The Netherlands Revenue Based Finance- Preference shares

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This analysis was provided by Hogan Lovells

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The Analysis for The Netherlands includes articles on Revenue Based Finance – Debt, and Revenue Based Finance – Preference Shares

Executive Summary

This memorandum summarises and provides a general overview of the main structures identified for revenue-based financing available in The Netherlands. Revenue-based financing entails a finance arrangement in which the investor is entitled to a preference in the receipt of payments out of the enterprise’s revenues, either as return on capital or debt repayments. With the rising popularity of revenue-based financing across Europe, this approach has also found its way to The Netherlands. 

Although it is important to note that the current legal landscape in the Netherlands lacks distinct provisions for revenue-based financing – as there are no codified revenue-based financing structures – we have identified two ways in which such financing can be structured using existing Dutch law concepts:

  1. through issuance of equity like instrument in the form of preference shares (preferente aandelen); and 
  2. through the issuance of debt like instrument in the form of loans (leningen). 

In the schedules below, the focus is only on private companies with limited liability (besloten vennootschap met beperkte aansprakelijkheid), incorporated under the laws of the Netherlands and having their corporate seat (statutaire zetel) in The Netherlands. A private limited liability company is the most customary legal form in The Netherlands. 

Preference shares (preferente aandelen): Preference shares serve as an effective instrument for raising funds in various financial structures. In practice, several types of preference shares are distinguished, each with unique characteristics. When sufficient profits or reserves are available, preference shareholders are, in principle, entitled to distributions and can request payment. Consequently, this type of financing might only suitable be when a company generates sufficient profit, and may therefore be a better fit for companies that are profitable and able to support the repayment cap. This memorandum focuses on ordinary preference shares and cumulative preference shares, exploring their differences and unique characteristics within financial structures.

This memorandum is provided for general informational purposes only and should not be considered as legal advice or a substitute for professional advice tailored to any specific situation. The structuring of any financing arrangement always depends on the particular facts and circumstances, and it is essential to consult with legal counsels before taking any actions or making decisions based on this information. This summary does not purport to be complete or cover all aspects of the subject matter and should not be relied upon as a basis for any decision or action that may affect your interests.

Investment Structure Summary

Under Dutch law, preference shares serve as a funding mechanism, providing holders with special rights such as enforceable entitlement to a portion of profits before ordinary shareholders, including dividend rights and liquidation proceeds. 

Preference shares may feature fixed ‘return’ rates, posing both advantages and disadvantages for holders. While special rights are advantageous, fixed rates prevent holders from benefiting from increased company profits, meaning they will not receive extra dividends during a prosperous year despite having greater transparency on returns.

Furthermore, non-voting preference shares can be issued without diluting existing shareholders’ voting rights or negatively affecting the equity-to-debt ratio. Classified as equity, non-voting preference shares often play a role in bank financing documentation and can be used to enable leverage (gearing). It is crucial to note that preference shareholders are in principle not considered creditors.


Preference shares, when legally issued, are considered equity under Dutch law as they form part of the issued capital. However, their qualification may differ from accounting and tax perspectives

Category for tax purposes

Payment of dividends on preference shares will in general be subject to taxes and withholding in accordance with applicable laws and regulations. In The Netherlands, dividend is subject to a 15% dividend tax. This percentage can be reduced based on Dutch law, treaties, and EU law. 

For further details, please refer to Critical Tax Considerations below.

Governance Rights

Depending on the specific facts and circumstances, preference shares can economically resemble subordinated debt instruments, particularly if they offer only a fixed or variable rate of return without further entitlement to distributable dividends. 

All preference shareholders have a statutory right to attend general meetings that cannot be contractually waived. The ‘right to attend meetings’ grants them the ability to speak at any general meeting, which is distinct from ‘the right to vote’, which entitles them to vote on any matter at the general meeting. If voting shareholders wish to make a decision outside of a meeting, they require the consent of all those entitled to attend meetings, including holders of non-voting (preference) shares. This ensures that non-voting shareholders are not unexpectedly confronted with decisions they have not had the opportunity to discuss during the general meeting.

If preference shares are issued without voting rights, the holder does not have any voting rights concerning the general meeting, unless (1) a decision is made to liquidate the company, or (2) a change in the rights of the shareholders or preference holders is proposed, which in turn requires the consent of the non-voting preference shareholders. Further, holders of non-voting shares may also request the convocation of the general meeting and have the right to place items on the agenda of the general meeting. 

