGC mandates a diversity policy with concrete goals for gender equality and other diversity aspects. In the IoD Code, diversity is addressed under the principle of Fairness. Directors are encouraged to promote inclusive cultures where everyone feels valued. Comparison The NCGC provides stricter and measurable guidelines for diversity, while the IoD Code adopts a broader behavioral approach. Conclusion Both codes emphasize the importance of ESG principles in governance but approach the subject differently. The NCGC offers detailed, legally anchored guidelines focusing on implementation and reporting. The IoD Code, on the other hand, centers on the behavior and ethics of individual directors. Together, these codes provide valuable frameworks to support directors in fostering sustainable and responsible enterprises. If you would like to know more about good governance and ESG, feel free to contact Mathijs Arts or Patrycja Chelmiak.

A legal exploration of the scope and permissibility of the ‘bad leaver’ provision in The Netherlands. In the complex landscape of partnership and shareholder agreements, terms such as ‘good leaver’ and ‘bad leaver’ are crucial in determining the rights and obligations of departing shareholders. Leaver provisions are agreed to ensure that a departing shareholder is not left as a (passive) shareholder when the involvement in the company changes. A “good leaver” generally leaves without any problems, while a “bad leaver” often results from a situation of conflict or unwanted departure. These distinctive terms have significant implications, especially with regard to share transfers and their financial consequences. Because of the impact of the consequences, it is important to have a clear picture of the legal aspects when entering into such a clause. In this contribution, we will highlight the role of reasonableness and fairness in the interpretation and application of “bad leaver” clauses in The Netherlands. In doing so, we will also provide recommendations for drafting clear and objective bad leaver clauses, as this will prevent costly and complicated litigation later on. Good leaver vs. bad leaver A leaver provision regulates the obligation of a shareholder to offer the shares he holds in the company under certain circumstances. A ‘good leaver’ is generally a shareholder who leaves the company without pre-qualified reasons of ‘bad’ or ‘early’ leaver. For example, after expiry of a certain term, by mutual consent, or after retirement or death or long-term illness. In such cases, depending on the terms of the agreement, the leaver may be obliged to offer the shares at “fair market value” or a predetermined approximation of the fair price. However, things get more complicated when the shareholder is classified as a “bad leaver”. Depending on the agreement, the shareholder may in that case be obligated to transfer the shares at a contractually determined purchase price that will generally be lower than the ‘fair market value’. The agreement may even provide that the departing shareholder will not receive more than the nominal value for its shares. The financial consequences of qualifying as a bad leaver and the settlement included therein can therefore be significantly detrimental to the departing shareholder. For example, the bad leaver may have to offer its shares of considerable value for as little as one euro or a greatly reduced price. A ‘bad leaver’ provision is therefore often a point of contention for the parties. In case law, this more than once leads to the question whether this forced transfer and its adverse consequences are in line with the standards of reasonableness and fairness. There is also debate in the literature as to whether the bad leaver provision should be reduced on the basis of Section 6:91 of the Dutch Civil Code (‘DCC’) in conjunction with Section 6:94 DCC because it should be regarded as a disguised penalty clause. Interpretation of the bad leaver provision Before being able to test the reasonableness and fairness and the qualification of penalty clause, we must first determine how the ‘bad leaver’ provision should be interpreted. As with any other contractual agreement, freedom of contract applies in principle. The Court of Appeal of The Hague, in a judgment dated 28 March 2023[1], emphasised that the provision cannot be interpreted (purely) linguistically alone; in this case, the Haviltex standard applies, looking, among other things, at the intention of the parties. However, it becomes difficult to interpret the ‘bad leaver’ provision differently the more objectively it is formulated. This could include a ‘bad leaver’ provision that refers to the urgent reason for dismissal described in Section 7:678 DCC. In this case, when assessing whether there is a ‘bad leaver’, the text and the law will be followed more quickly. 