NETHERLANDS Law and Practice Contributed by: Marc Habermehl, Jeroen Smits, David de Groot and Max de Heer, Stibbe
party debt has been restricted at both the EU and national level. There may, however, still be reasons for using a (convertible) shareholder loan – for instance, in order to remain below certain equity thresh - olds, to avoid regulatory clearances having to be obtained prior to closing an investment round. Regulatory clearances tend to be time-consum - ing and costly, while start-ups and growth com - panies prefer to obtain investments as soon as possible. Working with a convertible loan may be a good solution: the company is able to obtain the funds it desires (and the shareholder/lender the economics it desires), while closing is not delayed. Depositary receipts for shares issued by “STAK” A typical feature in Dutch VC or private equity structures is a so-called STAK. This is a founda - tion that holds shares in a company and issues depositary receipts for such underlying shares. Through this structure, legal ownership and eco - nomic benefit of the shares is separated. The voting rights on the shares are exercised by the board of the STAK, but the dividends and liqui - dation proceeds will be passed on to the holders of the depositary receipt-holders. If structured properly, a STAK is treated as “transparent” for Dutch tax purposes. This feature is commonly used in employee participation plans for the obvious reason that investors may wish to incentivise employees through participation in the company, but may not wish to give them a seat at the shareholders’ table. In addition, it keeps the cap table clean, as only the STAK (and not the individual employ - ees) is a shareholder. The board of the STAK is therefore also typically appointed by the portfo - lio company’s main investor.
The use of a STAK may also prove useful in start- ups and growth companies, as initial capital is often provided by a relatively large group of “friends and family” and angel investors. Such a large group of shareholders can lead to inef - ficiencies on a day-to-day basis and also to potential delays when setting up new investment rounds – for instance, because each shareholder will have to agree to the amended shareholders’ agreement that will be entered into as part of a new investment round. Whether a STAK is the appropriate feature for dealing with a large shareholder base should be assessed on a case-by-case basis, as it also means that the diverse shareholder base will have to operate through one vehicle (which requires a certain level of alignment between such shareholders). 3.4 Documentation Key Documents The key documents in an investment round vary depending on the structure of the investment. If the investment round consists solely of a VC fund investing in a company, key documents will include the following. Term sheet This non-binding document (except typically for exclusivity and cost arrangements, if applica - ble) will set out the key terms and conditions on which the parties are willing to further negotiate the terms of the investment. Investment agreement This agreement sets out the terms of the invest - ment, such as the subscription price and the legal structure of the investment, and may be combined with “sale and purchase” element if there is also a secondary as part of the invest - ment rounds.
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