Equity earnings: what are the principles and derogations?

When calculating the earnings distribution per share, in principle, only the amount that is mandatorily deposited on the share (the par value) is considered. This means that only the amount officially put on the share counts, not other amounts such as additional payments or profits made on the shares. However, shareholders are allowed to deviate from this. And sometimes that can be beneficial.

In the case of the public limited liability company (NV) and private limited company (BV), for example, it is possible to deviate from this principle in the articles of association. With the BV, the main rule can also be deviated from by a unanimous resolution of all shareholders. If shareholders decide to deviate from this, this means that a BV can choose not to distribute the profit equally among the shares. In that case, one shareholder can be given a higher profit distribution than another shareholder while both hold the same number of shares. You can read more about these deviation options in this article.

Enactment of the Flex-BV Act

Since the entry into force of the Flex-BV Act on October 1, 2012, the BV no longer refers to ‘amount of profit’ but to ‘amount’. This is laid down in article 2:216 paragraph 6 of the Dutch Civil Code (BW). By doing so, the legislator intends to make clear that this provision not only applies to the distribution of profits, but also to other types of distributions. For the NV this change has not been made, but it is assumed that the NV provision (article 2:105 BW) should also be read this way.

Statutory deviation

In both the NV and the BV, articles of association can deviate from the rule that a shareholder’s entitlement to distribution is determined by the mandatory payments on the nominal amount. For example, the articles of association may stipulate that the share premium must also be included in the calculation.

Such a statutory deviation from the main rule for calculating distributions could prejudice the rights of certain shareholders. Therefore, for the BV it is stipulated that a resolution to amend the articles of association requires the consent of all holders of shares affected by the amendment.

Deviation by unanimous shareholder resolution

The Flex-BV Act makes it possible for shareholders to come to a different calculation of the (profit) amount ‘each time’, without the need for a statutory regulation. The word ‘each time’ emphasizes that each deviating resolution requires the consent of all shareholders. The law refers to occasional deviation resolutions. For structural deviations from the main rule, however, a statutory arrangement must be made.

When might deviation be appropriate?

The Flex-BV Act allows shareholders to distribute a shareholder more profit than another shareholder. In practice, this is sometimes desirable because, for example, a shareholder’s contribution in a given year was higher than that of the other shareholders. The shareholders can then decide among themselves to ‘rectify’ this by means of a profit distribution without having to immediately transfer shares, thereby changing the ratio of shareholders.

Conclusion

Shareholders of both NVs and BVs have the option under the articles of association to deviate from the regular rules governing distribution calculations. With BVs, shareholders can also deviate from the main rule by unanimous resolution, without the need for a specific statutory regulation. This flexibility provides room – within the legal framework – for customization and adjustments in a company’s distribution policy.

Questions?

Do you have questions about the variability of (profit) distributions or other corporate law issues? We are ready to answer your questions and help you further. Please contact one of our lawyers by mail, phone or fill out the contact form for a free initial consultation. We are happy to think along with you.