Why clear agreements are crucial in your shareholder agreement

As a business owner or shareholder, you want certainty. Certainty about your company’s direction, decision-making and your influence on it. But what happens if a fellow shareholder or director makes a decision without your consent, while according to the agreements this is not allowed? A ruling by the Court of Appeal of ‘s-Hertogenbosch shows how important it is to record your agreements watertight.

The case in a nutshell

In this case, two shareholders each held 50% of the shares in a holding company. Through this holding company, they managed subsidiaries. The shareholders had drawn up an agreement stating that decisions with a financial value above €50,000 required the approval of both shareholders.

Over five years later, one of the shareholders, also a director, decided to convert a loan of €400,000 into share premium (capital payment) without the consent of the other shareholder. Because this conversion was done without consultation and consent, a conflict arose between the shareholders.

What did the court find?

The court ruled that:

• The shareholders’ agreement worked through in the company: Although a shareholders’ agreement applies primarily between shareholders, the court held that in this case it also applied to internal decision-making. This was due to the text and scope of the agreement and the fact that it was signed by the director.
• The resolution was contrary to the articles of association and void: The articles of association of the real estate company (OG) stipulated that resolutions such as this one required prior approval of the general meeting. In the absence of this approval, the resolution was declared null and void.

What does this mean for you?

This ruling shows how important it is not only to properly record your agreements in a shareholders’ agreement, but also to have them reflected in the company’s internal rules, such as the articles of association. This prevents situations in which a director or shareholder can unilaterally take important decisions.

1. Ensure alignment between articles of association and agreements: Record important agreements from the shareholder agreement in the articles of association as well. This prevents internal decisions from being made without respecting the agreements in the agreement.
2. Be clear about approval procedures: Specifications about which decisions require approval, such as financial thresholds, should be unambiguously defined.
3. Document everything carefully: Discuss important decisions in meetings and document them. This helps avoid misunderstandings and legal conflicts.

Lay out the agreements properly!

Drafting articles of association and shareholder agreements is customized work. Small details can have major consequences, as this case shows. A well-drafted agreement not only provides protection, but also prevents costly disputes.

Questions?

Do you have questions about your shareholder agreement or bylaws? Do you doubt whether your agreements offer sufficient protection against unilateral decisions? Our corporate lawyers have extensive experience in assisting entrepreneurs and shareholders. Please contact us for an obligation-free consultation. Together we will ensure that your agreements are legally watertight, so that you can focus on what is really important: doing business.

For tailor-made advice, please contact one of our attorneys by email, phone or fill in the contact form for a free initial consultation. We will be happy to think along with you.