7:678 DCC. In this case, the assessment of whether there is a ‘bad leaver’ will more readily follow the text and the law. Section 7:678 DCC makes the provision more concrete but at the same time creates a high threshold for assuming a ‘bad leaver’ situation. A clear and objective provision therefore plays an important role in the interpretation of the ‘bad leaver’ clause. However, it will not provide any guarantees because the Haviltex standard will still apply. Reasonableness and fairness or a penalty after all? Next, we return to the question of how far one can go with the bad leaver clause in terms of adverse financial consequences for the leaver before it is deemed contrary to reasonableness and fairness. After all, it does not seem reasonable to have to offer shares worth, say, more than €1 million at the nominal value of €1. In a dispute before the District Court of The Hague on 20 June 2018[2] (which was upheld on appeal), the question was whether the former director of the company was bound by the ‘bad leaver’ provision and therefore had to transfer his shares at their nominal value. The management agreement had been terminated by the company for urgent reasons and the court considered this a justified dismissal under Section 7:678 DCC. According to the management agreement, the former director had to transfer his shares at nominal value in case of dismissal due to an urgent reason. The (former) director tried in vain to get out of the provision by invoking reasonableness and fairness. However, the court did not go along with his reasoning. The court considered that this clause had already been agreed upon in the letter of intent. Moreover, the party was assisted in this by specialists, including lawyers and accountants. According to the court, the director therefore had to be aware of the scope and (financial) consequences of the clause. To the extent that this was not the case, this should still be for the director’s account and risk. Finally, the court emphasises that the threshold for assuming urgent reasons is high and can only be accepted in case of seriously culpable behaviour of the director. As a result, the court concludes that the former director is bound by the provision and an appeal to reasonableness and fairness does not succeed. Thus, the mandatory offer of shares at par value does not automatically violate reasonableness and fairness. Regarding the qualification of the bad leaver provision as a penalty clause as referred to in Section 6:91 DCC, the court in this ruling ruled that the offer obligation in this case could not be qualified as such. After all, the obligation arose from the occurrence of a certain event and not a breach of the obligation, namely the termination of the management agreement. In addition, the court ruled that a penalty clause must focus on compensation for damages or to induce performance. This, as in this dispute, will not easily be the case. Thirdly, here too, the intention of the parties was important and a different penalty provision had been agreed elsewhere in the contract from which the court inferred that the bad leaver provision would then not be intended as a penalty. A mitigation of the bad leaver provision under Section 6:94 DCC was therefore not valid. According to the court, the former director was therefore justified in offering his shares at nominal value. The ultimate difference between the nominal value and the market value in this case amounted to almost €5,000,000. The importance of a well-formulated bad/good-leaver provision is thus evident. Conclusion and recommendations The above shows that the forced transfer of shares at par value as a result of a bad leaver provision is in principle possible and permissible. Under which circumstances this is possible will depend on the specific circumstances of the case. It is advisable for both the company and the (future) shareholders to draw up a delineated and objective bad leaver provision and to clearly write down its consequences in order to avoid ambiguities in the future. Here, attention should be paid to the definition of ‘bad leaver’ and when it applies. Consequences such as price, damages or competition provisions should be explicitly specified. However, the interpretation and application of the provision always remain subject to the Haviltex standard and therefore it is very important to seek timely legal advice. Contact If you have questions about the good leaver or bad leaver clauses, or if you would like to discuss further, please contact Mathijs Arts, Reinoud van Ginkel, or one of our other Mergers and Acquisitions (M&A) specialists.  [1] ECLI:NL:GHDHA:2023:961 [2] ECLI:NL:RBDHA:2018:7368

Today, innovation is the norm. Business models are constantly evolving, and financial instruments play a crucial role in shaping the business future. This article looks at three emerging models that impact the business and financial landscapes: the widely used convertible loan, the Simple Agreement for Future Equity (SAFE), and the Agreement for Subscription against Advance Payment (ASAP). In this contribution, we delve deeper into these models, examine their impact on companies and investors, and shed light on the legal considerations inherent in these financial approaches. Converible loan A convertible loan is a financing instrument widely known and extensively used by especially young companies to attract capital. It combines features of both debt and equity, making it attractive to both investors and entrepreneurs. In practice, a convertible loan is a loan that can be converted into shares of the issuing company at a later date. In exchange for providing capital, the investor receives interest payments during the loan period. At a predetermined moment, often under specific conditions in the agreement, the investor and/or the company itself have the option to convert the loan into shares of the company. When entering into a convertible loan, investors should carefully study the conversion terms. This includes determining the conversion moment, the conversion price, and any adjustments that may occur in certain events, such as a new financing round or even bankruptcy. The ranking relative to other creditors/shareholders is crucial in case of bankruptcy or liquidation of the company. Finally, investors must be aware of their rights during the loan period, such as protection clauses or input in significant decisions. Clear communication is crucial when drafting the convertible loan. Transparency can