Investor Qualification Requirements

In general, there are no specific qualification requirements for non-regulated entities from a Dutch corporate law perspective, other than the registration in the register of shareholders and notarial requirements. Particular tax considerations may apply based on the nationality and tax status of the shareholder which may be beyond the scope of this memorandum. For further details, please refer to Critical Tax Considerations below.

Currency Considerations

Dutch corporate law offers flexibility regarding payment in foreign currencies. Under Dutch law payment for shares in a currency other than the one in which the nominal amount is denominated is only permitted before or at the time of incorporation if the deed of incorporation explicitly allows such payment. Following incorporation, this can only be carried out with the company’s consent, unless the articles of association indicate otherwise.


Typically not relevant as preference shares are classified as equity-like instruments.

Priority Payment Rights

It is possible to issue preference shares with priority in (i) the distribution of dividends and reserves of the company and/or (ii) priority in case of liquidation of the company. For more information regarding priority payment rights, please refer to Status in Insolvency Proceedings below.

When sufficient profits or reserves are available, preference shareholders are, in principle, entitled to distributions and can request payment. The actual amount may vary, provided it can be paid based on the company’s profit. For more information regarding the payment of dividends, please refer to Distribution and Redemption Limitations below.

Distribution and Redemption Limitations


Under Dutch law, the general meeting of shareholders decides on profit appropriation and distribution, which is permissible only if the company’s equity exceeds legal or statutory reserves. A limited balance sheet test is conducted by the general meeting before passing a resolution. The board of the company is ultimately responsible for approving that resolution for dividend distribution. Such approval will be withheld if the board either knows or reasonably anticipates that the distribution would compromise the company’s ability to meet its payment obligations, including future debts after distribution of dividend.

Typically, dividend payments are derived from the most recently approved annual financial statements, which may not be well-aligned with a monthly financing structure based on revenues. Dividends are generally calculated against profit, and the annual profit distribution usually corresponds to the profits of a specific financial year, as detailed in the financial statements. However, it’s possible to distribute interim dividends, which could be more in line with a revenue-based financing model. When the company has adequate profits or reserves, preference shareholders are entitled to request distributions. The amount of these distributions may vary, provided they can be justified based on the company’s profits. Once dividend payments are approved, preference shareholders are commonly entitled to a predefined percentage of the profit. After this entitlement is met, any remaining profit generally does not benefit the preference shareholders.


Under Dutch law, a legal framework exists for the redemption of shares in Dutch private companies with limited liability. The redemption price is generally based on the nominal value of the shares but can be set at a pre-determined price, such as a multiple of the initial investment. However, this is always subject to the approval of both the shareholders and the board, based on a balance sheet test (as described above), and only applies if this provision was reflected in the company’s articles of association when the preference shares were issued. In other cases the approval of the affected shareholder is required for share redemption. While the redemption of preference shares can be legally and commercially structured in various ways, such terms would typically be articulated in the company’s articles of association and the preference share subscription agreement.

Legal limitations to pricing or total return

The rate of return for investors is limited to the fixed and agreed-upon dividend rate. Actual payment may be restricted, please refer to Distribution and Redemption Limitations above.

Under Dutch law, no usury laws or restrictions limit interest amounts as usury is not regulated other than in relation to consumer credit loans. However, in exceptional cases, a contractual clause stipulating excessive interest may be invalidated based on principles of reasonableness and fairness. 

Status in Insolvency Proceedings

According to Dutch law, shareholders have a lower priority in the event of insolvency, making insolvency proceedings disadvantageous for them. However, in case of insolvency, preference shareholders have a preferential position and can assert their claims before ordinary shareholders.

Limitation of Liability

Under Dutch law, shareholders are in principle not personally liable for the company’s actions and not required to contribute to its losses beyond the amount due on their shares, unless specified otherwise in the articles of association. This protects the shareholder’s personal assets from being used to pay the company’s debts in case of insolvency, except in exceptional cases beyond the scope of this memorandum.

Transfer Restrictions

Unless the articles of association provide otherwise, a shareholder who intends to sell one or more shares must first offer them to the other shareholders in proportion to the number of shares they hold at the time of the offer in order for the transfer of shares to be valid. 

Critical Tax Considerations

Any payments made to the investors would be subject to the corresponding withholding and payment of applicable income taxes at the corporate level.

The classification of instruments as equity or debt is of great importance from a tax law perspective, as they are taxed differently. The compensation on equity (dividend) is generally not deductible for the paying entity. Dividends are generally taxable for the receiving entity, unless the receiving entity can apply the participation exemption (deelnemingsvrijstelling). It is advisable to seek specialist tax advice in each specific case.

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