Shareholder convicted of a criminal offense? These are the options for transferring the shares

A shareholder’s criminal conviction can cause quite a stir within a company and in society at large, resulting in major consequences for the company and its stakeholders. Practical entrepreneurs may wonder, “Can’t we just get rid of that shareholder and move on?” Unfortunately, the answer is less straightforward: While this is sometimes possible under certain circumstances, it is not an easy route to take.

Share ownership is firmly protected, but not at all costs

Shares are considered property, which is strongly protected in the Netherlands. These guarantees are offered by both the Civil Code and the European Convention on Human Rights. Share ownership does not automatically cease as a result of a criminal conviction. A legal or contractual basis is always required for the transfer of ownership.

Route 1: Expelling a shareholder through the courts.

Expulsion proceedings are the best-known way to “get rid” of a shareholder. If the conduct of a shareholder harms or has harmed the interests of the company to such an extent that his continued shareholding cannot reasonably be tolerated, the other shareholders can compel the court to order him to transfer his shares. This is not a common occurrence.

For example, it would have to involve the paralysis of decision-making within the company by systematically voting against resolutions at the general meeting without good reason, thereby seriously threatening the company’s continuity. In 2010, the Enterprise Chamber ruled that tolerating the shareholder’s participation in such a situation was no longer reasonable and forced the shareholder to sell his shares.

There is no clear precedent for criminal convictions like the one mentioned above. Nevertheless, it is not inconceivable that a conviction could cause such serious damage that the company’s continued existence would be threatened. The seriousness of the offense and the circumstances of the case are important here. In any event, the following circumstances play an important role:

• Does the offense affect the company’s business activities?
• Is the company’s reputation seriously damaged?
• Are licenses or important customers at risk of being lost?
• Will financiers cut off credit as a result of the convicted person’s involvement in the company?

In other words, if the shareholder has committed an offense involving the company, or even victimizing it, then a successful expulsion is more likely. Even if continuing the shareholding poses problems for the company’s survival, for example as a result of a damaged reputation, loss of licenses or customers, or the inability to attract financing as a result of the shareholder’s involvement, it may be possible to terminate the shareholding. The court considers the entire situation, including the nature of the offense, its consequences for the company, and whether the measure is proportionate.

Since January 2025, it has been easier to expel a shareholder. Since this change in the law, conduct does not need to have been committed in the capacity of a shareholder but can also occur as a director.

Route 2: Contractual Agreements
Good Leaver/Bad Leaver and Quality Requirements

It is common practice for shareholders to enter into shareholder agreements, which are also known as family charters in the case of a family business. The company is usually a party to these agreements as well. Examples include stipulations that shareholders will not compete with the company, will keep information received from the company confidential, and will not sell their shares without good reason.

Penalty clauses are often included in the event of a breach, as well as so-called “good leaver/bad leaver” clauses. These clauses may stipulate that, under certain circumstances, such as a criminal conviction, a shareholder must offer their shares to the other shareholders. Unlike a good leaver clause, the bad leaver version requires a lower price to be paid for the shares.

A criminal conviction must be described in terms of its nature or consequences. After all, technically, a parking ticket or speeding fine is also a criminal offense. In such a case, it is not desirable for someone to be at the mercy of a potentially resentful fellow shareholder.

It is also common for there to be quality requirements. This means that shareholders must meet certain requirements to prevent certain parties or individuals from acquiring or retaining shares. These requirements often include an age limit so shareholders are not too young or old, or, in the case of family businesses, a requirement that shareholders be members of a certain family. It is also possible to stipulate that shareholders must have no criminal record.

Therefore, both good leaver/bad leaver clauses and quality requirements must be drafted carefully. If the wording is unclear or too broad, it can have disastrous consequences. It is crucial, then, to draft the agreement properly from the outset.

Route 3: The Centric Route

The Centric case law is a last resort for very extreme situations. Due to statements made by former owner Gerard Sanderink, there was significant unrest among customers of this IT company, which is crucial to the Dutch government and business community. Several pension funds and De Nederlandsche Bank, among others, severed ties. Centric then threatened to collapse if its policy remained unchanged. Ultimately, the Enterprise Chamber forced Sanderink to sell the company to a consortium of Dutch investors in the public interest, after appointing independent directors and an independent custodian of the shares at an earlier stage. Although this ruling sets a precedent, it is unlikely to be repeated, given Centric’s unique position.

Practical Tips for Entrepreneurs:

Ensure clear agreements between shareholders. Include good leaver/bad leaver clauses and quality requirements, if necessary, in the shareholders’ agreement.
Demonstrate the relevance of a criminal conviction. A conviction alone is often insufficient; link it to specific harm to the company resulting in the inability to require share ownership.
Determine the value. In the event of a forced transfer, the price is usually determined by an expert or the court. In the shareholders’ agreement, establish clear frameworks for valuing the shares in advance to avoid lengthy discussions later on.

Conclusion:

A criminal conviction is not an automatic “exit” button. However, if the company’s interests are seriously harmed and its future is potentially at stake, the law—and possibly the shareholders’ agreements—offers opportunities to intervene. Nevertheless, prevention is better than a cure. With good preparation and clear agreements in advance, costly proceedings can be avoided, and all parties will have clarity.

Questions?

Do you have questions about the subject of this article? Please feel free to contact one of our attorneys by mail, phone or fill out the contact form for a free initial consultation. We will be happy to think along with you.