New Code for Companies and Associations approved
After some political suspense, the new Belgian Code for Companies and Associations (the "CCA"), primarily drafted by a wide range of academics, has been voted and approved by the Federal Parliament on 28 February 2019.
The CCA introduces substantial changes into Belgian company and association law. It pursues three main objectives: (i) simplification; (ii) flexibility (fewer mandatory rules) and (iii) generally modernising and enhancing the Belgian legal framework to compete with foreign company laws.
The CCA reduces the number of corporate legal entities to 4 basic types, with a few possible variations:
(i) the limited liability company (société à responsabilité limitée (SRL) / besloten vennootschap (BV));
(ii) the corporation (société anonyme (SA) / naamloze vennootschap (NV));
(iii) the general partnership (société simple / maatschap) – as the case may be under the form of a silent partnership (société en commandite / commanditaire vennootschap) or an unlimited partnership (société en nom collectif / vennootschap onder firma); and
(iv) the cooperative company (société coopérative / coöperatieve vennootschap).
The corporate legal entities regulated by the European legal framework are also maintained, i.e. the European Company, the European Cooperative Company and the European Economic Interest Grouping.
The CCA reduces the number of mandatory provisions, leaving more room for contractual flexibility. As a result, it is now possible to deviate from a greater number of legal provisions in the articles of association.
Furthermore, the share capital is abolished in the SRL/BV and the cooperative company. As from 1 January 2020, the paid up capital and legal reserves of SRLs/BVs and cooperative companies will be converted by law into net asset accounting. To ensure tax-neutrality in this respect, a separate act was approved by the Federal Parliament on the same day as the CCA to introduce a number of tax amendments.
This evolution (pre-existing in the former Starter-SPRL/BVBA) goes hand-in-hand with different rules protecting creditors, which include a requirement to have sufficient net assets, a stringent obligation to draw up a financial plan and control mechanisms with respect to contributions.
Furthermore, in SRLs/BVs, distributions are not authorised if they would have as result that (i) the net assets become negative (the "net assets test") and/or (ii) the outstanding debts can no longer be paid (the "liquidity test").
Other changes include the possibility for SRLs/BVs to issue all types of securities that are not prohibited by the CCA, and greater flexibility to structure the rights attached to the shares, such as preferred dividend rights, multiple voting rights, conditional voting rights and no voting rights.
The SRL/BV is the most flexible form of legal entity which will be able to serve as a "tailor-made" type of company. It is expected to become Belgium's most popular type of company.
Belgium is shifting from the "real seat theory" (where the nationality of a legal entity is determined by the place of its central management) to the "incorporation theory" (where the nationality of a legal entity is determined by the place of its incorporation).
Going forward, companies that are incorporated in Belgium and move their seat abroad will in principle remain subject to Belgian law, to the extent this is accepted by the other country. For corporate income tax purposes, however, the place of effective management will remain decisive in determining whether a company qualifies as a Belgian tax resident.
Modernisation and other changes
A very noticeable change is the introduction of a cap on the liability of directors above which directors cannot be held liable, absent certain exceptions. The cap ranges between EUR 125,000 and EUR 12 million, depending on the average turnover and balance sheet total of the legal entity.
Companies and associations are regulated by the same code. One of the main changes for associations is the abolishment of the prohibition to pursue an activity that is primarily of an industrial or commercial nature. Going forward, associations may perform any activity as long as they do not distribute profits. Distribution of profits remains reserved to companies.
Multiple voting rights for shares are introduced. For listed companies, this is limited to double voting rights.
The prohibition of the so-called "lion's share arrangements" (pactes léonins / leeuwenbedingen) is softened. Although it remains unauthorised to exclude a particular shareholder from all profits or to attribute all profits to a particular shareholder, a shareholder can be exempted from contributing to the losses.
So called "lock-up clauses" (which are clauses prohibiting share transfers) can be agreed for an indefinite duration if this is justified by a legitimate cause.
Contributions in work (apport en industrie / inbreng in nijverheid) qualify as contributions in kind (apport en nature / inbreng in natura).
Email addresses are more broadly recognised.
Entry into force
The CCA comes into force on 1 May 2019 (the "Date of Entry into Force").
Companies or associations which are incorporated after the Date of Entry into Force are immediately subject to the CCA.
Companies or associations which are already in existence on the Date of Entry into Force will become subject to the CCA on 1 January 2020. Nevertheless, following the publication of the CCA in the Belgian State Gazette, companies and associations may choose to apply the CCA before 1 January 2020 by bringing their articles of association in line with the CCA ("opt-in").
As of 1 January 2020 (or earlier in case of "opt-in") both the mandatory (impératives / dwingend) and the non-mandatory (supplétives / aanvullend) provisions of the CCA will apply to companies and associations, except – in as far as non-mandatory provisions are concerned – if such provisions are excluded by the articles of association.
Companies will have to bring their articles of association in line with the CCA at the first occasion following 1 January 2020 at which they amend their articles of association and by 1 January 2024 at the latest.
The corporate legal forms which are abolished by the CCA (e.g. SPRLs/BVBAs) shall be converted by law into the most similar legal entities on 1 January 2024.
Our team is more than happy to help you with any questions you may have about the new CCA. Please feel free to contact any of our corporate and association specialists.