Trust office foundations in the Netherlands

Shares and depositary receipts

The ownership of Dutch (public or limited liability) companies is represented by shares. The holders of the shares own the company and therefore hold both the legal and economic interests. In addition to ownership, shareholders have various rights under both the law and under the articles of association and/or any shareholder agreement. The most important rights are those of control, information and dividends.

When depositary receipts are issued for shares, legal ownership and economic interest are separated. The issue of depositary receipts for shares involves the incorporation of a foundation, a legal entity that has its own legal personality just like a company. This foundation then becomes the owner of the shares (or part of the shares) in the company. As a result, the rights attached to the shares now belong to the foundation. At the same time, the foundation enters into (a) contractual relationship with whoever the economic interests should be allocated. They are not shareholders, but holders of depositary receipts. Depositary receipts for shares are therefore securities merely representing the economic interest of shares.

Functioning of the trust office foundation

Every foundation must define their purpose under Dutch law. In the case of a trust office foundation, this purpose involves managing shares in its own name for the account and risk of the holders of depositary receipts for those securities. The interpretation of this management, and thus the exercise of shareholders’ rights, is left to the board of the foundation. Agreements about this are laid down in the articles of association and possibly also in an agreement with the holders of the depositary receipts.

Agreements are also made about the financial interests. In principle, it will be agreed that dividend payments from the company will accrue to the depositary receipt holders through the foundation. How and in what distribution can be further determined. Agreements may also be made regarding the transfer and sale of depositary receipts.

Advantages

Important reasons for opting for a trust office foundations include estate planning. Trust office foundations can ensure that upon the death of the shareholder(s), the shares remain in one hand and thus protect the company. Another reason might be to promote the marketability of the economic interest, without changing the legal control of the company. An example of this is the so-called ‘listed limited liability company’, whose depositary receipts can be traded “freely” through platforms such as NPEX.

Trust office foundations also the most common way for employees to participate in the company. In this way, employers can easily reward their employees with a financial stake in the company, without giving control or requiring the intervention of a notary.

Holders of depository receipts have more anonymity than shareholders. Shareholders are required to be kept in a shareholder register, and sole shareholders can even be viewed by anyone at the Chamber of Commerce. This is not the case for depository receipt holders.

The split of control and economic interest can also be used for the purpose of the continuation of the company. For example, the financial interest in a family business can be left to several children without jointly entrusting them with control. Control can also be secured against the consequences of any divorce in community of property.

Finally, a trust office foundation can act as a protective structure against hostile takeovers.

Disadvantages

Trust office structures can complicate matters unnecessarily and involve certain costs and effort. In addition, it may not be necessarily desirable to split the ownership and control of economic interests. Furthermore, depositary receipts for shares may be a value-dampening factor when selling a business. Finally, the trust office structure is unknown in most countries, which can hinder smooth international cooperations, mergers or acquisitions.

More information

If you have questions about your rights as a depositary receipt holder or are considering incorporating a trust office structure, GMW Advocaten has the necessary expertise to provide you with sound advice. Please do not hesitate to contact us.