Advisor shares, SARs and minority shareholder rights in Dutch startups

Advisor shares, SARs and shareholder rights in Dutch startups

International advisors, consultants and early contributors to Dutch startups are often promised “equity”. That equity may be described as advisor shares, vested shares, options, phantom equity or stock appreciation rights, commonly referred to as SARs. Commercially, these concepts may look similar. Legally, they can lead to very different positions.

This distinction is especially important in Dutch BV structures. A person may believe that he or she owns 1% of the company, while the legal reality may be different. The relevant question is not only what percentage was promised, but also how that promise was implemented under Dutch law.

This article is part of the Venture Capital Insights series on Dutch BV financing, investor rights and growth company governance. It is particularly relevant for startups, advisors and minority participants dealing with advisor equity, SARs, cap table questions, buy-outs or exit-related disputes.

Equity is not always equity

In startup practice, the word “equity” is often used loosely. A founder may promise an advisor “1% equity” in return for strategic support, introductions, product advice or fundraising assistance. That promise may then be recorded in an advisor agreement, side letter or addendum.

However, under Dutch law, it matters whether the advisor has received actual shares, a contractual right to receive shares in the future, an option right, a SAR, or another form of phantom equity.

Those instruments are not the same.

Actual shares give a legal position in the BV. A contractual right to receive shares may give a claim against the company or founder, but does not automatically make someone a shareholder. SARs usually give an economic right to a payment linked to value growth, but do not normally give ownership of shares.

This distinction is also relevant in the broader context of Dutch startup financing and investor rights, because unclear equity promises can affect cap tables, investor due diligence, minority rights and future exits.

When are you actually a shareholder in a Dutch BV?

In a Dutch BV, becoming a shareholder is not simply a matter of being included in a spreadsheet or cap table. The issue or transfer of shares generally requires proper corporate implementation, including a Dutch notarial deed.

The relevant documents usually include the articles of association, the shareholders’ register, notarial deeds of issue or transfer, shareholder resolutions, board resolutions and, where relevant, the shareholders’ agreement.

A cap table is important, but it is not the full legal answer. It is an administrative overview of ownership and dilution. If the cap table says that someone owns 1%, but the underlying corporate documents do not support that position, there may be a legal issue. This is why cap table clean-up is often important before a financing round, restructuring or exit. Similar issues can arise when preparing a Dutch startup for a Series A financing or exit.

Vested shares are not always issued shares

Many advisor arrangements use the language of vesting. For example, an advisor may receive “1% vested shares” over a two-year period, subject to continued involvement.

Vesting means that a right is earned over time or upon the achievement of certain conditions. But vesting does not necessarily mean that shares have already been issued or transferred.

This is a common source of disputes. An advisor may believe that the vesting period has been completed and that he or she is already a shareholder. The company may argue that the advisor only has a contractual right, and that no shares were ever formally issued.

The difference is material. A shareholder has corporate rights. A contractual claimant may only have a claim for performance, compensation or damages. The same distinction is relevant in relation to founder vesting and leaver provisions, where the legal effect of vesting depends on the actual documentation and corporate implementation.

SARs are not shares

Stock appreciation rights are different from shares. A SAR is usually a contractual right to receive a payment based on the increase in value of the company or a notional share value.

A SAR holder typically does not become a shareholder. That means the SAR holder usually has no voting rights, no dividend rights, no right to attend shareholders’ meetings, no position in the shareholders’ register and no direct ownership interest in the company.

SARs can be useful. They allow startups and scaleups to create economic incentives without issuing shares or changing the cap table. They can also be simpler from a governance perspective, because the participant does not become part of the shareholder base.

But the legal protection of a SAR holder depends almost entirely on the wording of the SAR plan or grant agreement.

Important questions include when the SARs vest, when they become payable, how the value is calculated, whether payment is triggered by an exit, whether an asset sale qualifies as an exit, what happens if the participant leaves, and whether the company can amend or terminate the arrangement. For that reason, SARs and phantom equity should be considered carefully as part of employee and advisor participation structures in Dutch startups and scaleups.

Shareholder rights are different from economic participation rights

An actual shareholder in a Dutch BV may have rights that a SAR holder or contractual equity participant does not have.

These may include voting rights, meeting rights, dividend rights, rights to participate in exit proceeds, rights under the articles of association or shareholders’ agreement, and certain information rights. A shareholder may also have a stronger position if the company is being restructured, sold or stripped of value through an asset transfer.

This matters in practice. If a startup is preparing for a financing round, asset sale, rebranding, IP transfer or exit, the legal status of small stakeholders can become highly relevant.

A 1% shareholder may need to be considered in the transaction structure. A 1% SAR holder may only have a contractual payment claim. A person with a vague advisor equity promise may first need to establish whether he or she has any enforceable right at all.

These questions often overlap with shareholder disputes in Dutch startups and scaleups, especially where minority participants claim that they are being diluted, ignored or bought out on unfair terms.

Why this matters before a buy-out or asset transfer

Disputes often arise when the company approaches an advisor, early employee or minority participant with a buy-out proposal. The company may offer a relatively low amount and ask for a release of all claims.

Before responding, the participant should understand his or her legal position.

The key questions are usually:

Is the person already a shareholder? Were shares validly issued or transferred? Is the person recorded in the shareholders’ register? Is the cap table accurate? Is there a shareholders’ agreement? Does the participant hold SARs, options or phantom equity instead of shares? Does an asset transfer trigger any payment right? Is the proposed buy-out price reasonable?

The company should also be careful. Unclear advisor equity arrangements can create problems in due diligence, delay a financing round, complicate an exit or give rise to claims after a restructuring. If the participant is an actual shareholder, exit-related provisions such as drag-along, tag-along and exit rights may also become relevant.

Practical conclusion

In Dutch startups, the legal question is not simply: what percentage was promised?

The better question is: what legal instrument gives effect to that promise?

Advisor shares, SARs, options and phantom equity can all be useful tools. But they should be documented and implemented properly. For advisors and participants, the key is to understand whether they actually hold shares or only have a contractual economic right. For companies, the key is to keep the cap table clean and ensure that all equity incentives are legally aligned with the Dutch BV structure.

Need advice on advisor shares, SARs or shareholder rights in a Dutch BV?

Equity arrangements in Dutch startups and scaleups often look simple on paper, but the legal position depends on the actual implementation. A promise of “1% equity”, “vested shares” or SARs can lead to very different rights under Dutch law.

As partner at VentureLawyers in Amsterdam, I advise founders, investors, advisors, shareholders and growth companies on Dutch BV equity structures, SAR schemes, cap tables, shareholder rights, buy-outs and exit-related disputes.

If you are dealing with advisor shares, vested equity, SARs or a proposed buy-out in a Dutch BV, it is important to review the legal position before signing any release, transfer document or settlement agreement. If you have any questions, You can send me an email at dirk.dewaard@venturelawyers.nl.