Founders FAQ #2

The dups Founders’ FAQ is a compilation of the most common questions founders ask us about their startup, their fundraising or their relationship with investors.

Do I have to maintain a majority stake at all costs to keep control over my company?

The question whether or not to keep a majority stake is a common concern for founders. You need investors to help you achieve your business plan, but you don’t want them taking control of your company or kicking you out.

Nevertheless, do you need to keep a majority stake at all costs? If the investor holds more than 50% of the shares, and if one share = one vote, can the investor take every decision unilaterally? Not exactly.

On the one hand, some decisions require a supermajority according to Belgian law, e.g. decisions causing a modification of the articles of association (capital increase, additional contributions, merger/demerger, buyback of own shares etc. Most of these decisions require the presence (or representation) of half of the shareholders and need to gather 75% of the votes. Therefore, minority shareholders have a say in many important decisions.

On the other hand, you can agree on provisions offering further protection to some shareholders. Together, the following common clauses in shareholders agreements can protect founders who became minority shareholders following the fundraising:

• requiring a supermajority for other decisions taken by the general assembly or the board of directors;
• granting some shareholders (e.g. the founders) the right to appoint one or more directors.

Furthermore, the sacrosanct ‘one share, one vote’ principle has been abolished by the new Belgian Code of Companies and Associations. As a result, it is now allowed to grant 1, 5, 10 or even 100 votes to one share.

Let’s say a company has issued 100 shares: 60 class A shares belonging to the investors, with 1 vote per share; 40 class B shares belonging to the founders, with 2 votes per share.

In this situation, despite being minority shareholders, the founders would keep control over their company.

However, would an investor be willing to take a financial risk on 60% of the shares with only around 40% of the voting rights?

Would that send a good signal?

While negotiating a shareholders agreement, the key is to aim for a balanced solution, in every stakeholder’s best interests. Instead of trying to keep control at all costs despite the economic reality, it is better to set up a bilateral control structure with checks and balances, and prevent both side from abusing their power.

You have a question about control or other topics? Let’s have a chat, we’d be happy to help!