A new Belgian Code of Companies and Associations

An important modification in the field of Belgian corporate law is now on track and it also concerns non-profit associations and foundations (hereinafter “Associations”).

Last 20 July 2017, the Federal Council of Ministers approved a draft bill introducing a complete new Code of Companies and Associations (hereinafter the “CCA”). The bill is expected to be adopted by the Federal Parliament in the course of the year and to be applicable as from 1 January 2019.

Although this new code has not yet been adopted and the text has, to date, not been made available; it is expected to introduce major changes. In particular, the bill aims at simplifying and modernising the Belgian Corporate Law landscape by making it more flexible, thereby turning Belgium into a more attractive State for the establishment of companies. The CCA will not only affect Corporate Law but will also bring important changes for Associations. Some of the major highlights of the future Belgian CCA are set out below.

— The CCA vis-à-vis associations: The future CCA will repeal the Act of 27 June 1921 on non-profit associations, international non-profit associations and foundations. By virtue of the new rules, Associations will be able to conduct economic activities without limitation and, in such cases, they will be considered as undertakings (enterprises / ondernemingen). As a consequence, Associations will be subject to insolvency laws. Distribution of benefits to its members will nevertheless remain prohibited.

— Distinction between civil and commercial companies: The current distinction between civil and commercial companies will be abolished. This will imply that all the undertakings to which the CCA applies will be subject to insolvency rules.

— Types of companies: One the most important aspects of the future CCA is the reduction of the types of companies. Only the following companies with legal personality will remain: (i) the public limited liability company (société anonyme / naamloze vennootschap), (ii) the private limited liability company (société à responsibilité / besloten vennootschap), (iii) the cooperative company (société cooperative / coöperatieve vennootschap) and (iv) the partnership (société en nom collectif / vennootschap onder firma).

The European Company (société européenne / Europese vennootschap) and the European Cooperative Company (société coopérative européenne / Europese coöperatieve vennootschap) will also remain as they are mainly governed by European Law.

Furthermore, the private limited liability company will become the most common type of company and, contrary to the current situation, will be the new “by-default company” for small and large businesses (including subsidiaries of multinational companies). For its part, the public limited liability company will be intended to cover very large businesses with several shareholders and listed companies.

For this purpose, the current prohibitions on preferential dividends, authorised capital, interim dividends, issuing of profit-sharing certificates, warrants and convertible bonds within the private limited liability company (which often drove the entrepreneurs to choose the public limited liability type) will no longer apply.

As regards cooperatives, this type of company will be reserved only for companies with a ‘real’ cooperative purpose, by making reference to the original cooperative idea, i.e., companies which purpose is the promotion of the activities of its shareholders. A minimum of three shareholders will still be required.

— Share capital: Over the years, share capital has become an outdated concept, which has not always allowed the protection of creditors. This concept will be abolished for those private limited liability companies which current minimum share capital is set at EUR 18,550.

In such cases, the concept of share capital will be replaced by the one of “net assets”, which should enable the company to finance its activities.

In other words, the founding shareholders will have to justify in a detailed financial plan that the company has a sufficient equity upon incorporation. The rules regarding this financial plan will be more stringent than the current ones and the liability of the founders in case of bankruptcy should remain the same as it is today.

Furthermore, as a consequence of the abolishment of the concept of “share capital”, the provisions for distribution of profits will be amended and will only take place after a double test has been carried out:

a) First, at the shareholders’ meeting, it will be required to establish that the company’s net assets will remain positive after the distribution of profits;

b) Second, the management body will have to determine that the company will have enough liquidity to be able to pay for its debts, as they become due, for a period of at least 12 months, after the distribution of profits. This decision must be motivated by the management body in a report which must be reviewed by the company’s statutory auditor.

Finally, as stated above, private limited liability companies will be allowed to distribute interim dividends (that is, profits of the ongoing financial year).

It is also noteworthy that, under the CCA, and contrary to the current situation, the shares of a private limited liability company may be freely transferred, as in public limited liability companies, if so provided in its bylaws. Hence, the current system of “closed company” will become subsidiary.

— Number of shareholders and directors: The principle that a company must have multiple shareholders will be abolished and even a public limited liability company may be incorporated by a single founder.

— Multiple-vote shares: It will be possible to issue multiple-vote shares, contrary to the current “one share one vote” principle (that will remain as a subsidiary principle). However, listed companies will still face a limitation of a maximum of 2 votes per share, provided that the concerned shares have been (i) paid up in full and (ii) held by the same shareholder for an uninterrupted period of 2 years.

— Applicable law and registered office: So far, Belgium applies the theory of the effective place of management, with the consequence that a foreign company with its registered office abroad will be subject to Belgian Corporate Law when its effective place of management is located in Belgium.

According to the CCA, the registered office will prevail, which means that Belgian Corporate Law will apply to companies having their registered office in Belgium, irrespective of where its effective place of management is located.

— Timing: The new corporate legislation should be applicable for all existing companies as from the start of their financial year beginning the year after the publication of the CCA in the Belgian Official Journal. Therefore, it will be necessary to reassess the appropriateness of all corporate entities.