prevent future disputes, and it is advisable to document all agreements in advance in a legally binding document. The issuing company should therefore specify how the provided capital will be used and be accountable to the investor. In addition to agreements on the loan and its conversion, parties should also consider the situation after conversion and the agreements regarding the mutual legal relationship as shareholders. Simple Agreement for Future Equity (SAFE) A Simple Agreement for Future Equity is a financing agreement between an investor and a company, often a startup (commonly early seed), wherein it is agreed that the investor has the right to a certain number of shares in the company on a future date, typically during a future financing round. Unlike convertible loans, a SAFE does not include interest payments or a fixed term. SAFEs are known for their simple structure, speeding up the negotiation process significantly and reducing costs. This makes it an attractive option for investors and entrepreneurs who want to act quickly in the dynamic startup world. Another advantage is that the classic risks of debt are much less present in SAFE agreements since they do not involve interest payments or repayment obligations. However, parties can decide otherwise and structure the SAFE as equity instead of debt. In the Netherlands, the ASAP is increasingly used for equity qualification. This allows startups to grow and invest more easily, and it gives SAFE investors a greater chance to benefit from the valuation growth of a startup. In a SAFE, the investor does not commit to a specific valuation at the time of the investment but rather chooses a valuation method. This also simplifies negotiations. Due to the straightforward nature of SAFE agreements, startups can raise capital more quickly compared to more traditional forms of financing. Administrative burdens are consequently much lower. The company does not need to have a (concrete) valuation, reducing legal costs and complexity. Unlike convertible loans, SAFE agreements do not carry interest expenses, allowing startups to focus on growth instead of generating immediate cash flow. Despite all these advantages of SAFE agreements, it is crucial that the terms regarding conversion, valuation mechanisms, and investor rights are clearly defined. Despite their name, SAFE agreements still bring some legal complexities and risks. It remains essential that both parties are well-informed and seek legal advice to ensure a solid agreement. Understanding the characteristics and legal implications of SAFE agreements is one of the keys to a successful and mutually beneficial financing round. Agreement of Subscription against Advance Payment (ASAP) Lastly, there is the Agreement of Subscription against Advance Payment, or the ASAP agreement. The ASAP is a variant of the SAFE and grants an investor the right to acquire shares in the company’s capital against immediate payment of the issuance price. The paid amount is, unlike the SAFE, booked as equity under reserves instead of as debt. ASAP shares can be issued in various scenarios, such as the closure of a financing round, transfer of more than 50% of the shares, or the occurrence of an event like a bankruptcy application. The remaining amount of the investment after the issuance of ASAP shares is booked as additional paid-in capital. The procedure for issuing ASAP shares includes prior notification to the investor, providing details about the number of shares to be issued, the issuance date, and, in financing rounds or termination, information about new investors and agreed-upon prices. Since the issuance of shares requires cooperation from the startup, the interests of the ASAP investor are protected through an irrevocable power of attorney to issue the ASAP shares before or at the latest by the closing of the new financing round. Additionally, a discount may be applied to the calculated issuance price as an additional safety measure. When the company then makes a profit and the general meeting decides on a profit distribution, the investor has a dividend right. This generally does not apply to interim dividends, allowing the ASAP investment to continue as equity instead of debt. Conclusion This contribution on convertible loans, Simple Agreements for Future Equity (SAFE), and Agreement of Subscription against Advance Payment (ASAP) makes it clear that the business world is in a time of remarkable transformation. These agreements have not only changed the way capital is acquired and managed but have also revised the dynamics between investors and entrepreneurs. Convertible loans, with their unique blend of debt and equity, offer startups a flexible financing route, while SAFE agreements bring speed and simplicity to the venture capital world. On the other hand, the ASAP model illustrates that investments can also be made gradually over a longer period. Within these innovative approaches, a common thread is found: the importance of clear legal frameworks. Whether establishing convertible loan terms, defining SAFE clauses, or formulating transparent subscriptions, legal precision is essential to ensure success and minimize disputes. Understanding these dynamics and embracing legally sound strategies will remain crucial for companies aiming for growth and sustainability in a constantly evolving world. This contribution was written by Reinoud van Ginkel in collaboration with Mathijs Arts. If you have questions about the convertible loan, SAFE, or ASAP, or if you would like to discuss further, please contact Mathijs Arts, Reinoud van Ginkel, or one of our other Mergers and Acquisitions (M&A) specialists.

