The new Code of Companies and Associations (CSA) was approved on 28 February. This important reform comes into effect on 1 May 2019. A transition period is in place to give companies time to update their articles of association.
You will find a brief overview of the main changes made to the Code of Companies and Associations below.
THE CODE OF COMPANIES AND ASSOCIATIONS
The new code includes both companies and associations (not-for-profits). The latter can now carry out for-profit activities. The former “secondary activity” criterion is no longer applicable. In future, non-profits will be able to generate unlimited profits, but they cannot be distributed, unless the distribution is required to meet their non-profit purpose.
REDUCTION IN THE NUMBER OF BASIC LEGAL FORMS
One of the main reforms consists in a reduction in the number of legal company forms to a smaller number of basic forms.
The following legal company forms continue to exist: limited liability company (SRL), cooperative company (SC), limited company (SA), partnership, general partnership (SNC) and limited partnership.
SIMPLIFICATION AND GREATER FLEXIBILITY FOR LIMITED LIABILITY COMPANIES (SRL)
Most of the new legal provisions are supplementary, such that the articles of association can be written to ensure that the legal form of the company corresponds perfectly to its needs and those of its shareholders. As a result, the SRL will be more versatile in economic life than the current SPRL.
The removal of the minimum capital requirement is probably the most striking change. However, the SRL will have to have sufficient equity when it is formed. The removal of the minimum capital requirement implies that the shareholders themselves determine the type and amount of contributions. The financial plan will be taken into account to ensure that the company has sufficient capital. The new code provides for minimum required content for the financial plan with which it must be possible to define sufficient initial assets. In addition, profit distributions are only authorised in the event that two distribution tests are met: the liquidity test and the net asset test.
In an SRL, it will now be possible to contribute work in exchange for shares. This is, of course, a major change, for example, for start-ups which have ideas and time but, not necessarily money.
By virtue of the new rules, both the SRL and the SA can consist of a single person. It doesn’t matter if the founder is a natural person or a legal entity. The principle continues after creation, since only one shareholder is required.
Like the SA, the SRL can issue different types of shares or other securities such as shares linked to different assets or voting rights, shares with rights to present director mandates, convertible bonds, warrants, etc.
As a result, the SRL enjoys greater opportunities to attract outside funds. The company can also strengthen the position of key players in the company by adjusting the voting rights associated with securities.
Disposals of shares and of other securities enjoy significantly more statutory freedom, such that any SRL can implement a suitable regime. This is the major change for the SRL compared to the SPRL. Even the free disposal of SRL shares is now authorised.
WHAT HAPPENS IF YOU WORK WITH AN SA?
There have been many changes in this respect too. Contrary to the provisions of the former legislation, an SA can now consist of a single shareholder.
In addition, as in an SRL, multiple voting rights can be assigned to certain shares.
It should be noted that an SA can also function with a single director, who, in addition, can be appointed statutorily. Protection against dismissal can also be included. In addition, the liability of directors is limited to a maximum amount. The limitation of liability is, however, subject to certain exceptions (as for intentional errors).
The minimum capital requirement for an SA remains €61,500 contrary to the SRL where the concept of capital has disappeared.
COOPERATIVE COMPANY (SC)
The cooperative company has returned to its original purpose. Only companies which have a truly cooperative purpose can still use this legal company form. Most current cooperative companies don’t meet the conditions. They will be forced to take on a different legal form, most likely SRL.
The CSA was applicable to new companies and non-profits as of 1 May 2019. If required, existing legal entities can submit voluntarily to the new regulations (via a so-called “opt-in”) as of this date.
Starting on 1 January 2020, the binding provisions of the CSA will take effect automatically, including the new names and abbreviations, the capital conversion of the SRL, etc.
Current companies and non-profits must update their articles of association to the reformed company law at the time of the next change in their articles of association and at the latest by 1 January 2024.
Lastly, companies whose legal form has been eliminated (SCA, SCRI, agricultural company and GIE) must convert to another legal form before 1 January 2024.
This concise publication (FR) includes an overview of the main guidelines for each entrepreneur.
Note: the web pages for company forms will be updated on 30 April.