The basics of a shareholders’ agreement and the statutes of a BV

When you and your business partner(s) aim to work together via a Dutch limited liability company (“BV”), there is a lot to consider. It all starts with the drafting of the statutes (other names for the same are ‘memorandum of association’ or ‘articles of association’) by the notary. The statutes form, as it were,  the constitution of your BV, laying down the main rules , requirements and obligations of the BV and its main organs. 

Upon the formality of incorporation part of the process, it is important to consider the specific agreements you want to make with each other on your collaboration and relation as business partners. Quite often, too few or unclear arrangements are made and as result, parties can get involved in a conflict. In addition to the statutes, both parties can therefore conclude a shareholders’ agreement. A shareholders’ agreement is a separate agreement between the business partners, usually containing the more specific and detailed agreements on being a team of shareholders.

Based on four scenarios, this blogpost aims to clarify  why working with a well-considered shareholders’ agreement is advisable. 

1. Revenues are thriving 

The company is doing very well financially, and the money flows in. As a result,your business partner wants to distribute profits. However, upon incorporation you and your business partners verbally agreed that all profits of the first three years should be invested in the BV. Unfortunately your business partner  cannot remember such agreement.

2. Revenues are failing

The company is not doing well financially and the cash-flow is minimal. Upon incorporation of the BV, you and your business partner have agreed verbally that neither of you would conduct  activities  similar to or competing with the activities of the BV. However, because of the little money coming into the joint venture,, your business partner wants to perform competing activities outside the scope of the joint venture but you disagree.

3. Exit-scenario: voluntary departure

Another possible event is when one of the shareholders wants to sell his shares after a year of working together. The other shareholders, whose expectations were that this was a  sustainable partnership, do not like this idea and think that this shareholder leaving would be detrimental to the BV.

4. Exit-scenario: decease

What if one of the shareholders dies? What happens to his or her shares? Naturally, by default these shares would transfer to the relatives  of the deceased shareholder. This could however lead to the unwelcome situation that new, unknown or maybe even inexperienced persons enter the circle of business partners.

Scenarios 1 & 2

The main issue in these situations is that both parties have different expectations and views on what is reasonable given the circumstances. When clear agreements on such situations are lacking, discussions could drag on a long time – because nobody is really right, and nobody is really wrong – and the BV will suffer. Drafting a shareholders’ agreement upon starting the business may (at least partially) help to prevent such deadlocks. 

Scenario 3 & 4

Albeit rare,scenarios such as described above under 3 & 4 actually do occur. A shareholders’ agreement can help providing at least some certainty on what arrangements are possible within the scope of the joint venture. 

Prenups for your joint venture

It makes quite a difference when different scenarios as considered and arrangements are made in a shareholders’ agreement. We strongly suggest to carefully consider what arrangements to make and whether to codify these in the statutes, shareholders’ agreement, or even both. Both documents have different legal characteristics and legal effects. A major advantage of the shareholders’ agreement is that this agreement can be drawn up and changed without the intervention of a notary. Changing the statutes however does require the intervention of the notary. 

Please note: you can not do business via a BV without statutes! These are necessary for the incorporation of your BV. 

In short: it is very important that you make clear agreements on your cooperation. As a result, your BV will not suffer any unnecessary damage: damage that could have been prevented. Please contact us for further legal customization regarding a shareholders’ agreement, we are happy to advise!