New company legislation
Following an elaborate process that started in 2017, the draft law regarding Belgium’s new Companies and Associations Code (hereafter “Code”) has been approved on the February 28th, 2019. The Code will be the most thorough reform of the Belgian company and association law since 1935.
The objective of the new law is twofold: on the one hand, the new Code seeks to modernise and simplify Belgian company law while at the same time making it more flexible, on the other hand, it aims to make Belgium more competitive and attractive for foreign businesses and investors.
Modernisation, simplification and flexibilization
A limited number of legal company forms under the new Code
Over the years, a multitude of possible legal company forms have been established. With the introduction of the Code, only four legal company forms will remain: a legal form similar to the Private Limited Company (in Dutch “Besloten vennootschap”, hereafter “BV”), a legal form similar to the Public Limited Company (in Dutch “Naamloze vennootschap”, hereafter “NV”), a cooperative society (in Dutch “Coöperatieve vennootschap”, hereafter “CV”) and a partnership (in Dutch “Maatschap”, hereafter “maatschap”). Recognized as variants of the Belgian maatschap under the new Code are the “Vennootschap onder firma” (a form of general partnership, hereafter “VOF”) and the “Commanditaire vennootschap” (a form of limited partnership, hereafter “Comm.V.”), two legal forms that were also known under the old company law.
By means of the new Code, the Belgian legislator seeks to implement the BV as the standard legal company form. As it allows the entrepreneur to a great extent to freely decide upon the rules and procedures to be subscribed in the company’s articles of association, and – by extent – upon the rules and procedures foreseen in shareholders’ agreements, the BV – which is currently already considered to be an attractive legal company form – will become even more popular. Under the new Code, former capital requirements are, for example, replaced by a new technique that allows the shareholder to protect the BV’s equity, shares can be freely transferred if this is foreseen in the company’s articles of association and the equality between shareholders (both in terms of voting rights and profit participation) is no longer an absolute legal requirement.
As to what concerns larger companies as well as listed companies, the NV will be the most suitable legal company form to turn to. An important innovation included in the Code with regard to the Belgian NV, besides the possibility of having a sole shareholder (one-headedness), is the introduction of a multiple voting right. In accordance with European legislation, the capital requirement for the NV will, on the other hand, be maintained.
Furthermore, companies that pursue the cooperative mindset (i.e. that meet the needs of the shareholders/interested parties and/or develop their economic and social activities) can opt for the legal company form of the CV under the new Code. Consequently, cooperative societies that currently exist and that do not meet this requirement will have to be converted to another existing legal form (in time), preferably a BV.
Finally, the Belgian maatschap remains the only legal company form without legal personality. This does not hold for the VOF (unlimited and joint and several liability between the shareholders) and the Comm.V. (limited liability only with regard to the shareholders who do not participate in the management). Both legal forms, which are a sub form of the Belgian maatschap, have (imperfect) legal personality.
All other legal company forms that exist under the current company law and that are not mentioned above will be abolished under the new Code, with exception of the European companies. Companies that currently exist are, consequently, obliged (in time) to convert to one of the legal company forms accepted under the new Code.
Belgium as an attractive country of establishment
A company is free to choose where it is incorporated. Following the Netherlands and the United Kingdom, the new Code introduces the incorporation theory. Consequently, under the new Code a company will become subject to Belgian company law if its registered office is situated in Belgium, even if its actual management does not take place in Belgium and/or it has no activities in Belgium. The implementation of the incorporation theory creates a fundamental change to Belgian company law when compared to the “real seat theory” that currently applies and according to which the place of actual management/activity is decisive with regard to the law system which is applicable.
By implementing the incorporation theory, the Belgian legislator creates both legal certainty (i.e. choosing Belgium as the company’s place of incorporation in the company’s articles of association means choosing the application of the new Code) and an attractive and accessible business environment for companies. A foreign company can decide to transfer its registered office to Belgium so as to make Belgian company law applicable. In this case, the new Code provides for a procedure which is applicable to all cross-border transfers of registered office out of and into Belgium.
Time is ticking. Or is it not?
The new Code enters into force on May 1st, 2019. From that date onwards, companies can only be set up in accordance with the new Code.
All mandatory provisions of the new Code will, however, be applicable to existing companies, associations and foundations as of January 1st, 2020. Clauses and arrangements that violate mandatory provisions will no longer apply.
Among other things, the fully paid-up part of the company’s capital and the legally required reserves will be considered as statutory unavailable equity in the BV.
The additional provisions of the new Code will only apply to existing companies, associations and foundations if no other arrangements are foreseen in their articles of association.
However, existing companies, associations and foundations can also voluntarily opt to apply the new Code before January 1st, 2020 by means of an amendment to the existing articles of association.
If existing companies, associations and foundations make an amendment to their articles of association as of 1 January 2020, the new Code will automatically apply to them.
Existing companies, associations and foundations must in any event carry out the necessary amendments to their articles of association by January 1st, 2024 at the latest in order for them to comply with the new law. Directors will be personally and jointly and severally liable for any damage resulting from these amendments not being done in time.
The aforementioned also applies to companies that currently have a legal company form that will disappear under the new law. In the event of an amendment to their articles of association, they will have to convert to one of the remaining legal structures.
If they do not do convert to a legal company form that is recognized under the new Code by January 1st, 2024 at the latest, they will be converted by operation of law. In addition, the directors will have to convene the general meeting of shareholders within six months in order to ratify this conversion statutorily, under penalty of personal and joint and several liability.