In family businesses, commercial and family interests often become intertwined. That is precisely what makes them strong, but also vulnerable when expectations have not been clearly set down. A family business is not only about ownership. Control, succession, dividend policy, the sale of shares and the role of family members within the company can also become sensitive issues over time.
A well-drafted shareholders’ agreement can provide stability and clarity. It complements the articles of association and allows shareholders to make mutual arrangements on situations that matter greatly in day-to-day practice. Think of share transfers, voting arrangements, pre-emption rights, exit mechanisms, succession, dividend policy or the way conflicts are handled. A shareholders’ agreement is a private contract and does not replace the articles of association.
Strong agreements for a lasting partnership
The added value of sound agreements often only becomes visible when interests start to diverge. What happens, for example, when one child works actively in the family business and another is merely a shareholder? Who may decide on major investments? What if someone wants to sell their shares? And what happens when the next generation wants to continue the business, but not everyone shares the same vision? The aim is therefore not to predict conflicts, but to agree in advance how they will be handled.
Belgian company law offers considerable flexibility in this regard. In a BV, for example, the articles of association may depart from the classic principle of “one share, one vote”. Shares can be created with different voting and economic rights, which can be useful in family succession to structure economic ownership and control in a considered way.
Not every arrangement can simply be agreed
That flexibility does not mean that shareholders can freely agree on everything. Voting arrangements are permitted under the Companies and Associations Code, but must be limited in time and may not conflict with the company’s interest. Certain voting arrangements are even expressly void. That applies, among other things, to arrangements whereby a shareholder undertakes to vote according to instructions from the company or its governing body.
Restrictions on the transfer of shares must also be drafted correctly from a legal perspective. In a BV, shares are in principle closely held, although the articles of association may provide otherwise. In an NV, approval clauses and pre-emption rights may among other things be provided, but statutory limits apply there as well. That makes it important not to consider the shareholders’ agreement and the articles of association in isolation.
Investment or sale
At important milestones, such as an acquisition, a term sheet with investors or a future sale, the importance of clear agreements becomes even greater. An investor will, for example, want to know who truly holds control, which transfer restrictions apply, which rights are attached to different shares and whether existing shareholder arrangements could complicate a future transaction.
The right shareholder structure depends on several factors: growth plans, succession, financing, control, risks and also tax law. In family businesses, the question often arises of how the next generation can be involved without the entrepreneur immediately losing all control. Belgian company law offers various possibilities for this, including through different types of shares and voting rights.
Did you know that a correctly maintained share register is also important? It records, among other things, who is a shareholder, how many shares that person holds and how those shares were acquired. That information is relevant at general meetings, amendments to the articles of association, capital or equity transactions and deals.
Family arrangements do not stand alone
In addition to the arrangements between shareholders, other contracts often play a role as well. Think of an NDA, DPA, cooperation agreement, distribution agreement, franchise agreement or clear general terms and conditions. Those documents do not govern the internal shareholder relationship, but they do ensure that relations with customers, partners, investors or other external parties are also properly organised from a legal perspective.
That is why it is important not to look at each document in isolation. A shareholders’ agreement may, for example, fit the family vision perfectly, yet at the same time conflict with provisions in the articles of association or with arrangements later made with an investor.
Preparing a family business for the next generation
In family businesses there is an additional dimension: the transfer to the next generation. Arrangements about shares alone are not always sufficient. Succession planning, gifts and possibly an inheritance agreement can also become relevant. An inheritance agreement can, for example, help a family make transparent arrangements about earlier gifts and advantages and thereby limit later disputes between heirs. For such an inheritance agreement, the involvement of a notary is mandatory.
This shows how company law and family property law often intersect in family businesses.
A strong structure grows with the business
What makes the difference in practice is not only what is on paper, but how well the various arrangements are aligned with one another and evolve with the business. A shareholders’ agreement that worked perfectly ten years ago may no longer fit a company with external investors, several generations or international activities.
That is why it is wise to review shareholder arrangements regularly, for example upon a significant investment, the accession of a new shareholder, family succession or a planned sale. A strong legal structure is not a brake on entrepreneurship, but can actually be a lever. It creates clarity on control and expectations, reduces the risk of deadlock and makes it easier to take important decisions when the business or the family changes. In that way you build not only a company, but also a structure that is ready to grow and to be passed on.
