Caution: shareholders' agreement can annul the decision!

Yes, a shareholders' agreement can affect a corporate law decision. Although the agreement is formally a contract between the shareholders themselves, case law accepts that arrangements contained therein can have an “effect” within the company. If a decision (such as an appointment or a dismissal) is taken in violation of the shareholders' agreement, that decision may, under certain circumstances, be voidable. The legal basis for this is the standard of reasonableness and fairness under Article 2:8 of the Dutch Civil Code (BW), in combination with the ground for annulment under Article 2:15 BW. For entrepreneurs, this means that the content of such an agreement carries much more weight than is often thought.

What is a shareholders' agreement?

A shareholders' agreement (often abbreviated as AHO or SHA) is a contract in which the shareholders of a private limited company (BV) record agreements among themselves regarding their cooperation. Examples include agreements concerning voting behavior, the distribution of dividends, a dispute resolution mechanism, a non-compete clause, or what happens if a shareholder wishes to exit.

The popularity of the shareholders' agreement has a practical reason: drafting it is simpler and cheaper than amending the articles of association. Amendments to the articles of association require a notarial deed and must comply with mandatory corporate law. A private agreement between shareholders is more flexible and, moreover, remains outside the public registers, which keeps the agreements confidential.

The difference with the articles of association

The articles of association constitute the “constitution” of the company and apply to everyone. The shareholders’ agreement, in principle, applies only between the parties who have signed it. It is precisely this distinction that is interesting: the company is usually not a party to the agreement, and yet such a contractual arrangement can affect the functioning of the company.

Corporate law implications: how contractual agreements affect the decision

“Responsive effect” means that contractual agreements can have an effect within the corporate legal sphere, such that non-compliance affects the legal validity of decisions within the company.

In the past, it was often assumed that a shareholder who voted contrary to the agreement committed a breach of contract, but that the resolution itself remained valid. The shareholder could then be held liable for damages, but the resolution stood. However, the prevailing line in case law is now more nuanced: it may not only concern a breach of contract , but the resolution itself may also be voidable.

The role of Articles 2:8 and 2:15 of the Dutch Civil Code

This view is based on the standard of conduct of Article 2:8 of the Dutch Civil Code. This stipulates that a legal entity and those involved in its organization pursuant to the law and the articles of association must conduct themselves towards one another in accordance with what is required by reasonableness and fairness . What parties may reasonably and fairly expect of one another depends on the specific circumstances of the case.

The agreements in a shareholders' agreement are anything but insignificant in that assessment. They define what is reasonable and fair and can therefore influence corporate decision-making. A decision taken in violation of those agreements may thus conflict with Article 2:8 of the Dutch Civil Code. According to Article 2:15 of the Dutch Civil Code, this constitutes grounds for having the decision annulled. The court assesses this on a case-by-case basis.

The Vanka-Kawat line in case law

A frequently cited example in this context is the so-called Vanka-Kawat ruling (District Court of The Hague, August 1, 2012, ECLI:NL:RBSGR:2012:BX5922). In that ruling, it was accepted that a shareholders' agreement can, under certain circumstances, have effect under corporate law, partly because in that case both shareholders and the company itself were bound by the agreements. A resolution adopted in violation of such agreements may then be voidable under Article 2:8 of the Dutch Civil Code. Subsequent lower court rulings have confirmed this principle regarding other contractual agreements. The precise outcome always remains dependent on the facts of the case.

Passive effect is not automatic: the exception

Important to understand: the pass-through effect is not the general rule, but the exception that is assessed on a case-by-case basis. After all, the pass-through effect itself may be unacceptable on the grounds of reasonableness and fairness.

Exceptional circumstances may arise in which compliance with the shareholders' agreement cannot be required of a shareholder. This applies, for example, in the case of so-called necessity financing, where the interest of the company (continuity) may outweigh the literal agreement between shareholders. The court then weighs the corporate interest against the shareholder interest that the agreement is intended to serve.

Other contractual agreements may also have an effect

The concept of "passing effect" is not limited to shareholders' agreements. Other contractual agreements can also influence corporate law decisions through the standard of reasonableness and fairness. In lower court rulings, this has been applied to, for example, a agreement : a reappointment decision taken in violation of such a settlement agreement could be annulled on the basis of the same standard of conduct.

In practice, this means that entrepreneurs must also be vigilant regarding other agreements concerning their company. Agreements that appear to be “merely” contractual can suddenly have corporate law consequences in the event of a conflict.