On 1 September 2023, the Implementation Act for the European Mobility Directive comes into effect. This new law contributes to a more integrated and dynamic European market. In an era of increasing globalization and international business activities, companies are increasingly faced with the challenge of operating across borders and expanding their operations. Cross-border mergers, conversions, and splits play a crucial role in facilitating this business mobility and promoting collaboration between companies from different countries. Wilt u deze bijdrage in het Nederlands lezen? Klik hier. Background  Despite the fact that cross-border mergers were already allowed according to jurisprudence of the EU Court of Justice, there is still a need for legislation and regulation. From this need, the European Mobility Directive (2019/2121/EU) emerged with the aim of facilitating and promoting cross-border mobility of companies within the European Union. This directive follows earlier M&A directives such as the Merger Directive (2009/133/EC), as a consequence many terms and processes are already familiar and already in use for national mergers and splits. The Dutch legislature has adopted the Implementation Act for Cross-Border Conversion, Mergers, and Splits to implement this EU directive, making it easier for companies to convert their legal form to the law of another EU member state. At the same time, the law introduces additional protection mechanisms for stakeholders and a mandatory fraud check by the notary. The Act should have been implemented on 1 January 2023 but now officially comes into effect on 1 September 2023. Three Phases  The directive only applies to capital companies of EU member states. In the Netherlands, this means exclusively the B.V. and the N.V. Due to Brexit, this directive does not apply to any British companies such as the LLP. The law applies only to the transactions mentioned in the directive for which the proposal was filed with the Chamber of Commerce after 1 September 2023. These transactions include conversion, splitting, and merger, collectively referred to as “transactions.” The law divides these transactions into three different phases: (1) the preparation phase, (2) the decision-making phase, and (3) the implementation phase. During the preparation phase, each company must take preparatory steps in accordance with the national laws of the respective member state. For mergers, this includes, among other things, preparing and disclosing a (joint) merger proposal. The directive specifies the minimum required contents to be included in this proposal. After the formal proposal to merge, the decision-making phase begins. According to the directive, the competent authority in the country of departure provides a written declaration – the so-called pre-merger certificate – to the competent authority in the country of destination, confirming that the merger has been carried out legally. In the Netherlands, this role is assigned to the notary, who must determine whether the transaction has fraudulent or unlawful purposes. If the notary does not provide such a certificate, the cross-border transaction will not proceed. Finally, there is the implementation phase, during which the transaction is carried out in accordance with the rules of the country of destination. During this phase, the deed is notarized, and a final certificate is issued. This final certificate allows the involved companies to update their registrations in the trade register of both the destination country and the country of departure. Protection of the Stakeholders  In addition to the introduction of the procedural phases, the law also provides protection additional protective measures for shareholders, creditors, and employees in every cross-border transaction. In the future, information should be provided quicker and more extensive. Shareholders for instance will need to be informed about the consequences of a transaction and the possible rights and remedies at their disposal. The law further protects shareholders through exit rights and introduces procedures for determining the exchange ratios and cash compensation for the shares. The rights of employees based on statutory employee participation schemes are not explicitly extended but are further codified for all cross-border transactions. With regard to the protection of creditors, they will have the option to enforce certain safeguards, such as a bank guarantee or a right of pledge if they are not satisfied with the securities offered in the proposal. However, creditors must act within three months of the transaction