By Act of 7 May 1999 the coordinated laws on commercial companies have been codified into the Belgian Company Code. The said codification concerned a mere bringing together of existing laws, of which some of them already were older than a century. In other words, no significant modifications to the (often outdated) codified provisions of law were made.
Since the entry into force of the Belgian Company Code, it has been amended over 50 times, most of them influenced by European directives. However, none of these amendments have entailed systematic changes to the Belgian Company Code, nor did they achieve the results sought. To the contrary, it has rendered Belgian company and associations law even more complex and cluttered.
Because of its ancient, rigid and complex structure and organization, Belgian company law has been overtaken by its neighboring countries in terms of competitiveness and attractiveness.
In order to respond to the decreasing competitive nature of Belgian company law in a European and global context, during a colloquium on March, 28 2014 the Belgian Centre for Company Law (BCV), consisting out of 14 prominent professors affiliated with almost all Belgian faculties of law, launched a number of proposals to reform and modernize Belgian company and association law. These proposals have subsequently been subject to public and extensive consultation of all kinds of stakeholders, going from legal experts, to professional associations, to public institutions.
The call for modernization has been heard by the Minister of Justice. On October 6, 2015, the BCV’s final policy note has been discussed with the competent parliamentary standing committee. The next step will be to transpose the policy note into a piece of legislation, so it can be voted for in Parliament.
The approach of the said policy note is two-fold. Firstly, one wants to offer Belgian and foreign entrepreneurs conducting economic activities within Belgian territory a company law that supports their businesses, so they would not be tempted to choose for a foreign legal form. Secondly, one aims to persuade Belgian and foreign entrepreneurs to conduct their businesses abroad under a Belgian legal form (export of Belgian company and associations law). The policy note aims to reach these objectives on the basis of four pillars: simplification, flexibility, abolition of outdated rules and types of companies and a strong supplementary law.
In this article we will firstly discuss the proposed modernization of some fundamental principles of company law (1). Subsequently, we will discuss the sole four types of companies that will remain after the entry into force of the new Company Code, namely the partnership (‘maatschap’) (2), the private limited liability company (‘besloten vennootschap met beperkte aansprakelijkheid’ or ‘BVBA’) (3), the public limited liability company (‘naamloze vennootschap’ or ‘NV’) (4) and the co-operative company with limited liability (‘coöperatieve vennootschap met beperkte aansprakelijkheid’ or ‘CVBA’) (5). Thereafter, we will briefly consider the impact of the new Company Code on the law on associations (6). Finally, we will conclude this discussion with a brief presentation of the proposed changes with regard to international company law (7) and of the miscellaneous changes which are not covered by the above titles (8).
It is important to note that the measures outlined below are mere proposals and can still be subject to amendments.
GUIDELINES OF THE PROPOSED REFORM
1. Modernization of fundamental principles
The new Company Code will follow the good example of the new Economic Code that abandoned the outdated notion of ‘acts of commerce’. This is to say that it will abolish the classic distinction between civil and commercial companies. The said abolition will have two major consequences. Firstly, it will entail the end of the general rule of Belgian company law that an association can only secondarily conduct (profitable) commercial activities (see below). Secondly, it means that in the future all types of companies, thus also civil companies and associations, will fall within the scope of commercial law, including bankruptcy law. The latter will however require the bankruptcy law to be amended.
Furthermore, the sanction for a breach of the principal of specificity will no longer consist in the nullity of the action concerned. The company will be bound by the action in question in line with the sanction on the exceedance of the company’s purpose, i.e. profit. An exception is made when the third party will have acted in bad faith.
Also, the prohibition to be exempted from participation in the loss incurred by the company will be abolished. Finally, there will no longer be provisions common to all types of companies. Every type of company will be governed by an own autonomous legal regime.
2. The partnership
Under the new Company Code the partnership (‘maatschap’) will become the only form of a partnership (‘personenvennootschap’). The possibility for the partnership to have silent partners or to be temporary in nature, will render respectively the silent partnership (‘stille vennootschap’) and the joint venture (‘tijdelijke vennootschap’) obsolete. The partnership will also be able to obtain legal personality, if required, which will result in the disappearance of the general partnership (‘vennootschap onder firma’ or abbreviated ‘VOF’) and the limited partnership (‘gewone commanditaire vennootschap’ or ‘Comm.V.’). The same applies for the Economic Interest Grouping (‘economisch samenwerkingsverband’ or ‘ESV’) and the agricultural holding organized as a company (‘landbouwvennootschap’ or ‘LV’).
As from the entry into force of the new code, partnerships which have been entered into in order to conduct economic activities or partnerships which have requested and obtained legal personality, irrespective of their corporate purpose, will become subject to commercial law. Consequently, only partnerships without legal personality and set up for mere civil purposes, such as asset planning, will still fall outside the scope of commercial law.
The regime that currently organizes the partnership will not be significantly amended.
3. The private limited liability company
The private limited liability company has to become a flexible legal entity, which can easily and efficiently be set up and altered. It should become the natural legal form for non-listed enterprises – small, medium-sized or large.
For this purpose, a standard model of a deed of incorporation and standard bylaws will be created. Both models will foresee multiple choice options for founders who want to personalize their company structure and organization.
