The owner of a share in a company gains several rights, including voting rights. However, we often get the question: “But what happens if I let my employees participate in my company? Do they all get voting rights?” In principle, they do, but fortunately, there are various structures to set up that allow you to fully customize this to your liking. You determine the rules entirely yourself. In this article, you’ll read everything about the options and how this process works.
Complete Freedom to Set Your Own Rules
As briefly mentioned in the introduction, you determine the rules regarding voting rights in employee participation. If you want to fully transfer the share to your employee, for instance, you can choose non-voting shares. These shares give the right to a portion of the profit through dividends, but do not include voting rights. However, by law, it is excluded to determine that a share gives neither profit rights nor voting rights, as the share would then lose its value. Despite the owner of a non-voting share being excluded from voting, the owner retains the right to attend meetings. They are allowed to attend and participate in the General Meeting of Shareholders.
But it is also possible to adjust this. This is where share certificates come in. This is a structure where an Trust Office Foundation (STAK) manages the shares, including the associated voting rights, meeting rights, and rights to profit sharing. This STAK will enter into a contractual agreement to transfer the economic ownership rights of the shares in your company. As a result, the voting and meeting rights remain with the (board of) the STAK, while the holder of the share certificate obtains the profit rights. Since this is a contractual agreement, the principle of contractual freedom applies: you determine the terms yourself. Therefore, you have (almost) complete freedom to decide how to structure employee participation and the associated voting rights.
Different Types of Voting Rights
As previously mentioned, you determine how to allocate voting rights. The following three forms are often applied in employee participation:
‘100% Voting Rights’
In this form, the employee has full voting rights in addition to economic ownership. The employee is officially allowed to vote on all decisions made in the company. However, this is often not very efficient, especially in larger companies.
‘Strategic Voting Rights’
In this form, the employee has voting rights only in certain predefined situations. For example, only on issues that are presented to the shareholders' meeting at least once a year or only on specific topics. These are usually the larger, strategic issues concerning the future. This way, day-to-day operations remain unaffected.
‘0% Voting Rights’
In this form, voting rights are not transferred at all. The employee cannot vote, but can still benefit from profit sharing.
How to Change Voting Rights
Changing the voting rights in employee participation can be arranged in various ways. The most common methods are:
Shareholders Agreement: In a shareholders agreement, you can make specific arrangements regarding the rights and obligations of shareholders, including voting rights. This document offers flexibility and can be tailored to the specific needs of your company and employees.
Amendment of Articles of Association: The company’s articles of association can be amended to change the rights of shareholders, including voting rights. This often requires approval from the general meeting of shareholders and may involve more formal procedures.
Issuance of Certificates: As previously discussed, share certificates can be issued through a STAK. This allows the economic ownership of the shares to be separated from the voting rights, providing flexibility in managing and allocating voting rights.
Use of Non-Voting Shares: The use of non-voting shares offers a direct way for employees to benefit from profits without giving them voting rights. This can be easily documented when issuing the shares.
More Questions?
It is important to seek legal advice when making these changes to ensure everything is done correctly and legally. With the right approach, you can create an employee participation scheme that supports your business goals and is attractive to employees.
If you’re curious and want to learn more, Share Council is ready to answer all your questions. Join our free webinar, where you can ask us anything!