proposal having been made public, in the Netherlands this period was previously just one month. Conclusie  The Implementation Law for Cross-Border Conversion, Mergers, and Splits was introduced in response to the growing need for regulated business mobility within the EU. The law follows a three-phase approach for cross-border transactions, ensuring compliance with national legislation and specific directives: the preparation, decision-making, and implementation phases. It also introduces additional protection measures for shareholders, creditors, and employees. Overall, the new law promotes business mobility, facilitates cross-border cooperation, and strengthens the European market. It also ensures important protection mechanisms through a fraud check and additional information provision for stakeholders. The (Dutch) text of the law can be accessed through this link. If you have any questions about this topic or would like to discuss it further, please contact Reinoud van Ginkel or one of our other M&A specialists. Author: Reinoud van Ginkel 

A shareholders’ agreement (‘SHA’) may prevent discussions or conflicts between shareholders internally and also between the shareholders and the company. It is not mandatory to draw up a SHA, but this is highly recommended in case the shares are held by more than one shareholder. Freedom of contract is therefore largely paramount. In this blog we cover 5 specific points of attention regarding the shareholders’ agreement. #1 Benefits of the Shareholders’ Agreement In the case a company has more than one shareholder, it is advisable to draw up a shareholders’ agreement . Especially in respect of a joint venture with a 50/50 ratio. In the event of a dispute, there may soon be a deadlock situation that could harm or damage the company. The commitment to a SHA can prevent discussions and conflicts, as shareholders are forced to think about and agree on a number of matters in advance regarding their cooperation. In addition, you can address your fellow shareholders if they do not comply with the agreement. Moreover, the agreement is (largely) flexible and can be changed by agreement of all shareholders. It is also possible to keep the agreement secret, unlike the articles of association. #2 Parts of the Shareholders’ Agreement The SHA provides clarity on the rights and obligations of the shareholders and the possible consequences for their non-compliance. Important topics that are usually included in a SHA are: a list of decisions/topics requiring a larger majority than usual; a list of board decisions requiring shareholders’ approval; an exit scheme; tag/drag along provisions; valuation bases for the shares; agreements on profit distribution; a non-compete and/or relationship clause; a confidentiality clause; and any chain clauses for subsequent and acceding shareholders. #3 Beware of model agreements Every company has its own specific points of attention and not every collaboration is the same. Take a critical look at what you do and do not include in the agreement. Look at your own company and situation and not just the standard agreements and parts thereof and boilerplate clauses. Be careful when using standard shareholder agreements, model agreements and templates. If in doubt, always have your agreement checked by a lawyer. #4 Drafting the shareholders’ agreement In many cases, a tailor-made agreement is therefore wise and desireable. Moreover, the agreement is usually an important document with a lot of arrangements in it. Therefore, take the time to draw up the agreement and have the document checked by a lawyer. Especially if standard arrangements, such as the approval scheme when transferring shares, are not the best solution for your company or situation. #5 Consequences of non-compliance with agreements A SHA is legally an agreement like (almost) any other. This means that the agreement must be respected. Failure to comply with the arrangements under the agreement may have far-reaching consequences, including the obligation to offer the shares to the co-shareholder(s). However, the parties are free to regulate the consequences of a breach of contract under the agreement itself. Contact The lawyers of La Gro are an important source of information for entrepreneurs, shareholders and directors. The corporate law team focuses on your future and can be your discussion and sparring partner when making (daily) decisions with legal implications. Do you need advice on this topic? Please contact Joost Vrancken Peeters on +31 620210657 or [email protected] and Mathijs Arts on +31 614338775 or [email protected].