Under the new Company Code there will be no mandatory minimum number of founders or shareholders, rendering the single member private limited liability company (‘éénpersoons-bvba’) obsolete.
The rules on capital requirements and capital protection imposed by European directives with respect to public limited liability companies and equally applied to private limited liability companies by the Belgian legislator, will again be abolished with respect to the latter type of companies. Consequently, a minimum amount of capital will no longer be required. Hence, the starters private limited liability company (‘starters-bvba’ of ‘s-bvba’) will become devoid of purpose. Instead, a more economically oriented and realistic approach will be retained.
The above will entail fundamental changes on as well an internal, as an external level.
On an internal level, the rights of the shareholders will no longer have to be in proportion to their share in the company’s capital. The number of voting right per person will be free to determine by convention or in the bylaws. In other words, plural voting will become possible. The rule of one share, one vote will only have a supplementary nature, which means that it will only apply if not explicitly deviated from.
On an external level, the cancellation of the minimal capital requirements, requires the presence of a strong financial plan at the time the private limited liability company is set up with a mandatory minimum content and the presence of alternative forms of creditor protection, such as a more stringent regime on directors’ liability. In addition, distribution of profit will only be permitted after a double test: a solvability test executed under the authority of the general meeting of shareholders and a liquidity test executed under the authority of the management body.
Also the rules in respect of e.g. the repurchase of shares, the “alarm bell” procedure and financial assistance, will have to be reconsidered in the light of the above.
The new Company Code will also provide a system of free transferability of shares similar to the one currently installed for public limited liability companies.
Finally, also in the private limited liability it will become possible to initiate exit proceedings on behalf of or against the company, as it is already known in the co-operative company. This way the absence of a liquid market for the shares of this type of company will no longer form an obstacle.
4. The public limited liability company
The public limited liability company remains the compulsory legal form for listed companies. Following the private limited liability company, also the rules applicable to public limited liability companies will be reconsidered in terms of flexibility and simplicity in order to attract listed and non-listed large companies. Doing so, the legislator will nevertheless have to bear in mind the imperative European company directives.
Henceforth, a same set of rules will apply to the public limited liability companies making or have made a public offering of securities, as to other listed companies.
As in the private limited liability company, the public limited liability company will be able to have only one shareholder.
Furthermore, the new code will enable public limited liability companies to appoint only one director, rendering the partnership limited by shares (‘Commanditaire vennootschap op aandelen’ of ‘CommVA’) obsolete.
The said code will also put an end to the termination of a directors’ mandate ad nutum, i.e. at any time and without justification nor compensation. This basic rule will only remain applicable if no other protection against dismissal for directors will be installed in the bylaws.
The vague and unclear notion ‘daily management’ will be abandoned for a system of delegation of powers by means of well-defined special proxies.
Listed public limited liability companies will be able to award a double vote (called a ‘fidelity vote’) to shareholders that retain their shares for a certain period of time (12 or 24 months). Existing listed companies could only introduce this fidelity program by an enhanced majority in order to safeguard the rights of the current shareholders.
The special majority of three quarters needed to modify the bylaws will optionally be reducible to two thirds. Of course for existing companies such an eased system could only be voted for by a majority of three quarters.
Lastly, under the new regime a listed company will be able to proceed to its delisting on its own initiative, thus without a shareholder having to commence statutory squeeze out proceedings.
5. The co-operative company with limited liability
The flexible nature of the new regime with regard to private limited liability companies has returned the co-operative company with limited liability its raison d’être, a legal form centering on cooperation. Reason why also under the new Company Code the co-operative company with limited liability must have a minimum number of directors. For the rest, the co-operative company with limited liability will function as a private limited liability company.
6. Impact on the law on associations
The law on associations will be structurally integrated in the new Belgian Company Code.
Since under the new Belgian Company Code all legal forms will be able to unrestrictedly conduct commercial activities, also associations will be able to carry out economic activities and seek profits. Instead, a prohibition of distribution of profits will be installed, which will become the new distinguishing criterion between associations and companies.
The general rule that the number of directors of a non-profit organization has to be smaller than the number of members, will be abandoned.
The company with a social purpose (‘vennootschap met sociaal oogmerk’ of ‘VSO’) and the professional association (‘beroepsvereniging’) will disappear.
Furthermore, the new Company Code will introduce a system of conflicts of interest for directors and the possibility to co-opt directors in a non-profit organization (‘vereniging zonder winstoogmerk’ or ‘VZW’).
7. International company law
Under current Belgian international company law, the nationality of a company is determined on the basis of the place of its real head office. The new Company Code will leave this determining criterion for the place of the statutory seat/the place where the registered office is located according to the bylaws. This would enable Belgium to export its own company law abroad (i.e. companies with registered offices in Belgium primarily conducting business abroad) and foreign companies to choose for a Belgian legal form – and thus to fall under Belgian company law – by establishing their registered offices in Belgium, without the need to conduct businesses within Belgian territory.
Besides, the new Company Code will also install proceedings for cross-border seat transfers.
Other changes that are worth to mention are the facilitation of the Belgian language regime and a centralization of company-related information.
The transitional provisions will apply a large degree of flexibility, so the modernization of Belgian company law would not lead to excessive cost for companies having or willing to adopt the new legal regime.