New companies and
associations code in
Belgium brings
fundamental changes

Belgium enacted a new Companies and Associations Code ("Code des sociétés et des associations"; CSA/WVV, or Wetboek van vennootschappen en verenigingen)^[1] as well as new tax legislation in February 2019 which applies as of 1^st May 2019 and has wide-ranging consequences for all types of companies and associations. As a matter of law, most companies have to adapt their articles of association and procedures in the coming years. However, mandatory provisions of the nearest corporate form will already apply next year.

Over the last few years, Belgium has introduced a number of changes to its civil law, enterprise legislation and insolvency rules in order to make Belgium a more attractive place for doing Business.

The reform is based on three main principles: simplification, flexibility (though with attention to the interest of third parties) and compliance with European evolutions. The CSA replaces the current Companies Code, the Law on Associations and Foundation and the Law on Professional Associations. It will therefore not only apply to companies, but also to non-profit organizations and foundations for which it also made substantial changes. By way of example, an association is now considered a company in legal terms.

Transitional regime

The CSA entered into force on 1 May 2019. For entities that have already existed before that date, the new rules will apply as from 1 January 2020 - except the provisions regarding dispute resolution (exclusion and withdrawal) in proceedings initiated after 1 May 2019.

The articles of association of all existing entities and their internal procedures need to be reviewed and if necessary adapted to comply with the new rules by 1 January 2024 at the latest. Companies that no longer meet new stricter criteria or with an abolished legal form must convert into another legal form. Otherwise they will be converted automatically by operation of law into the nearest corporate form. However, mandatory provisions of the nearest corporate form already will apply earlier. Therefore, when dealing with a Belgian company, one must take this into account.

Nationality of a company and tax issues

The nationality of a company incorporated in Belgium was determined by the "real seat theory" (as in Germany and France) and accordingly depended on the place of the company's real or effective head office. The new law follows however the principle of the "incorporation theory", meaning that the location of the company's registered office is the determining factor, regardless of where the effective place of management is located. For instance the UK and the Netherlands also apply this theory. It replaces an ambiguous criterion by an objective and easily verifiable one.

However for corporate income tax purposes, a company's tax residency will depend on the place of effective management of a company. In order to bring corporate and tax law into closer alignment a new legal presumption provides that if a company has its registered office in Belgium, it is deemed to have its place of effective management in Belgium. To prove the opposite, the company needs to demonstrate that the tax residence is established in another State in accordance with the tax legislation of that country.

Cross-border movements of companies

The law regulates the cross-border transfer of the registered office of companies from Belgium to another jurisdiction (emigration) or vice versa (immigration). In the event of emigration, creditors have the right to demand additional security within two months of publication of the planned emigration in the Belgian Official Gazette. In this context, one should note that the European Commission published a Proposal for a directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions. Its adoption may lead to changes of the Belgian legislation.

Both changes, to company and tax laws, provide more legal certainty and protection for creditors. A possible disadvantage may be a discrepancy between the applicable company law and the applicable insolvency law. According to the new version of the Insolvency Regulation, the national insolvency law of the country in which the "center of main interests" exists applies. The registered office is no more than a rebuttable presumption.

Fewer types of companies

The reform reduces the previously available different corporate forms to only seven permitted types of companies with legal personality. These are:

• The general partnership ("société en nom collectif", SNC/VOF, "vennotschap onder firma");
• The limited partnership ("société en commandite", SComm/CommV, "commanditaire vennotschap");
• The private limited liability company ("société à responsabilité limitée", SRL/BV, "besloten vennotschap");
• The cooperative company ("société coopérative", SC/CV, "coöperatieve vennotschap");
• The public limited liability company ("société anonyme", SA/NV, "naamloze vennotschap");
• The European company ("société européenne", SE, "Europese vennotschap");
• The European cooperative company ("société coopérative européenne", SCE, "Europese coöperatieve vennotschap").^[2]

In addition the European Economic Interest Grouping ("Groupement européen d'intérêt économique", GEIE/EESV, "Europees economisch samenwerkingsverband" has legal personality, whereas the "societé simple" or "maatschap" is an ordinary partnership without legal personality).

Regarding associations, the "association de fait" or "feijtelike vereniging" has no legal personality and only

• The non-profit association ("association sans but lucratif", ASBL/VZW, "vereniging zonder winstoogmerk" as well as
• The international non-profit association ("association international sans but lucratif", AISBL/VIZW, "internationale vereniging zonder winstoogmerk"

remain as associations with legal personality.

With regard to foundations,

• The private foundation ("fondation privé, FP/PS, "private stichting" and
• The "fondation d'utilité public", FUP/SON, "stichting van openbaar nut"

are the available legal forms.

Main points of interest

New regime of the private limited liability company, SPRL/BVBA, now called SRL/BV

The private limited liability company has been renamed to SRL/BV and remains the standard company form for unlisted companies. Now, it features flexible dividend rights, increased flexibility in the transfer of shares or acquisition of own shares, and a changed alarm bell procedure (triggered by a certain amount of capital loss) as a consequence of the fact that the rule that the rights to each share should be the same does not apply anymore. A transfer of shares still requires the prior approval of a certain majority of shareholders as a default rule, but the articles of association may provide for free transferability. The SRL/BVs can now issue all types of securities, including warrants and convertible bonds, and their securities can be listed on the stock exchange. This creates options for start-ups and family businesses that can now grant additional rights to investors.

