What do you encounter in a participation contract?
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Danielle van Dalfsen "What do you encounter in a participation contract?

Danielle Van Dalfsen 2021 01 Danielle van Dalfsen

The process of attracting an investor as a shareholder is a lengthy and intensive process. In this process, a lot of information and documentation is requested by the investor.

Extensive due diligence (research) then takes place on this. Following this investigation, the investor decides whether to invest and under what conditions.

These terms are set out in a contract. In order not to be overwhelmed by all kinds of onerous legal conditions, it is important to prepare well for such discussions. Therefore, consider well in advance what is acceptable to you as an entrepreneur.

With most investors, the following conditions come into play anyway:


  • Valuation of the company and thus the percentage of shares the investor will acquire.
  • What guarantees are provided? (For example, that the information provided is accurate and complete, and that nothing has been withheld that is relevant to the investor).
  • Protection clauses, such as an anti-dilution clause* and liquidation preference*.

Agreements during the collaboration

  • Establish a Board of Commissioners or an Advisory Board.
  • Management appointments:
    - For example, on executive compensation and commitment.
    - Agreements around the departure of a director in different types of situations (good leaver vs. bad leaver arrangements).
    - Competition clauses.
  • Agreements around paying dividends; when and when not?
  • Periodic delivery of (financial) information.


  • What is the distribution of sale and/or liquidation proceeds?
  • What arrangements are made around co-sale right (tag along*) and a co-sale obligation (drag along*)?

The above list, of course, is not exhaustive. In every situation, agreements can be made that are important in your business. This blog does give a good overview of what things can be thought about in advance before contract negotiations begin.

Above all, don't be put off by the often elaborate contracts. The main idea is to arrange everything as well as possible for each party in each situation. The clearer the agreements are, the fewer the discussions later on. In the end, we have the same goal together: the success of the business!

Does this indeed not scare you off and would you like to talk to me about a possible funding with NOM? Then be sure to contact me. You can also find more information in the white paper 'The impact of investors'.

Whitepaper Impact of Investors
The impact of investors on your business

In this white paper you will learn:

  • What you have to deal with when you start working with investors
  • Differences and similarities between bank funding, subordinated loan and equity capital
  • In what ways NOM as an investor can help you

    Please note that this whitepaper is only available in Dutch at the moment. We are in the process of translating this whitepaper.

Anti-dilution clause

Equity dilution occurs when the percentage of shares held by a shareholder in a company decreases. This may be due, for example, to the issuance of new shares to an existing or new shareholder. Anti-dilution clauses can prevent this dilution of the equity interest. There are all kinds of arrangements that can be made in such clauses.

Liquidation preference

Liquidation preference is a protection clause for an investor. Namely, it is the right that certain shareholders have priority over other shareholders on the proceeds when the company is dissolved and liquidated. A liquidation preference can also oversee any sale of the company. Liquidation preferences come in all shapes and sizes.

Tag along: co-sale right

A tag along is an arrangement whereby a shareholder is given the right to co-sell his shares when a (majority) shareholder sells his shares to a third party. The shares are then sold on the same terms as the selling shareholder.

Drag along: co-sale obligation

A drag along is the right to force fellow shareholders to co-sell their shares to a third party who makes an offer for all the shares. Various agreements can be made about how and when a drag along can be used.

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