What does this mean for you as an entrepreneur?

The ripple effect has two sides. On the one hand, it makes the agreements maximally enforceable: a co-shareholder cannot simply deviate from what has been agreed with impunity. This provides stability and stability within the collaboration.

On the other hand, it leaves little room for ambiguity or interpretation. A carelessly or ambiguously formulated provision can unintentionally influence decisions, or conversely prove untenable. As a result, the accessible, flexible nature of the shareholders' agreement can turn out to be stricter in practice than expected. A well-drafted shareholders' agreement prevents such surprises.

Practical example

Suppose three shareholders agree in their shareholders' agreement that a director can only be dismissed by unanimity. During a shareholders' meeting, two of them dismiss the director by a majority vote, contrary to the agreement. The dismissal decision is then formally taken in accordance with the articles of association, but may still be voidable through the continued effect of the agreement and Article 2:8 of the Dutch Civil Code. The “victory” at the meeting can thus be undermined retrospectively.

Note the time limit: annulment has a limitation period of one year

Anyone wishing to have a decision annulled must act quickly. Pursuant to Article 2:15 of the Dutch Civil Code, a one-year forfeiture period. This period begins to run from the moment the decision has been sufficiently publicized or the interested party has become aware of it. Unlike a limitation period, a forfeiture period cannot be “interrupted”: if you allow the period to expire, the decision remains in force, even if it was taken in violation of the shareholders’ agreement. If you are in doubt as to whether a decision can be challenged, have this assessed in a timely manner through our expertise in corporate law.

Practical next steps

• Record agreements clearly and unambiguously , so that there can be no discussion regarding their meaning.
• Align the shareholders' agreement with the articles of association and flag any inconsistencies in a timely manner.
• Explicitly state what happens in the event of voting behavior contrary to the agreements and in the event of disputes.
• Have the agreement drafted or reviewed by a lawyer familiar with the corporate law implications.
• Are you unsure whether a decision taken can be challenged? Then seek advice in good time, as a one-year limitation period applies to the annulment of a decision.

Frequently Asked Questions

Can a decision really be annulled by a shareholders' agreement?

Yes, that is possible, but it is not automatic. A decision taken in violation of the shareholders' agreement may be voidable under the standard of reasonableness and fairness (Article 2:8 of the Dutch Civil Code) and the ground for annulment under Article 2:15 of the Dutch Civil Code. The court assesses this on a case-by-case basis, taking all circumstances into account.

Does the shareholders' agreement take precedence over the articles of association?

Not without further ado. The articles of association have corporate legal effect against everyone, whereas the agreement in principle applies only between the parties. Due to this effect, a contractual arrangement can nevertheless influence the validity of a resolution. It is therefore advisable to align both documents.

What is the difference between breach of contract and a voidable decision?

In the event of non-performance, a shareholder breaches the agreement and can be held liable for, for example, damages, while the decision itself remains in effect. In the case of a voidable decision, the decision itself can be legally reversed. The current trend in case law shows that both can be applicable simultaneously.

Within what timeframe must you have a decision annulled?

Pursuant to Article 2:15 of the Dutch Civil Code, a one-year limitation period applies to the annulment of a decision, which begins to run as soon as the decision has been sufficiently publicized or you have become aware of it. A limitation period cannot be interrupted, so do not wait too long: have your situation legally assessed in a timely manner, otherwise your right to act will lapse.

Is a shareholders' agreement mandatory?

No, a shareholders' agreement is not legally mandatory. However, in practice, it is highly recommended as soon as a BV has multiple shareholders, because it prevents conflicts and provides clarity regarding cooperation, voting behavior, and exit.

Does a shareholders' agreement need to be drafted by a notary?

No, unlike an amendment to the articles of association, a shareholders' agreement does not require a notarial deed. It is a private agreement. Precisely for this reason, careful legal wording is important: the agreements can have far-reaching consequences.

Have your shareholders' agreement properly drafted

A shareholders' agreement is more powerful than many entrepreneurs think: the agreements can not only be mutually enforceable but also affect decision-making within your BV. Therefore, it is wise not to take this lightly.

The legal experts at MKB Juristen draft a clear shareholders' agreement for you that is acceptable to all parties, taking into account the risks and alignment with your articles of association. If you are dealing with a dispute or a contested decision, please also consider our expertise in corporate law or our broader legal assistance for entrepreneurs .

Would you like to discuss your situation in person? Schedule a no-obligation intake and discover how we can help make your agreements legally watertight.