New Companies and Associations Code (CAC) adopted

Analyse

On 28 February 2019, the Chamber approved New Companies and Associations (CAC) Introduction Law which is due to come into force on 1 May 2019.

The purpose of this reform is to simplify and modernize our corporate law.

The government hopes to make Belgium more attractive, and thus more competitive, as a country for establishing companies. Our neighbouring countries have done the same.

What are the practical implications for existing companies, associations and foundations, and those still to be constituted or transformed?

1. The CAC significantly reduces the number of company forms

The CAC abolishes a number of company forms, and integrates them into the remaining company forms.

Seven company forms will continue to exist, including the following main forms: the partnership, the BV/SRL (private limited company), the NV/SA (public limited company) and the CV/SC (cooperative company).

All other company forms will be abolished and integrated into the closest corresponding company form. These are:

  • silent and temporary trading companies;
  • the economic interest grouping (ESV/GIE);
  • the cooperative unlimited liability company (CVOA/SCRI);
  • the agricultural company;
  • the single-member private limited liability company (EBVBA/SPRLU) and the private limited liability company starter (S-BVBA/SPRL-S);
  • the limited partnership and the partnership limited by shares (Comm.VA/SCA); and
  • the community interest company.

The BV/SRL (private limited company) will become the standard legal entity, or the legal entity by default.

The NV/SA (public limited company) will remain the company form for larger companies and listed companies.

The CV/SC (cooperative company) will return to the original idea of the cooperative.

The partnership is the basic company form without legal personality, with the VOF/SNC and the CommV/SC as variants with legal personality.

Companies can also be recognized as agricultural, recognized cooperative or social enterprise.

The European companies, namely the SE (European Company), the SCE (European Cooperative Company), and the EEIG (European Economic Partnership) continue to exist because they are regulated at European level.

1.1 The BV/SRL (private limited company) will be regarded as the company form by default

1.1.1 The BV/SRL (private limited company) will become the most flexible company form, with ample scope for adaptation of contracts

Belgian entrepreneurs often decided against a BVBA/SARL (private limited liability company), because certain interesting aspects of a NV/SA (public limited company) were not available to it, e.g. a preferential dividend, authorised capital, interim dividend, issuance of profit-share shares, certificates, warrants and convertible bonds. 

From now on, these possibilities will also be available to the BV/SRL (private limited company). Partners will be able, as it were, to tailor the BV/SRL (private limited company) to fit their enterprise.

It is also a company form which is easy to use in an international context.

1.1.2 The BV/SRL (private limited company) ceases to be a company with share capital

A minimum capital is no longer required for the formation of a BV/SRL (private limited company).

The terms capital, minimum capital and capital protection will be abolished. A contribution must still be made, but the item "capital" will disappear from the annual accounts and will be replaced by the term "assets". These assets must enable the company to finance its activities and pay its creditors.

Due to the disappearance of provisions for the protection of capital, new mechanisms have been created and existing protections for creditors have been strengthened.

They are the following measures:

  • The assets on formation must be adequate. The checking of contributions in kind remains unaffected;
  • The founders’ and directors’ liability continues to exist;
  • A contribution to the BV/SRL will not be distributable anyway. Whether or not a contribution is available must be determined in accordance with the articles of association. If the articles of association do not provide for this, the contribution will automatically become unavailable and an amendment to the articles of association will be necessary to be able to redeem these;
  • The rules concerning the financial plan to be drawn up by the founder(s) at the formation of the company are tightened.
  • The directors of the BV/SRL have an increased responsibility when it comes to the distribution of profits.
    Distributions of profits (dividend, redemption of contribution, share redemption, payment on retirement or exclusion) can only take place after a two-fold test, namely:
    • a balance sheet test, to check whether the net assets (the equity capital) are sufficiently high for payment of a dividend; and
    • a liquidity test, to check whether the company still holds sufficient liquid assets to pay its debts for the next twelve months. 
  • Another new feature of the BV/SRL is that the shares can be sold freely where previously the approval of the other shareholders was required. To prevent unexpected sales by the shareholders, transfer restrictions must be provided for in the articles of association.

1.2 The NV/SA (public limited company)

The NV/SA (public limited company) is reserved for very large companies and listed companies.

However, it is also possible for a BV/SRL (private limited company) to become a listed company. And conversely, it is still possible for most existing NV/SA's (public limited companies) to continue operating in that form, even if their size is not as large as foreseen in the new legislation.

The CAC provides simplified legislation regarding the NV/SA (public limited company).

Thus, for instance, the redemption of own shares becomes much simpler, although it is linked to more stringent rules aimed at creating equal treatment of shareholders, and greater transparency at the resale of redeemed shares.

1.3 The Cooperative Company (CV/SC)

This form is reserved for genuine cooperative purposes and requires three founders, but, apart from that, this form must actually follow the rules for the BV/SRL (private limited company).

The "non-real" CV/SC (cooperative companies) (now often used as CVBA/SCRL (cooperative limited liability companies) by liberal professionals (doctors, dentists, accounting professionals)) would be pushed towards the BV/SRL (private limited company).

It should be emphasized that a CVBA/SCRL that does not transform in time can be dissolved by the court.

2. Formation of the Company

The BV/SRL (private limited company) and the NV/SA (public limited company) can be formed and managed by one person. This person may be either a natural person or a legal entity.

A cooperative company is still required to have three founders and partners; and a partnership, two founders and partners.

