NETHERLANDS Law and Practice Contributed by: Marc Habermehl, Jeroen Smits, David de Groot and Max de Heer, Stibbe
It should be noted that a director has the fiduci - ary duty to act in the best interest of the com - pany (this also applies if it has been appointed upon the nomination of a VC fund). Therefore, VC investors may prefer to obtain influence as shareholder rather than through a director nomi - nated by the VC investor. Typical approval rights for non-executive or supervisory directors relate to business matters (eg, entering into agreements above a certain threshold, hiring/firing key employees or approv - ing the budget/business plan). The approvals generally require a simple majority, though cer - tain more material matters (eg, material M&A or divestments, and approving/amending the busi - ness plan and budget) may require a qualified majority. In addition to appointing a representative on the board, it is also not uncommon for a VC fund to have the right to appoint one or more observers. The concept of an observer is not recognised under Dutch law. Therefore, the scope and pow - ers of an observer are typically outlined in the shareholders’ agreement. In the authors’ expe - rience, observer rights are generally limited to having the right to receive board materials and to attend board meetings. Shareholder Rights As shareholders, VC funds will have statutory rights attached to their shares (eg, voting rights, the right to attend a shareholders’ meeting and – depending on their stake – the right to call a shareholders’ meeting). Other than for certain limited exceptions, in Dutch limited liability companies, resolutions of the general meeting (eg, issuing shares, exclud - ing pre-emption rights, amending the articles of association, and appointing and dismissing
management board members) are adopted by a simple majority. This means that a minority shareholder is not able to block such resolutions. Shareholders’ agreements will typically provide for investor protection beyond the protection provided for under Dutch law, in terms of topics and required majorities. There is no one-size-fits- all approach. Each transaction, VC fund and cap table requires its own tailored protection, though in any event key points of attention include: • the issuance of shares; • excluding pre-emption rights; • specific approval rights on business matters; • related-party transactions; and • board composition. It should be noted that the level of control shareholders are able to exercise over the com - pany through contractual arrangements may also impact the necessity of certain regulatory approvals. 3.7 Contractual Protection Warranties In VC investment rounds, warranties are primarily given by the company, which in a primary trans - action will be the party that receives the invest - ment. If there is (also) a secondary element, the selling shareholders will give warranties. However, a selling shareholder is typically reluc - tant to provide detailed business and tax war - ranties in relation to a business in which it has only been a minority investor for a certain period of time. It is therefore not uncommon for sell - ing shareholders to provide only fundamental warranties (unless the entire transaction solely consists of a secondary transaction, in which case the investor/purchaser may in turn not be comfortable with such approach).
388 CHAMBERS.COM
Powered by FlippingBook