Introducing The Dutch Protective Foundation: A Strategic Shield Against Hostile Takeovers – New York Office Snippet

Loyens & Loeff New York regularly posts ‘Snippets’ on EU tax and legal topics. This is part three of a three-part series on the Dutch foundation, covering the Dutch protective foundation.

A Dutch protective foundation (beschermingsstichting), sometimes called a continuity foundation, is a legal entity without members or shareholders and governed by an independent board. Dutch listed companies commonly use it as a defensive mechanism to safeguard corporate continuity and stakeholder interests in the event of a hostile takeover attempt.

How does it work?

During periods of corporate stability, the company grants the foundation a call option to acquire a specific class of shares (typically protective preference shares) at nominal value. If a hostile bid arises, the foundation can exercise the option, triggering issuance of shares that immediately dilute the bidder’s voting power. This can result in the foundation obtaining (temporary) majority voting control in the general meeting. Once the threat subsides, the intervention must be unwound, typically through cancellation or redemption of the shares.

The Dutch Supreme Court has confirmed that such protective measures can be lawful if they serve corporate continuity and stakeholder interests and are proportionate and time-bound. The foundation must act independently and in line with its statutory purpose. Courts have also emphasized that indefinite use of these measures is not justified.

Why use a protective foundation?

• Independence: The foundation operates separately from shareholders, supporting objective decision-making.
• Speed: The option can be exercised quickly, shifting control and buying time to assess alternatives.
• Deterrence: The mere existence of a protective foundation can discourage unsolicited bids.
• Flexibility: In some structures, a foundation may also hold special rights (e.g. priority shares) to safeguard strategic decisions, although this differs from the classic takeover defence.

Key takeaways

The Dutch protective foundation is a proven shield against hostile takeovers and is used by many Dutch listed companies (often cited at 35%+). It has also been used in international group structures involving non-Dutch listed companies, for example at the level of a Dutch (sub)holding company holding key assets or operations. As with any governance structure, the tax and legal consequences are fact-specific and should be assessed case by case. By leveraging an independent foundation to hold (or acquire) control rights when needed, companies can buy time, protect continuity, and negotiate from a position of strength. With careful planning and legal compliance, a protective foundation can be a decisive tool to safeguard a company’s long-term vision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.