The Companies and Associations Code - Part 3.1 - The Cooperative Company (CV - SC) – The Return to its Individual Nature

Analyse

The Companies and Associations Code is restoring the original spirit of the cooperative company (CV - SC). Cooperative companies which do not correspond to the idea of a cooperative will be obliged to adopt a different company form. It will be important for all cooperative companies to determine whether they correspond to this, and can therefore remain a cooperative company. If this is not the case, they will be obliged to seek another solution.

Under the former regime, the cooperative company, with or without limited liability (limited liability/unlimited liability), was generally known as a company comprising a varying number of partners of varying contribution, able to enter and depart with great ease.

This company was therefore the sole company which provided for a variable part of the capital.

The flexible entry and departure arrangement, together with a number of other flexible options (possibility of multiple voting right, freedom to arrange management), made this company form – and especially the cooperative limited liability company (CVBA – SCRL) – very attractive. This was the case not just for companies in the traditional cooperative sector, but also for other sectors, such as, for example, groups of liberal professions and family companies.

The Companies and Associations Code  puts a stop to this. It aims to return to the original spirit of the cooperative company with an emphasis on "cooperative", and will force the so-called "non-real" cooperative companies to opt for a different company form.

1. Return to the Individual Nature of the Cooperative Company: Cooperative Ideal

Under the Companies and Associations Code, the cooperative company regains its original individual nature, namely conducting an enterprise with like-minded persons, based on a cooperative ideal.

More specifically, the cooperative company will only be allowed to meet the needs of its shareholders or third parties holding an interest and/or pursue the development of their economic and social activities. In doing this, it will be obliged to fulfil certain conditions, in which the cooperative ideal adopts a prominent position.

These principles were already been articulated by the International Co-operative Alliance (ICA - https://www.ica.coop), and found their way into European Regulation No. 1435/2003. On an international level, that cooperative ideal is concentrated into the seven generally recognised and accepted ICA-principles: 

  • Voluntary and open membership;
  • Democratic member control;
  • Economic member participation;
  • Autonomy and independence;
  • Education, training and information;
  • Cooperation among co-operatives;
  • Concern for community.

Only companies which fulfil these basic cooperative principles, will henceforth be able to adopt or continue in the form of a cooperative company.

This means that cooperative companies which do not fulfil them - and thus use them “in an un-real manner”, will from now on be obliged to organise themselves under a different legal form.

The cooperative limited liability company (CVOA - SCRI), which in practice had virtually disappeared, is permanently abolished.

Any cooperative limited liability companies still in existence have only the following options:

  • switch over and adopt the form of a "new" cooperative company, or,
  • if they will not/cannot comply with the new conditions imposed by the Companies and Associations Code, opt for conversion to a private limited company (BV – SRL) (i.e. the most logical choice if limited liability is desired), or a partnership with legal personality (if limited liability is not necessary).

This basic condition – of satisfying the basic principles of a cooperation - is rather fundamental. From now on, the new Companies and Associations Code grants the Enterprise Court the power to dissolve cooperative companies which fail to meet these conditions. Of course, cooperative companies will be given the opportunity to regularize their situation within a specific time limit.

Not only the Public Prosecutor, but any individual or interested party may file a claim for this. The Explanatory Memo cites competitor companies as the main example of this. So, be warned! Don’t let a competitor eliminate you.

Timely conversion from a cooperative company to the appropriate company form is thus obligatory and of great importance.

2. Recognitions

Also in the context of the Companies and Associations Code, cooperative companies retain the possibility to be recognised. This can be very interesting, because there are fiscal consequences linked to this, which remain applicable.

What are these tax consequences?

  • Recognised cooperative companies may apply for (partial) tax exemption for (part of) the dividends which are paid to partners (natural persons only);
  • the interest from advances granted to a cooperative company by partners of this cooperative company is not automatically reclassified as dividends if the interest rate is above the market interest rate, or if the amount of the advances is higher than the paid-up capital;
  • it is possible to opt for extended application of the lower tax rate for companies; and
  • in some cases, the directors of a recognised cooperative company may benefit from the social security of employees for the directors.

So, this kind of additional recognition as a cooperative company granted by the FPS Economy, remains opportune, even though, in time, the new Companies and Associations Code will automatically separate the "real" from the "non-real" cooperative companies (links of liberal professionals, family structures, etc.).

Only companies which fulfil basic cooperative principles, will henceforth be able to continue in the form of a cooperative company

In addition, subject to the fulfilment and respect of specific conditions, a cooperative company can have also have itself recognised as a social enterprise, and benefit from the advantages linked to that capacity. Thus, in some cases, a company shall only gain access to specific government subsidies and/or social loans from specialist financial institutions (e.g. Triodos Bank), or be able to benefit from preferential tax regimes, if it has obtained recognition as an social enterprise (SO – ES).

This option of obtaining recognition was already available to current companies with a social aim, the majority of which are cooperative companies, and is therefore preserved.

It is important to be aware that this topic was defederalized, and is therefore decided at a regional level.

From now on, only a cooperative company (and a not-for-profit association (VZW - ASBL) may be recognised as a social enterprise. So it becomes a "cooperative company (CV – SC) or not-for-profit association (VZW – ASBL) , recognised as a social enterprise (SO - ES)". A non-recognised cooperative company may also have itself recognised as an social enterprise. A recognised cooperative company which has been recognised as an social company will henceforth be known as a "recognised cooperative company social enterprise (CVSO – SCES).

3. Specific Characteristics of the "New" Cooperative Company

However, companies currently in the form of a cooperative company should not despair, even if they will be unable to retain this legal form, as they are not in essence co-operations.

On the one hand, there is the legal regime of the "new" cooperative company which is equated with the regime applicable to the private limited company, including the penal provisions. Given the specific nature of the cooperative company, a number of exceptions are foreseen, which are explicitly indicated. For instance, there are no reasons for a cooperative company to buy up or pledge its own shares, and the dispute settlement of the private limited company is not applicable, as a number of flexible options for departure are provided.

On the other hand, the so-called "non-real" cooperative companies can use the company form of the private limited company, which, under the Companies and Associations Code, adopted a large portion of the flexible characteristics of the old  cooperative company.

We will explore this further in a following article.

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