The private limited company (hereinafter ‘BV’ (‘besloten vennootschap’)) is the showpiece of the new business law. It is the manifestation of the Belgian legislator’s ambition to make our company law more modern, simpler, more flexible and more attractive for companies who wish to set up shop in Belgium.
- The end of minimum capital – the concept capital (‘kapitaal’) is being replaced by equity (‘vermogen’).
In this context, the BV reflects the most far-reaching reform of the Companies and Associations Code (‘CAC’): the mandatory minimum capital is a thing of the past. While the formation of a ‘BVBA’ (as a BV was formerly called) previously required a minimum issued capital of EUR 18,500, of which at least EUR 6,200, or in the case of a one-man BVBA, EUR 12,400 needed to be paid up, under the new law in principle any amount would suffice, even EUR 1. However, if the company goes bankrupt within two years following its incorporation and the starting capital is considered too low, the founder of the company may be held personally liable for its debts. A solid financial plan is therefore recommended (and remains a legal requirement). Said financial plan may incorporate other sources of funding than one’s own capital, such as subordinated loans, bank loans etc.
- Contractual freedom – free distribution of voting and profit rights
Under the CAC, founders and shareholders of BVs are given a high degree of freedom and flexibility to shape their arrangements into the format that fits them best. For instance, they have full freedom to decide which rights are associated with the different shares in the company. In that context, shares may entitle to more than one vote at the company’s general meeting or, conversely, provide no membership rights whatsoever.
As for financial rights, it is now possible to allocate preference dividend to certain shares and to exclude certain shares from company losses, e.g. by means of a put option at a fixed price. However, it is not possible to fully exclude shares from participating in the profits (although the entitlement to profits can be made a great deal less meaningful). Consequently, contrary to voting rights each share must provide financial rights to its holder, however with the option of modulation.
- Contractual freedom – free transfer of shares now an option
Contrary to what the term ‘private limited company’ suggests and to what was common for the BVBA, the predecessor of the BV, one is now free to shape the share transfer regime in the articles of association. For instance, one may stipulate that the shares in the BV are freely transferable to third parties. A default regime, decided earlier and implying that shares are not freely transferable applies if one does not use the new freedom under the articles of association. This new provision allows for incorporating into the articles of association the arrangements that usually are included in shareholders’ agreements and making them enforceable at law. The old BVBA did not systematically provide for this option.
- Exclusion and retirement at the cost of the company equity
If so provided in the articles of association, shareholders in a BV have the option of retiring at the cost of the company assets, which means that they may sell their shares to the company to realise their exit. Shareholders may also be excluded from the company in this way, albeit for a valid reason or any reason specified in the articles of association. This is an interesting option in that it releases the other shareholders from the obligation of financing an exit of another shareholder with their own means. Furthermore, it offers the opportunity of working out a settlement that enables a quick solution in the event of a serious conflict. Long proceedings before the court, including all of the uncertainty that comes with it, can thus be prevented.
- Selected topics with practical relevance
- Liberal professions and others: conversion of ‘improper’ CVBAs (‘coöperatieve vennootschap met beperkte aansprakelijkheid’: cooperative society with limited liability)
Currently, many groups (e.g. associations of people who exercise a liberal profession) make use of the company form ‘CVBA’. However, the CAC reserves this company format for companies with a true cooperative ideology. This means that many partnerships will have to be converted to another legal form under the CAC. It would appear that the BV is the most suitable company type, but this is by no means the only option.
- Equity movement
Under the new Code, the concept ‘capital’ (kapitaal) ceases to exist for the BV and consequently, so do the terms ‘capital increase’ and ‘capital decrease’, which are now replaced by ‘equity movement’ (NL: vermogensbewegingen). Each new contribution into the company’s equity does require a visit to the civil-law notary, even if the contribution does not constitute the issue of new shares.
- Criterion for membership rights: total number of shares
In the old BVBA, the authorised capital had two functions: on the one hand it served as a protective measure against the claims of third parties (mostly creditors), on the other hand it served as a criterion for establishing the rights of the shares. In the new BV the total number of shares takes over the second function.
- Payments to shareholders: stricter test
Payments to shareholders, i.e. any repayment of a contribution and any distribution of profit to any shareholder in the company, now have to pass a double test: a net assets test (solvability) and a liquidity test.
The net assets test means that the shareholders’ equity may not become negative as a result of the payment, nor, if the equity is partly unavailable under the law or the articles of association, fall below this level of unavailable equity. With effect from 1 January 2020 the paid-up part of the capital and the legal reserve of all existing BVBAs and the paid-up part of the fixed capital of CVBAs by operation of law will be converted into an ‘unavailable equity account’ (as defined in the articles of association). However, the equity account may be ‘unlocked’ by amending the articles of association. Thus, existing companies converting into a BV may increase their distributable assets. In short, the net assets test is somewhat less rigid than for public companies, where the authorised capital remains the yardstick.
The liquidity test means that no payment takes effect before the management body has established that the company, under reasonably foreseeable developments, will remain capable of paying its debts in the 12 months following the payment. This liquidity test applies to BVs only. Consequently, it is one of the few points in which the BV is subject to stricter rules than other company types, and this may be a reason for some to opt for a different format (e.g. public limited company).
- Contribution ‘in effort’ now an option
For BVs it has become possible to contribute ‘effort’ (labour) in exchange for shares. This is interesting for start-ups and entrepreneurs with a clearly operational commitment who lack the funds to make the necessary financial contribution upon formation. This, too, must be made very clear in the articles of association to avoid that a cash equivalent of the contribution must be paid if within a few years the company goes bankrupt.
- Dismissal protection for the director
Contrary to managers of a BVBA who have been appointed by the articles of association, directors of a BV may be dismissed at any time and without reason. However, one is allowed to provide a different arrangement in the articles of association, according to which directors cannot be dismissed save for a valid reason.
- Management model for large companies
A BVBA has but one governance layer: the managers. These managers may have individual competence or act as a group, just like a board of directors of an NV. BVs are given ample choice in this respect, ranging from one single manager to a management body in which directors have individual competence or act jointly. Another option is to charge someone with the daily management of the company. The new Code includes a definition of ‘daily management’ which corresponds better to today’s practice than the current definition. If a complete dual governance model is the desired format, including a supervisory board of non-executive directors on the one hand and a management board of executive directors on the other, then the NV is still the only option.
- Rules on conflicts of interest involving directors
If a director is faced with a conflict of interest (i.e. a direct or indirect financial interest that is in conflict with the company interests), a legal procedure must be followed. Currently, a procedure exists for the BVBA comprising a ‘lasthebber ad hoc’, meaning an ‘ad hoc mandatary’, but it is not properly applied in practice (even though that may have serious consequences). A procedure for conflicts of interest of directors is also in place for the NV. The new Code introduces a new, stricter procedure. The main difference with the rule under the old Belgian Companies Code is that the director to whom the conflict relates, not only has to report said conflict of interest, but is banned from deliberations and voting in the management body. As a result, the distribution of power in companies, often stipulated in detail in the articles of association and/or shareholders’ agreement through a strict distribution of directors’ seats, may be disturbed for decisions where one or more directors have a conflict of interest. A mandatory ‘shift’ of the related decision to the general meeting (and, as the case may be, a special majority of votes at shareholders’ level) might resolve the problem. This seemingly limited modification may have an important effect on existing companies. It is also one of many reasons why in view of the new company law, a thorough review of shareholders’ agreements and articles of association is recommended.