Priority stocks: this is what you need to know

Priority shares are shares with special decision-making rights over ordinary shares. For example, a holder of priority shares may have a veto on the sale of the BV, on the appointment or dismissal of a director, or on amendments to the articles of association. While not separately regulated by law as “priority shares,” it is possible to establish them through shares of a separate class with these powers included in the articles of association (Article 2:201 of the Dutch Civil Code). They are often used by founders, founders after exit, or a Foundation for Administrative Services to retain control.

The short answer

Priority shares give their holders:

• Veto right on specific decisions (sale, merger, amendment of articles of association).
• Appointment rights for directors or supervisory board members.
• Approval rights for significant investments or contracts above a threshold amount.

The holders are usually a small group — founders, a family branch, a STAK — that wants to retain influence even though they no longer hold a majority of the shares.

When do you use priority shares?

Typical scenarios:

• Founder raising capital but wishing to retain control. Investors receive 60% common shares; the founder holds 40% common + preference shares with a veto right on sale.
• Family business with external management. The family holds priority shares to block strategic decisions; the director runs the business on a day-to-day basis.
• STAK structure. The foundation holds shares with special voting rights; certificates are allocated to beneficial owners without voting rights. See also the shareholders' agreement for related arrangements.
• Moments of crisis. During a restart, an investor can request priority shares to block price changes.

Which powers can you grant?

The articles of association determine exactly what priority entails. Common powers:

• Veto right on amendments to the articles of association.
• Veto right on the sale of a (substantial) part of the business.
• Approval for the appointment or dismissal of directors.
• Nomination for the appointment of Supervisory Board members.
• Approval right for the issuance of new shares.
• Veto right on merger or demerger.
• Veto right on major investments or loans above a threshold amount.

The judge assesses whether powers are not being used unreasonably — a veto right that blocks everything can be corrected through reasonableness and fairness.

Advantages and disadvantages

Advantages:

• Retain influence with a small shareholding.
• Protection against unwanted majority decisions.
• Flexible for use in family heads or investment situations.

Disadvantages:

• Veto rights can lead to deadlocks — ensure there is a mechanism to get out of them.
• Investors may be hesitant if existing shareholders retain too much control.
• Complex when selling the BV — the buyer wants to either purchase the priority or see it disappear.

Priority shares versus shareholders' agreement

Many arrangements incorporated into preference shares can also be regulated in a shareholders' agreement — without an amendment to the articles of association. Difference:

• Statutory priority: binding under corporate law, effective against everyone (including new shareholders), but stated publicly in the articles of association.
• Shareholders' agreement: binding under contract law only between the parties signing, not automatically against new shareholders, but binding in private.

The choice depends on how strongly you want to anchor the arrangement. For crucial matters (sale, amendment of articles of association), statutory priority is more powerful.

Honest recommendation

Priority shares are an instrument for specific control situations — not for typical private limited companies. In founder, family headship, or STAK structures, they can maintain the precise balance between capital and control. For most SME entrepreneurs, a good shareholders' agreement suffices.

For a broader explanation: shares in the BV and letter shares.

Frequently Asked Questions