Many people are not aware that it is possible to create types of shares within a limited liability company. This is a useful mechanism to distinguish between different groups of shareholders. Thus, you can grant some shareholders more or just fewer voting rights than others. In this Wanted Fact, you will find out more about creating types of shares and their practical application.
Types of shares
Types of shares are different categories of shares, with each type of share having specific rights in terms of profit-sharing and voting rights. In principle, each share has one vote and each share entitles you to an equal share in profits and the liquidation balance. You can deviate from this by creating types of shares.
Types of shares can only be introduced through an amendment to the articles of association. Only the general meeting of shareholders can therefore create them with a special three-quarters majority.
We hereby give some examples of types of shares:
- Shares without voting rights and with (equal) profit participation;
- Shares with limited voting rights (only voting rights for certain decisions) and with (equal) profit participation;
- Shares with multiple voting rights and with (equal) profit participation;
- Shares with (limited) voting rights and with large profit participation;
- Shares with voting rights and with limited profit participation.
When creating shares within a limited liability company, you do need to take into account some legal restrictions. For instance, each share must share in the profits or liquidation balance. There must also be at least one share within the company with voting rights. Thus, a share cannot be created that has no right to a share of the profits.
Voting rights of shareholders
The shareholders of a company thus have a lot of freedom to modulate these types of shares according to their wishes. To modulate the types of shares in terms of voting rights, it is important to know what the specific powers of the general meeting of shareholders are. After all, it is at this general meeting that the voting rights associated with shares are expressed.
The main powers of the general meeting are:
- Approval of the financial statements and allocation of the result;
- Appointment, remuneration, discharge and dismissal of the board;
- Amending the articles of association;
- Decision on merger, demerger, contribution of generality or branch of activity;
- Dissolution and liquidation of the company;
- Issue of new shares or amendment of rights attached to shares;
A simple majority is required for the approval of financial statements and decisions on governance. For the other more far-reaching decisions, at least a three-quarters majority is required.
So you can opt to create a type of shares that hold all voting rights on governance. That way, the shareholders holding this type of shares are sure to be represented on the board. Indeed, they can then only decide on the appointment and dismissal of the governing body.
Do I always have to amend my company's articles of association and thus pay notary fees?
Creating types of shares presupposes an amendment to your company's articles of association. To record voting arrangements in a way, you can also opt for a shareholder agreement.
A shareholders' agreement is an agreement between (all) shareholders of a company in which agreements are made on the organisation of the general meeting, the management body, the transferability of shares, exit scenarios, etc.
The advantage of such an agreement is that it is usually confidential between the shareholders and therefore these agreements are not generally known. The disadvantage is that in case a new shareholder comes in, he must accede to the shareholders' agreement. If not, he is not bound by the included (voting) agreements.
You can therefore include provisions on the general meeting in a shareholders' agreement. For instance, you can agree that a stricter majority applies to ‘key decisions’ (you can then also decide which decisions are key decisions) or that one or more shareholders must always be represented on the board.
When entering into such shareholder agreement, you do need to take into account legal restrictions. For instance, the shareholders' agreement may not conflict with the provisions of the Companies and Associations Code. It is also prohibited to agree that a shareholder will vote in accordance with the directives of the company or any of its bodies.
Finally, such agreements on the exercise of voting rights must always be limited in time.
Contact Wanted Law!
It is therefore definitely advisable to get proper assistance if you wish to create types of shares or enter into a shareholders' agreement. Wanted Law will be happy to assist you in this thought exercise and in preparing the necessary documents.