A significant part of capital raised by Dutch emerging companies comes from US investors who are often unfamiliar with the legal documents and closing process of an investment round in the Netherlands.

Loyens & Loeff New York regularly posts 'Snippets' on a range of EU tax and legal topics. This is snippet #2 of a series of 2 addressing the Dutch civil law notary's ("Notary") role and requirements for the closing process of a primary equity investment ("Investment") in a Dutch BV ("BV").

The main legal documents for an Investment are the Investment Agreement ("IA"), shareholders agreement ("SHA"), shareholder's resolution ("SHR") pertaining to issue shares and align the AoA with the SHA ("Amendment"), deed of amendment ("DoA") and deed of issue ("DoI").

Pursuant to Dutch law an Amendment and share issue must be effected by execution of a notarial deed by a Notary. A SHR generally includes a power of attorney to the Notary ("PoA") to execute the DoA and each party to the DoI should grant a separate PoA to execute the DoI. Signatures on the PoA for the DoI must be wet-ink and legalized by an authorized person. Unless the legalization is performed by a Notary, an apostille or a superlegalization by the Dutch embassy/consulate is required. If the grantor of a PoA is a non-Dutch entity, the signatory's authority to represent the grantor must be confirmed by the person who does the legalization or by an outside legal counsel admitted to the relevant bar.

Prior to closing, an investor usually pays its investment amount ("Amount") to the Notary's third-party account ("TPA") to avoid any insolvency risks. If the Amount is directly paid to the BV and the BV goes bankrupt on the closing date, the share issue would be unsuccessful because insolvency occurs with retroactive effect to 12am on that date. The Amount could then only be recouped from the BV by filing an unsecured bankruptcy claim which is generally not/partly paid. If the Amount is at the TPA and the BV goes bankrupt, the Notary will transfer the Amount back to the investor. One business day after a successful closing, the Notary performs insolvency checks and if no irregularities appear, the Notary transfers the Amount to the BV's account. To confirm flow of funds to/from the TPA and the closing sequence, a notary letter is entered into by the Notary and each party to the DoI ("NL").

Assuming a remote (i.e. not in person) signing and closing on the same day ("Closing"), Closing occurs in the following (simplified) sequence:

  • the investor pays the Amount to TPA;
  • the NL, IA, SHA and SHR are executed by the relevant parties (usually done by legal counsels releasing the parties' signatures already held in escrow);
  • the DoA and DoI are executed on behalf of the parties by an employee of the Notary, based on a PoA, and the Notary.

The investor has now become a shareholder of the BV.

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