Moreover the minimum capital requirement of EUR 18,550 as well as the requirement to accumulate a reserve equal to 10 percent of the share capital is abolished. It is replaced by alternative safeguards such as a liquidity-based test to limit distributions. This test requires the board of directors to state in a report that, in accordance with reasonably expected developments, the company will continue to be able to pay its debts due within a period of at least twelve months after the distribution. If there is an auditor, it must review the accounting and financial aspects of such report. This marks a change from "capital" to "equity" concept. The existing capital and legal reserve will be automatically converted into a statutory, unavailable reserve from 1 January 2020. In order to ensure that a SRL/BV is sufficiently capitalized at the time of its creation, the law requires the founders to prepare a detailed financial plan justifying the amount of initial funding and taking into account the planned activities over a period of at least two years. A similar requirement already existed under the previous company law system. However, the financial plan has to be more detailed and substantive under the new legislation. In the event of bankruptcy within three years of incorporation, the founders may be held liable for any losses incurred by third parties. However, this is only the case if these losses are due to the fact that the company is "manifestly insufficient" for the normal exercise of the activities foreseen at the time of incorporation.

By abolishing the two-shareholder requirement it is now possible to have a single shareholder without losing the advantage of limited liability.

Multiple voting rights per share can be implemented in an unlisted company. This can be useful when establishing private equity structures or joint ventures. Double voting rights are possible in a listed company if the so called "loyalty shares" have been held by the same shareholder for an uninterrupted period of two years in registered form. The principle of double voting must be expressly included in the articles of association of the company. The shareholders meeting has to adopt a formal resolution which requires a special majority of two thirds (instead of 75 percent under previous legislation) of the votes present or represented. Listed companies can implement the principle of double voting rights with a majority of only 50 percent and one share if the resolution is passed between 1 January 2020 and 30 June 2020. If shares are transferred or registered shares converted into dematerialized shares, the double voting right ceases. However, this does not apply to transfers that take place between companies under common control or between a company and its controlling shareholder or in the case of inheritance, merger or split. This means that the "one share/one vote" rule which has existed since 1934 has now become the default rule only.

The Board of Directors may distribute profits of the previous financial year if the shareholders have not yet approved the annual accounts. In addition, the interim dividend based on the profit for the current financial year is regulated less strictly. This may be the introduction of a quarterly dividend. Furthermore it is now possible to appoint daily manager(s).

New regime of the stock corporation, SA/NV

It is now possible to have (i) a single director, (ii) a board of directors or (iii) a dual system whereby the management is divided over a supervisory board nominated by the shareholders' meeting and a board of executives nominated by the supervisory board, each of them with different competences and composition. The former management committee is abolished.

Alike in the SRL/BV multiple or double voting rights are also applicable as well as the possibility to have a single shareholder and the distribution of profits of the previous financial year.

Previously, directors of a SA/NV could be dismissed at any time without giving reasons and without notice or compensation. Under the new law, companies may derogate from this rule so that notice periods and severance agreements can be freely negotiated with directors before or during the term of office.

Redefinition of association

Non-profit organizations and foundations are now allowed to perform "commercial activities" of all kinds and make profits since they are distinguished from companies based on the distribution of their profits and not on the basis of the nature or extent of their activity. However, under the new law it is still forbidden to distribute (directly or indirectly) profits resulting from their activities.

Directors' liability

According to the new law, the rules on directors' liability have a broader scope and apply not only to formally appointed directors, but also to persons who actually act as directors of the company and to daily Managers.

A specific liability for continuing to engage in loss generating activities ("wrongful trading") is introduced. The new law provides for a cap on the liability of all directors and daily managers. That cap varies from EUR 125,000 to EUR 12,000,000 depending on turnover or balance sheet totally aligned with the consumer price index. The cap applies as long as the misconduct committed in the performance of their duties does not exceed the margin within normally prudent and diligent directors in the same circumstances can reasonably hold a divergent opinion. However, the cap does not apply in case of gross negligence, fraudulent intent or intent to cause harm and minor fault of a habitual rather than accidental nature as well as contractual guarantees or other credit support by the directors. The specific liability rules of directors with regard to withholding tax or value-added tax (VAT) are also not affected by the liability cap. The cap applies collectively to all directors and cannot be excluded by contract.

The rules on conflicts of interest are also tightened. Previously, a conflictual director was only subject to a disclosure requirement, whereas the CSA excludes the conflictual director from discussions and decision makings on matters in which the director is conflicted.

Conclusion

The new rules introduce more flexibility in Belgian corporate law. Together with other changes in Belgian civil and commercial law, they convey that Belgium is open for business.

Foreign companies doing business with Belgian companies should however each time verify that their Belgian partners are properly incorporated and solidly financed.

For further information please contact Dr Rainer Bierwagen.

^{[1] Published in Dutch and French language versions in the Moniteur Belge dated 4 April 2019 as of page 33239.}

^{[2] The silent partnership ("stille handelsvennootschap" or "société interne") and the temporary partnership ("tijdelijke handelsvennootschap" or "société momentanée") will become sub-forms of the ordinary partnership. The cooperative unlimited liability company ("coöperatieve vennootschap met onbeperkte aansprakelijkheid" (CVOA) or "société coopérative à responsabilité illimitée" (SCRI)), the partnership limited by shares ("commanditaire vennootschap op aandelen" (Comm.VA) or "société en commandite par actions" (SCA)), the agricultural company ("landbouwvennootschap" (LV) or "société agricole" (S. Agr.)) and the economic interest grouping ("economisch samenwerkingsverband" (ESV) or "groupement d’intérêt économique" (GIE)) will no longer be available corporate forms.}