Protection of Minority Shareholders | Common solutions in Dutch corporate transactions

Power and control in a company ultimately depend on a shareholder’s equity interest in the company and its representation in the board of directors. The larger the shareholding of a shareholder, the more influence it has.

From a shareholding of more than 50 percent of the share capital, a majority shareholder is in principle in a position to elect the board of directors and thus indirectly determine the course of the company's business. Minority shareholders can vote and have their perspectives heard, but as such and without further arrangements their votes are not enough to directly impact a company’s decision. As such, minority shareholders face a continued risk of being out-voted by the majority shareholders at the shareholder level – and often at the board level.

These power relations and the often-conflicting interests of majority and minority shareholders can lead to the latter feeling at the mercy of the majority shareholder and the board of directors elected by the latter.

While Dutch law does prescribe minimum voting thresholds required for specific corporate actions and provides remedies for minority shareholders, the regulations are often not sufficient to strengthen the positions and rights of minority shareholders.

That is why investing in a company as a minority shareholder can be a cause of concern for many. In the Netherlands in particular, an exceedingly large number of listed companies is controlled by majority shareholders.

To mitigate such concerns and to create an improved framework for minority shareholder rights, minority shareholders may negotiate contractual protection clauses to be incorporated in a company’s governance documents.

This approach is also in line with recent developments in the Netherlands that, due to the growing shareholder base in the Netherlands and the increasing number of foreign professional investors in Dutch companies, the position of shareholders vis-à-vis the management board of a company is being strengthened more and more.

The most common minority protection clauses that can be put in either a shareholders agreement or the articles of association of a Dutch law capital company (BV or NV) are described in our new leaflet.

Protection of Minority Shareholders | Common solutions in Dutch corporate transactions