Major reforms in Belgian company law underway – What is changing for your business?
The new Belgian Company Code: (R)evolution in the Belgian corporate landscape
After a final approval of the Council of Ministers on 25th of May 2018, the draft Belgian Companies Code (hereinafter: new BCC) was introduced to Parliament on Monday 4 June 2018.
The highly anticipated new Belgian Companies Code will introduce major changes to the existing corporate landscape. One of the main goals of these reforms is to align the Code with the needs of a fast-paced, ever-changing, digitalized society, effectively making Belgian corporate law and Belgian companies more attractive to (foreign) investors.
Although many of the proposed reforms have been greeted with optimism as they increase the flexibility of Belgian corporate law, it should be noted that the envisaged increased attractiveness of Belgian companies for (foreign) investors requires significant amendments to Belgian accounting and tax law provisions as well. In light thereof, tax amendments are being prepared to reflect the changes introduced by the new Belgian Companies Code. In principle, this will be done in a tax neutral way.
Below you can find some key takeaways on the draft new BCC.
New BCC applicable to non-profit organisations
The new BCC will not only apply to Belgian companies, but also to non-profit organisations and foundations. Consequently, the current Act on Associations & Foundations will be repealed.
The distinguishing feature between companies on the one hand and non-profit organisations on the other will no longer be the type of activities they can carry out but whether or not they distribute the profits resulting from these activities. Whereas companies may of course distribute their profits, non-profit organisations are not authorised to distribute their profits directly or indirectly (e.g. through disproportionate remuneration paid to their directors).
In the future, non-profit organisations can therefore carry out all types of “commercial activities” but will not be allowed to distribute the profits resulting from these activities (except for distributions to the non-profit cause for which they have been founded).
Limitation of company types
In the new BCC, 7 main types of companies with legal personality will remain: the NV/SA, the BV/SRL (replacing the BVBA/SPRL), the cooperative company (CV/SC), the partnership (VOF/SNC), the limited partnership (CommV/SComm), the European Company (SE) and the European Cooperative Company (SCE) (although the latter two are mainly governed by European law). The BV/SRL is intended to become the “default company” in Belgian corporate law (see further).
With respect to the cooperative company (CV/SC), it should be noted that many existing cooperative companies will have to be converted (into a BV/SRL) as the intention of the legislator is to limit the cooperative company to organisations with a truly cooperative spirit and functioning.
Other company types currently used will be abolished, including the partnership limited by shares (Comm.VA/SCA) and the temporary partnership (tijdelijke handelsvennootschap/société momentanée). The flexibility offered in the remaining corporate types should however allow to incorporate the key-features of these abolished company types in one or more of the surviving company types.
The BV/SRL as cornerstone of the new BCC
The modernisation of the BVBA/SPRL into the BV/SRL (based on the Dutch ‘Besloten Vennootschap’) is perceived as one of the cornerstones of the new BCC: the intention of the legislator is indeed to turn the BV/SRL into the “default” company type for most investors and corporations. To this effect, the BV/SRL is structured as a company type offering a large amount of flexibility in terms of governance, funding and distribution of proceeds. Some examples of this modernisation and flexibility include:
- It will be possible for a BV/SRL to have only one shareholder (whether or not a legal entity). The sole shareholder-legal entity will not be jointly and severally liable for obligations and liabilities of the BV/SRL.
- The BV/SRL will not be required to have a (minimum) corporate capital.
The corporate law implications hereof are vast and include, amongst others, entirely new rules on (a) dividend distributions (which will become possible at any time but will always be subject to a net-asset test as well as a liquidity test) and (b) allocation of voting rights to shares (shares without voting rights, shares with multiple voting rights,…).
Since the concept of share capital is embedded in various corporate income tax provisions the tax consequences hereof are important as well. As an example, reference can be made to the application of the participation exemption on dividends received, which only applies if a participation is held in the share capital of the subsidiary of at least 10%. Modifications on tax legislation are currently being prepared to anticipate these changes.
- It will be possible to list the shares of a BV/SRL.
- The transferability of the shares of a BV/SRL can be freely determined in the articles of association. A free transfer of shares will be possible.
The NV/SA: flexibility in terms of management structure
The rationale behind the new BCC is to turn the BV/SRL into the default company type and limit the NV/SA to large corporations & listed companies. The NV/SA will therefore not have the same level of flexibility as the BV/SRL.
Compared to the current NV/SA, some important changes are to be noted, including:
- The possibility for a NV/SA to have only one shareholder without such shareholder becoming jointly and severally liable for the obligations and liabilities of the NV/SA.
- The introduction of a large degree of flexibility with respect to the governance of a NV/SA: a NV/SA will have the choice to opt for (i) a sole director governing the NV/SA, (ii) a “monist” governance system whereby the NV is governed by a board of directors consisting of several directors or (iii) a dual system whereby a NV/SA is managed by a management committee (directieraad/conseil de direction) and a supervisory board (raad van toezicht/conseil de surveillance).
- It will be possible to provide for notice periods and/or notice payments in case of termination of a director’s mandate. The “ad nutum” rule will no longer be of public order.
- It will be possible to issue shares with multiple voting rights. For listed companies, this flexibility will be limited to a “double voting right” for “loyal shareholders” who have owned their shares for at least two years.
A capped liability for directors of all companies?
One of the most remarkable amendments in the new BCC relates to the introduction of a liability cap on the liabilities which directors (as well as de facto directors) may incur in the exercise of their mandate. The new BCC provides for capped amounts (varying between EUR 250,000 and EUR 12M), depending on the size and activities of the company. These caps will apply on an aggregate basis for all directors of the company. They will not apply (i) in case of fraud nor (ii) in case of a limited number of exceptions set out in the new BCC (including the liability of directors in case of unpaid corporate income tax, social security contributions or VAT). It should be noted however that the Council of State expressed important reservations on the introduction of the capped liability for directors, questioning the constitutionality of the new regime.
With respect to director’s liability, the new BCC furthermore expressly rules out any hold harmless or exoneration undertakings by the company (or any of its subsidiaries) in favour of its directors.
Registered office as benchmark for determining applicability of Belgian company law
Under current Belgian conflict-of- law rules, the nationality of a company is determined on the basis of the place of its real head office. The new Company Code will abandon this principle: Belgian company law will apply to any company whose registered office is located in Belgium. This should enable Belgium to export its own company law abroad and foreign companies to choose for a Belgian legal form by establishing their registered offices in Belgium, without the need to conduct business within the Belgian territory. However, in order for a company to qualify as a resident for Belgian corporate income tax purposes, the head office (i.e. the place of effective management) should still be located in Belgium. Monitoring the place of effective management for tax purposes may therefore become even more imperative after the introduction of the registration criterion under corporate law.
The new BCC is expected to enter into effect as of 1 January 2019. Companies incorporated as of that date will be subject to the new BCC.
Companies existing on 1 January 2019 will be subject to the new BCC as of 1 January 2020. They will have to amend their articles of association to the new BCC at the occasion of the first (other) amendment of their articles of association after 1 January 2020 and, ultimately, by 1 January 2024. Existing companies may however also “opt-in” and chose to apply the new BCC prior to 1 January 2020.
The “abolished company types” (such as the partnership limited by shares (Comm.VA/SCA)) will have to be converted by 1 January 2024 at the latest. If not, they will be converted by law in a company type set out in the new BCC. For example:
- a partnership limited by shares (Comm.VA/SCA) will be converted into a NV/SA with one director; and
- a cooperative company with limited liability (CVBA/SCRL) will be converted into a BV/SR (unless it meets the requirements of a cooperative company in the new BCC).