Blog series part 3: Employee profit or control?

In the previous blog, we wrote about granting shares or stock options to employees. In this blog, we discuss the issuance of shares without profit or voting rights and depositary receipts for shares. These are participation options that separate control and economic rights, which is a common desire in employee participation. This is because not all employers want employees to have a say in, for example, the decision-making process or remuneration policy.

Shares without profit or voting rights

Since the flexibilisation of BV law as of 1 October 2012, it has been possible to issue shares without profit or voting rights. This split was possible before that by issuing depositary receipts for shares, but more on that later.

The basic principle is that a shareholder is entitled to control in the company and at the same time to a distribution of profits. It is possible to make different arrangements on this in the articles of association. For example, a shareholder has no right to a profit distribution or no voting rights in the general meeting. In that case, we speak of profit shares or shares without voting rights. Because employee participation is often used to allow employees to benefit from the growth of the company, non-voting shares seem a more obvious option than profitless shares, but this obviously depends on the purpose and wishes of the employer and any other shareholders.

Possible advantages:

• Shares can be flexibly adapted to the purposes; granting economic rights or control.
• Saving costs by not having to set up an STAK.

Potential drawbacks:

• Holders of non-voting shares can still influence the decision-making process through, among other things, the meeting right, the possibility to file an inquiry request and the right to consent to amendments to the articles of association.
• To amend the articles of association and transfer voting or profitless shares, a notary should be engaged.

Depositary receipts for shares

Another way to split control and economic rights is by issuing depositary receipts for shares. For this, a Stichting Administratiekantoor (STAK) is usually set up to acquire the shares and then the STAK issues the depositary receipts to the participating employees (the depositary receipt holders). It is common for employers to appoint themselves as the board of the STAK. The voting rights therefore remain with the employer and the employees are often only entitled to the profit distribution.

Advantages:

• After the STAK has been established by the notary and the shares have been certified, the depositary receipts can, however, be transferred privately (i.e. no notary is required for this).
• The voting rights on the shares lie with the board of the STAK and the other (existing) shareholders.
• Only if provided for in the articles of association, depositary receipt holders have meeting rights or any (delimited) control rights.
• It is possible to issue multiple depositary receipts per share.

Potential drawbacks:

• Relatively high costs for setting up the STAK and drafting the terms of administration (in which agreements are made between the STAK and the depositary receipt holders).
• To certify shares, one has to go through the notary.
• This construction is relatively unknown abroad and this can lead to ambiguity and questions in mergers or acquisitions.

Want to know more?

We regularly give presentations on the different forms of employee participation where we help you make an appropriate choice as an entrepreneur. We are then ready to help you implement the participation plan in your organisation. If you would like more information on this, please contact our Employment Law Team.