Company and association law: last call to amend articles of association

Who gets to rest on their laurels?

Legal entities incorporated on or after 1 May 2019 do not, in principle, need to take any further steps, as they have already been established in full compliance with the new CAC.

From 1 May 2019, existing companies could also already opt-in to apply the new CAC, which was usually done following an amendment of the articles of association. This avoided having to visit the notary again at short notice, with the associated costs.

From 1 January 2020, any existing company undergoing an amendment of the articles of association -for whatever reason (change of object, change of financial year, changes in capital, etc.) - was also obliged to comply with the CAC immediately.

Therefore, if your company already complies with the CAC because of any of the above reasons, you do not need to take any further steps.

 

Another large group has work to do

However, despite the fact that, since 1 January 2020, all mandatory provisions of the CAC apply to existing companies anyway, and a general alignment of articles of association with the CAC would thus enhance legal certainty, a large group of companies and associations have not yet conformed to the new legislation.

The impact of the mandatory updates depends very much on the type of company one has.

We briefly highlight below the main company forms and the possible changes that await them.

 

The public limited company (’NV/SA’)

For public limited companies, the impact of the adaptation to the CAC is rather limited. It is generally sufficient to confirm that the current form will be retained and to replace any references to rules and/or articles from the old Companies Code with those of the new CAC.
In addition, some changes, or new possibilities under the CAC are nevertheless important for limited liability companies.

Among other things, the executive/management committee, as it existed under the old legislation, was not included in the CAC.Consequently, companies that currently use such a committee have to decide what to do in the future.

For instance, an actual, two tier governance structure can be chosen by these companies, where there is a 'supervisory board' on the one hand and a ‘management board' on the other. However, the composition, operation and powers, as regulated in this two tier governance structure do not coincide with the currently known board of directors and management committee, so the two systems are certainly not simply interchangeable.

In addition, for a public limited company, one can now also use the option of working with a sole director as well. This route is often taken by public limited companies that are more of a family nature and in which the 'pater' -or 'mater'- familias wishes to retain sole control of the company and is also seen as the form to be adopted for limited partnerships on shares to take the form of an public limited company (see below under 'disappearing company forms').

 

The (private) limited liability company (‘BV/SRL’)

In the case of the (private) limited liability company, the equity concept has been abolished. As a result, as of 1 January 2020, former paid-up capital and statutory reserves automatically became non-distributable equity.

When amending the articles of association, one will therefore have to decide whether or not to make the contributed equity available for distribution in the company.

The consequence of making the contributed equity available is that these assets can be reduced or distributed more easily, i.e. without amending the articles of association but subject to compliance with a net asset and liquidity test.Of course, this only applies as long as you do not destroy shares when distributing those assets, because in that case the law does require an amendment to the articles of association.

For the rest, the legal form of the limited liability company under the CAC also offers a lot of additional flexibility and new possibilities (e.g., distribution of interim dividends, attribution of different rights to certain shares, exit and exclusion of shareholders, etc.), which may or may not require an explicit provision or exclusion in the articles of association.

 

The limited partnership

As regards the ordinary limited partnership (’CommV/SComm’) not to be confused with the partnership limited by shares (’Comm.VA/SCA’ -see below under the heading 'disappearing company forms'), for the vast majority of companies it is sufficient to check that the articles of association do not contain references to the former Companies Code and to remove them and/or adapt them to the CAC. For the remainder, the legal provisions concerning the limited partnership remain limited and this company form retains its flexibility.

 

The cooperative company

As for cooperative companies, the CAC has had a greater impact compared to previous corporate forms.

First, the cooperative company with unlimited liability irrevocably ceases to exist (see below under the heading 'disappearing company forms').

The cooperative company with limited liability is therefore the only type of cooperative company that will continue to exist and will consequently also be referred to simply as the cooperative company.However, the most important change for the cooperative company is that this form may only be held by those companies that effectively comply with the so-called ‘cooperative ideology’.

For better interpretation, reference is generally made to the principles on 'cooperative identity' promulgated by the International Cooperative Alliance, although even these are still rather vague and open to interpretation in practice.

If the cooperative company does indeed meet these criteria, it also still needs to amend its articles of association to comply with the CAC (as do all other companies that have not yet done so), and it is recommended that the subject matter explicitly state that it effectively complies with the 'cooperative ideology', as defined in Article 6:1 CAC.

If not, the company is considered an improper cooperative company, implying that the company must be converted to another company form.This can be done through a simple amendment to the articles of association if one chooses the alternative form of the (private) limited liability company (’BV/SA’) proposed by the legislator. One can also possibly convert to another form, but in this case the ‘special’ (and consequently more complex) conversion procedure will have to be followed.

 

Disappearing company forms

Finally, there are the company forms that were no longer included in the CAC and simply disappeared.

The most important disappearing company forms are the already mentioned partnership limited by shares (’Comm.VA/SCA’) and the cooperative company with unlimited liability. However, also agricultural companies, economic partnerships, professional associations are disappearing, ....These must necessarily choose a different legal form, and adopt the associated articles of association.If they opt for the alternative legal form envisaged by the legislator; i.e. the public limited liability company (’NV/SA’) for the partnership limited by shares (’Comm.VA/SCA’)  and general partnership (’CommV/SComm’) for the cooperative company with unlimited liability respectively, they can carry out this conversion without having to follow the legal and more onerous conversion procedure provided for in the CAC. However, if one opts for a different legal form, the special conversion procedure must be followed. 

 

From obligation to opportunity

Some consider the alignment with the CAC to be yet another imposed formality, resulting in useless costs for companies. However, this mandatory alignment offers an opportunity to thoroughly revise your company's articles of association in the light of new 'factual' circumstances and, in particular, the possibilities offered by the CAC.

A common 'win' for companies includes a review of the purpose of the company: does it still meet the actual activities of the company? In addition, the forms of governance and representation rules within companies often also deserve a re-evaluation. And finally, the inclusion of arrangements around electronic deliberations within the governance bodies of the company can also be fully worked out so that they are again fully future-proof.