European capital markets: multiple-vote share structures

Multiple-vote share structures in the EU

Multiple-vote share structures create a discrepancy between the financial or capital ownership of a company and the voting power attached to the shares that represent such ownership. As such, these structures are a deviation from the "one share - one vote" principle. A multiple-vote share structure thereby allows a shareholder or group of shareholders to hold a large or even a controlling stake in a company without having to make the proportionate economic investment required for the size of the stake.

In its Impact Assessment Report with respect to the Listing Act package, the European Commission states that the current fragmented approach in the EU with respect to multiple-vote share structures leads to an uneven playing field for companies across the EU as they consider raising capital through an initial public offering on a stock exchange or maintaining their status as a listed company. The European Commission concludes that this leads to increased costs and barriers to entry for EU companies seeking to raise capital through an initial public offering. The Impact Assessment Report further indicates that, in the EU, twelve member states allow the use of multiple-vote share structures, while the other fifteen do not permit such constructs. Furthermore, some member states that allow the use of multiple-vote share structures provide restrictions with respect to the maximum permitted voting ratio. The proposed directive on multiple-vote share structures, put forth by the European Commission, aims to achieve a minimum harmonisation of national laws regarding this matter. 

In response to the proposal from the European Commission, the European Council agreed on its position on the proposed directive on 19 April 2023. Subsequently, on 24 October 2023, the Committee on Economic and Monetary Affairs adopted its position on various aspects of the Listing Act, including the proposed multiple-vote share structures directive. Among other changes, the Committee on Economic and Monetary Affairs proposes to broaden the scope of the proposed directive to also include regulated markets and multilateral trading facilities. 

Multiple-vote share structures in the Netherlands

Multiple-vote share structures are permitted under Dutch law. Dutch companies looking to adopt a multiple-vote structure generally opt either for a (i) dual class share structure; or (ii) a loyalty voting structure.

Dual class share structures

Pursuant to Dutch company law, shares with the same nominal value carry equal voting rights. By creating shares with different nominal values, a company can implement a dual class share structure consisting of a high voting class of shares and a low voting class.

Examples of Dutch companies with a dual class share structure are Media for Europe N.V., Trivago N.V., Yandex N.V. and Prosus N.V.

Loyalty voting structures 

Although Dutch company law does not explicitly provide for the concept of loyalty voting shares, loyalty voting structures have been adopted by a number of Dutch listed companies. These structures are aimed at incentivising long-term shareholder commitment by providing additional voting rights to shareholders who have continuously held their shares for a specified period of time. 

Loyalty voting structures must comply with the principle of equal treatment of shareholders. Although a loyalty voting structure may result in shareholders being treated differently, i.e. with certain shareholders receiving additional voting rights, such unequal treatment is permitted provided that:

1. There is a legitimate objective for differentiating among shareholders;
2. The unequal treatment is suitable to achieve the objective;
3. The unequal treatment is necessary to achieve the objective; and
4. The unequal treatment is proportionate.

In a loyalty voting structure, shareholders may register their shares in a loyalty register kept by the company thereby committing not to sell those shares. A shareholder that has registered its shares in the loyalty register for a certain period of time receives additional ‘loyalty’ voting rights. If such shareholder subsequently wishes to sell its shares, the shareholder must first remove its shares from the register as a result of which its loyalty voting rights are forfeited.

Examples of companies that have implemented a loyalty voting structure include Stellantis N.V., Ferrari N.V., Exor N.V. and Ermenegildo Zegna N.V. 

Proposed EU directive on multiple-vote share structures 

The proposal of the European Commission includes, among others:

• common rules on multiple-vote share structures in companies that seek the admission to trading of their shares on an SME growth market (i.e. not on a regulated market or any other multilateral trading facility) in one or more member states and that do not have shares already admitted to trading on any trading venue;
• provisions to safeguard fair and non-discriminatory treatment of shareholders of a company; and
• provisions related to transparency. 

Three important remarks in this regard:

• The proposed directive aims to achieve a minimum harmonisation of national laws. Member states may adopt or retain national provisions that allow companies to implement multiple-vote share structures in situations not covered by this directive; 
• In the Netherlands, the applicability of the proposed directive is limited to the N.V. (and therefore does not apply to the B.V.); and 
• Loyalty shares are not included in the scope of the proposed directive.

Position of the Committee on Economic and Monetary Affairs

The Committee on Economic and Monetary Affairs proposes several amendments to the European Commission's proposal. It suggests, among other changes, to:

• broaden the directive's scope to encompass not only companies seeking  initial admission to trade their shares on an SME growth market but also those on a regulated market or any other multilateral trading facility;
• include loyalty shares in the directive's scope;
• apply the directive in the Netherlands to both N.V.s and B.V.s; 
• introduce an obligation for listed companies to update disclosed information on natural persons with special voting rights periodically and after significant ownership or control changes;
• delete the provision that states that member states may introduce or maintain in force national provisions that allow companies to adopt multiple-vote share structures in situations not covered by the directive; and
• enhance protection for minority shareholders by introducing:
  • a requirement for shareholder approval, with a qualified majority, for adopting or modifying a multiple-vote share structure; 
  • a maximum voting ratio (from one-to-two to one-to-twelve) and a limit on the maximum percentage of the outstanding share capital that the total amount of multiple-vote shares can represent;
  • a restriction on the exercise of the enhanced voting rights attached to multiple-vote shares for voting on matters to be decided at the general meeting of shareholders requiring the approval of a qualified majority, excluding appointment and dismissal of directors and operational decisions; and
  • a requirement for companies with multiple-vote share structures to have a stock name that ends with the marker 'WVR' (Weighted Voting Rights). 

Conclusion 

In conclusion, the European Commission has proposed a directive aimed at harmonising legislation on multiple-vote share structures at a minimum level across EU member states. Uncertainties persist regarding the adoption, final text and scope of this directive. Nevertheless, irrespective of the ultimate outcome, the Netherlands and its company law regime is expected to continue to offer an attractive and robust legal framework for companies considering listing on a European, US or other international stock exchange. This appeal is underscored by the existing options for dual class and loyalty voting structures.

The final text of the directive will be subject to negotiations among delegations from the European Commission, the European Council, and the European Parliament in the coming months. After its entry into force, member states will have two years to implement the directive into national laws and regulations.