Share Emission Checklist

If a BV (or NV) company (limited liability company) wants to raise more funds, it may decide to issue new shares (investment round). Investors are then issued financial and control rights in the limited liability company in exchange for depositing a sum of money. This is called a share issue or share emission. In this blog, I explain how share emissions work in the form of a checklist.

Share Issue Resolution

• The share emission resolution, the decision to issue shares, is in principle made at the shareholders’ meeting (GSM). The Articles of Association may set out that another body, such as the Executive Board, makes the decision.
• When deciding on the resolution to issue shares, certain formalities must be observed. For example, the shareholders’ meeting must be convened in due order, the minimum number of shares must be represented at the meeting and the required majority must vote in favour of the resolution. In this blog, my colleague Hidde Reitsma writes about a dispute that arose because a minor shareholder blocked the share issue.
• In addition, the interests of other (minority)shareholders must be taken into account. My colleague Hidde Reitsma writes about that issue in this blog (in Dutch).
• The Articles of Association may restrict share issuance, fully, conditionally, or to some extent.
• The resolution must set out what type of shares will be issued: for example, non-voting shares can be issued.
• The resolution must also specify the amount for which the shares will be sold. This can be the nominal value, i.e. the amount stated in the Articles of Association. But this can also be a higher amount. This extra amount on top of the nominal value is called the share premium.
• Check the shareholder agreement to see if the shareholders have set conditions regarding a share issue in addition to legislation and the Articles of Association. For example, a minority shareholder may have been granted the right of approval.

Pre-emptive rights current shareholders

• When new shares are issued, current shareholders may have the right to buy the new shares in proportion to the share they currently hold. This prevents their equity interest from decreasing relative to the other shareholders. This is called dilution.
• This preferential right, or right of first refusal, does not always apply. For example, it does not apply if it is excluded in the Articles of Association or if shares are issued to employees. Also, an existing shareholder does not have a right of first refusal to new shares that are of a class other than the one he or she holds.

The issuance of the shares by the BV to the new shareholder(s)

• The BV issues the shares to the new shareholder(s) by having a share transfer deed executed by the notary.
• This is a representation act of the Executive Board.
• The new shareholder must then transfer the investment to the BV, the limited liability company.
• Subsequently, the shareholder register is updated accordingly.