Are you prepared for the new Company Code?
The long-awaited new Code of Companies and Associations will become a reality in the course of 2019. Both existing and newly-established companies should already begin preparing themselves as best they can. "The many changes will have a major impact on all companies and associations."
To combine company and association law, to make it simpler, more flexible and more competitive: that is the main objective of the new Code of Companies and Associations (BCC). Hannes Laloo, Partner at KPMG: "The basis of the current legislation dates back to the time of Napoleon and the 19th century. The world has since become globalized and digitized, but the legislation for companies continues to embrace principles from two centuries ago. That is why this new code is so important".
To implement these modernized rules, the more than 900,000 legal entities and 230,000 non-profit organizations and foundations in our country need new knowledge, insights and strategies. The international accountancy and consultancy firm KPMG and law firm K law recommend that you start thinking about this now.
Down from 17 to 4 basic forms
Only 4 basic forms out of the 17 business structures will remain after the reform: the private limited liability company (BV/SRL), the public limited liability company (NV/SA), the cooperative company (CV/SC) and the partnership. This will make business in Belgium more transparent, and not just for new companies. Existing companies will also be compelled to think about which form they wish to adopt, says Patrick Geeraert, Partner at K law.
"It is crucial to analyze in advance which company form will best suit the needs of your company. BV/SRL may be the best option for many businesses, because this form offers limited liability linked to simple and flexible management. Additionally, a number of forms will disappear or will be fundamentally redefined. Take, for example, the cooperative partnership with limited liability: at the time, this was created to meet specific needs for a cooperative social model, but was also used as a corporate form separate from this idea. The cooperative idea will be central in the future, meaning that existing cooperative partnerships that no longer meet the above mentioned basic idea will be transformed into a limited company, unless another choice is made."
The same applies to non-profit organizations, which surprisingly enough is the form adopted by many large organizations such as hospitals, educational institutions and recreation companies. "Non-profit associations will also be permitted to carry out unlimited commercial activities in the future, if their articles of association explicitly allow this", states Hannes Laloo. This will then have tax consequences and these types of non-profit organizations will be taxed as ordinary commercial companies. "Now more than ever, adopting a partnership or association form should be a reasoned legal and tax choice."
More flexibility and more internationally-focused
The code will also make companies more flexible. For example, the BV/SRL will no longer be required to have a minimum capital amount that must be fully or partially paid. This will be replaced by initial net assets. Hannes Laloo: "The initial net assets may consist of several things: money, a contribution-in-kind, such as property or computers, and a contribution of labor. The last is not without risk: after all, it is unclear how such a contribution of labor will be taxed. Solutions will therefore need to be found for many issues: here, too, businesses need help."
The new legislation also seeks to be better aligned with how things are evolving in Europe. For example, a Belgian company operating in the Netherlands may apply Belgian company law to the Netherlands. In our country, the real registered office determines which national law applies to a company. That will soon change, says Patrick Geeraert. "The location of the registered office will ultimately determine which law applies. This means that Belgium will no longer hinder the free movement of companies in the EU and we will become more attractive to foreign investors and companies."
Another new development is that every dividend to shareholders within a BV/SRL will be subject to a double test. There is the net assets test, whereby no payment may be made if the net asset is, or will become, negative. There is also the liquidity test. "It must be demonstrated that a company can pay outstanding debts in the next 12 months, taking into account the dividend paid out," says Rob Steensels, Director at KPMG. "An in-depth analysis must be performed for every payment. This is particularly important: for example, if a company goes bankrupt less than a year after a dividend payout, the directors may in some cases be held liable or what has been paid out must be returned."
Companies and associations that wish to receive the maximum benefit from the statutory provisions of the new WVV/CSA need outside expertise, concludes Patrick Geeraert: "It will become immediately clear whether the company form, the shareholder structure and agreement, the financial plan and capital, the administration, the accounting system and other matters are being prepared for the upcoming legislative changes. Only by thinking about legal matters, taxation and social law elements thoroughly can businesses make the best and most future-proof choices."
3 questions about the new WVV/CSA
How much time do I still have?
All companies established from 1 May 2019 must follow the new legislation. Existing companies and associations must amend their articles of association between 1 January 2020 and 1 January 2024: this will require immense preparation.
How many founders will a BV/SRL or NV/SA need?
It will soon be possible for just one person to establish an NV/SA and BV/SRL.
What will change in terms of a director's liability?
This will be based on the size and turnover of the company. From now on, a director may be held liable for a maximum amount of between EUR 125,000 and 12 million. This will make director liability more insurable.
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