Code of Companies and Associations - 3.2 - the Cooperative Company (CV - SC)

1. Specific Characteristics of the "New" Cooperative Company

1.1 Number of Founders

Unlike the other full legal entities (private limited company (BV – SRL) and public limited company (NV – SA), the special nature of the cooperative company makes it obligatory to retain a minimum of three shareholders.

A CV constituted with fewer than three shareholders may be annulled. Any subsequent sole shareholdership shall result in judicial dissolution, unless the situation is remedied in time.

1.2 Capital

As with the private limited company, the legislator opted to abolish the capital requirement. This means that on constitution (or conversion to a cooperative company) adequate initial capital must be present, and that the financial plan gains even greater importance.

Thus, henceforth, the shareholders of a cooperative company must take into account the double capital test in the event of profit distributions:

• The Balance Sheet Test (also known as the Net Assets Test): a payment may not result in the net assets of the cooperative company becoming negative or lower than any contributed equity capital which may have been blocked by the articles of association and reserves which may have been blocked by law or by the articles of association; and
• The Liquidity Test: the management body establishes that the company shall remain in existence for the settlement of debts as they become payable, for a period of 12 months ("in line with reasonably-expected developments"). The decision to make a payment is only effective from establishment of this test by the management, with the more stringent liability of directors hanging over them like the sword of Damocles.

The cooperative company therefore becomes a kind of variant of the private limited company, as, here too, the capital requirement is abolished. And, as with the private limited company, a contribution of labour will be one of the possibilities.

On the other hand, a cooperative company may only issue registered shares with a voting right and debentures. Unlike the new private limited company, it can issue no other (convertible) stocks and shares. Also unlike a private limited company, a cooperative company is not permitted to register its shares on a (regulated) market.

2. The Private Limited Company (BV – SRL) as a Fitting Solution for the "Unreal" Cooperative Companies (CV – SC)

2.1 Flexible Entry and Departure of Shareholders

The flexible entry and departure mechanism was one of the attractions of the old cooperative company. However, for a large number of unreal cooperative companies, often including professional companies, this legal form will henceforth cease to exist. So the new high-level flexibility of the private limited company  will provide some consolation.

This new regime provides the opportunity to retain the individual characteristics of the (old) cooperative company in the articles of association, and perhaps develop them further.

It is also possible to adapt the function of the General Meeting more flexibly, and to describe in more detail a number of subjects of relevance to shareholders, in internal regulations, which can then be applied by the management body.

These subjects include acquiring the capacity of shareholder, the number of shares which must be held, the rights attaching to the shares, the calculation of the departure share, grounds for exclusion, etc.

The sole condition is that these regulations are approved in advance by the General Meeting.

2.2 Exclusion

The cooperative company today offers the possibility to exclude partners. This also explains the popularity of this form among professional companies.

In order to provide a solution for this specific group of unreal cooperative companies, from now on, a private limited company is permitted to foresee an exclusion mechanism in the articles of association. However, given the importance of such an exclusion decision to a private limited company, it may only be taken by the General Meeting.

The Code of Companies and Associations leaves the relevant entrepreneurs a lot of freedom: all of the rules of entry and departure provided by the Code of Companies and Associations, only apply if they are not deviated from by the articles of association. Thus, the private limited company assumes a considerable part of the flexibility of the present cooperative company, and sufficient attention has been paid to the interests of creditors in a capital-less environment.

3. Conclusion

All of this provides very many possibilities as regards flexibility, and is intended to accommodate entrepreneurs who are currently organised in a cooperative company. The rules regarding the new private limited company are intended to facilitate their conversion to a private limited company.

And, conversely, the remaining cooperative companies will once more be real (recognised) co-operations, which put cooperative ideas into practice.

It goes without saying that we are happy to be at your disposal for any additional information or to assist you relating to a conversion of your company or to its recognition, at info@seeds.law or +32 (0) 2 747 40 07.