MULTIPLE VOTING RIGHTS, IS IT A POPULAR TOOL OR NOT?

Since the introduction of the new code of companies and associations (the Code) public limited liability companies (the NV/SA) have the possibility to grant multiple voting rights to shares (this option also exists for the BV/SRL, but this topic will not be addressed in this publication). The mandatory rule of “one share, one vote” which previously dominated the corporate landscape has been abandoned. However, two years after the introduction of this new rule we notice that the use of multiple voting rights in NV/SA’s is not (yet) widespread in Belgium. Below you can find out more about what multiple voting rights are as well as some pro’s and con’s.

What are multiple voting rights?

As a rule voting rights match a shareholder’s economic interest in a company. However, the Code now offers the freedom for unlisted NV/SA’s to deviate from this principle and to dissociate voting rights from the value that a share represents in a company’s share capital. Shareholders enjoy unlimited contractual freedom and the possibilities are as limitless as the creativity of the shareholders (or their advisors). The one rule that absolutely must be complied with is that a company must issue at least one share with voting rights. 

Multiple voting rights can be introduced either by issuing new shares with multiple voting rights or by granting multiple voting rights to existing shares. The creation of multiple voting rights results in the creation of different classes of shares. So please keep in mind that you will have to comply with the rules regarding class changes (in which case the change needs to be approved by a majority in each class of shares).

Is it a popular tool?

So far, in unlisted NV/SA’s, it is not (or at least not yet). Practice shows that the classic system of priority shares (i.e. shares that grant their holders specific powers of decision or veto rights in a company, irrespective of the proportion of their equity stake) is still being adhered to in the majority of the cases. 

The reluctance of shareholders to implement multiple voting rights is somewhat understandable. The separation between ownership and control can create or reinforce conflicts of interest. According to critics, voting rights should be proportionate to economic interest and to the risk associated with the investment, multiple voting rights may increase investment risk and therefor reduce the attractiveness of companies for investors. On the other hand multiple voting rights allow shareholders to combine the advantages of raising capital while maintaining control.

What are loyalty voting shares?

In listed NV/SA’s, shares with multiple voting rights are still prohibited. Nevertheless, the Code now stipulates that the articles of association can provide for a limited exception whereby the shareholders acquire double voting rights for shares that have been fully paid up and which have been registered in their name in the share register for an uninterrupted period of at least two years. These are what we call “loyalty voting rights”. This loyalty voting right does not lead to the creation of different classes of shares, because it is inherently linked to the capacity of the shareholder. All shares which meet these conditions confer double voting rights. 

Since double voting rights are not attached to the shares themselves but rather to the shareholder they do not circulate with the shares. Any share that is sold, transferred, or converted into a dematerialised share loses its double voting rights. However, exceptions exist, for example in the event of transfers to heirs, transfers as a consequence of succession or liquidation of matrimonial property, transfers between companies controlled by the same shareholders and transfers in the context of certification and decertification. Nevertheless, in order to prevent abuse of this regime, indirect share transfers (thus, a change in the control of a company which is a shareholder) will result in the loss of double voting rights, unless the control changes in favour of the spouse or one or more heirs of the controlling shareholder.

Why opt for loyalty voting shares and is it a popular tool?

According to the Belgian parliamentary proceedings, the goal of loyalty voting shares is to encourage long-termism and to facilitate the listing of companies with a (minority) controlling shareholder without the loss of control. 

So far only a limited number of listed companies have rewarded their shareholders with loyalty voting rights, such as Picanol, Tessenderlo, Ion Beam Applications, Groupe Bruxelles Lambert and more recently Bekaert.