3. Management of the Company

The CAC thoroughly overhauls the rules of management for the BV/SRL (private limited company) and the NV/SA (public limited company):

The NV/SA (public limited company) can organise its management in 3 different ways:

  • Monism: only a board of directors;
  • Dualism: a supervisory board and an executive board with distinct powers and composition;
  • One director: who may be a natural person or a legal entity.

The existing arrangement for the BV/SRL (private limited company) continues to apply. It is to be managed by one or more directors holding full powers, but, equally, a collegial body could be set up.

All companies and associations still have the possibility to foresee a day-to-day management.

Under the current law, directors can be removed with immediate effect (ad nutum). Under the new legislation, this can be deviated from by providing protection against removal via a notice period and/or compensation in lieu of notice.

Directors with a conflict of interest must abstain from deliberations and votes.

Directors’ liability:

  • The CAC provides a standard for judging whether someone can be held liable as a director, namely, he must act within the margins of what a reasonably cautious and prudent director would do in the same circumstances;
  • The directors’ (extra-)contractual liability is limited to a maximum amount (cap), to be determined according to the size of the enterprise (turnover and balance sheet total), except in the case of a regularly occurring minor fault, serious fault, intent to defraud or intent to cause damage, and for a few specific fiscal liabilities. This sum can rise as high as 125,000 to 12 million Euros.
    This is foreseen, in order to ensure that entrepreneurs are able to take decisions without the risk of a prohibitive damage claim.

4. Voting Rights of Shareholders

From now on, the BV/SRL (private limited company) and the NV/SA (public limited company) will have greater freedom to organise the voting rights of their shareholders as they see fit.

The sole mandatory rule is that there must still be at least one vote per share;

However, this rule can be deviated from:

  • In the BV/SRL (private limited company) and the unlisted NV/SA (public limited company), the possibilities include the following: granting a multiple (double or triple) voting right, shares without a voting right and shares with a voting right for specific situations, but also shares with a different preferential right at capital increases in cash, and shares with a different right to distribution of profits or to the liquidation balance;
  • In a listed NV/SA (public limited company), a double voting right can be granted to loyal shareholders who have held their fully paid shares for an uninterrupted period of two years.

5. Contribution of Industry/labour and Know-How becomes Possible

Although it was previously obligatory for a shareholder to make a contribution in cash or in kind, in order to become a shareholder, the CAC makes it possible to contribute labour or know-how in exchange for a share of the profits.

6. Company Law and Association Law in one Code (CAC)

Companies and associations are both governed by the CAC.

Under the CAC, the non-profit organisations remain intact, despite previous reports that the name would change into "non-profit distributing associations".

An additional criterion has been imposed that the NPO should have one or more "altruistic aims".

This means that henceforth the association may perform unlimited economic activities, provided it distributes no profits to its members or directors, unless the latter form part of the beneficiaries of the altruistic aim of the association (e.g. as may be the case for an association for people with a specific illness, which is managed partly by people suffering from this illness).

7. Choice of Applicable Law

Under the CAC, the real seat doctrine is replaced by the incorporation doctrine. This means that from now on a legal entity will be governed by the company and association law of its registered office under the articles of association, even if it has its headquarters in a different country.  

8. Conclusion

The introduction of the CAC will require most companies and associations to adapt, no later than 1 January 2024, their articles of association, and in certain cases the shareholders' agreements and the management and directors' agreements to, amongst others, the following changes:

  • adaptation of the company form, either to adapt the form of existing companies to the new rules, or to accommodate the abolished company forms in one of the four remaining main forms;
  • adaptation of the number of founders and partners and the shareholders structure;
  • the composition of their corporate bodies and management:
    • the BV/SRL (private limited company) is now able to transfer its day-to-day management to a legal entity;
    • the NV/SA (public limited company) may choose between one director, a board of directors or a dualistic management by a supervisory board and a management board;
    • the holding of double officers is no longer possible;
    • provision can be made for a redundancy arrangement for directors (notice periods and / or compensation in lieu of notice).
  • for BV/SRL's it is recommended to take the following elements into account:
    • from now on, BV/SRL's must provide in the articles of association whether or not a contribution is distributable. Currently, the articles of association do not provide for this and as a result the contributions already made (ie the existing capital) become automatically unavailable for distribution. To make a contribution available for distribution, an amendment to the articles of association must therefore be made;
    • BV/SRL'sare also advised to anticipate their increased liability with regard to the assets, which must be sufficiently adequate, and the tests that they must perform before distributing resources. For some BV/SRL's it may be useful to decide to implement a capital reduction before the reform;
    • if desired, BV/SRL's can limit the transfer of shares in accordance with the articles of association to prevent unexpected sales of shares from being made by fellow partners.
  • henceforth, members of a management board shall only be self-employed persons and cannot work under an employment agreement

This is only a limited overview of the most important changes. This list must be adjusted according to each company and association, their articles of association and organization.

To find out when your company and/or association must comply with the CAC, we refer to our relevant article that you can consult by clicking here.

Please bear in mind that if an amendment is made to the articles of association after 1 May 2019, the entire articles of association must be immediately adapted to the new CAC. 

Please do not hesitate to contact us for further information or assistance concerning this.

Would you like to learn more about this subject?

Contact our experts or telephone +32 (0)2 747 40 07
Leila Mstoian

Leila Mstoian

Partner
Alain De Jonge

Alain De Jonge

Partner
Leo Peeters

Leo Peeters

Partner
Koen De Puydt

Koen De Puydt

Partner
Toon Rummens

Toon Rummens

Partner
Maxiem Devos

Maxiem Devos

Senior Counsel