Tim Dausy
03 Sep 2021
One of the questions we have been asked most often since the introduction of the new Companies and Associations Code (hereinafter referred to as ‘CAC’) on 1 May 2019, is the matter of what corporate form it is most advisable to choose, that of a Naamloze Vennootschap (NV) / Société Anonyme (SA)[1] or a Besloten Vennootschap (BV) / Société à Responsabilité Limitée (SRL)[2]. In this article we shall endeavour to give a brief explanation of the remaining significant differences between the two legal forms.
It goes without saying that the introduction of the CAC has led to very far-reaching changes being brought about in Belgian company law, in particular as regards the BV/SRL (the successor to the BVBA/SPRL Limited Liability Partnership). But a number of major changes have also been made to the law governing NVs/SAs. In this respect, statutory freedom has more than ever become the code word for both legal forms, meaning that the quite substantial differences between the former BVBA/SPRL and the NV/SA have in large measure disappeared, or at least can be done away with in the articles of association.
For example, an NV can henceforth also be incorporated and run by a single person, and use can now be made of the plural voting right and preferential dividends in both corporate forms.
Moreover the limited transferability of shares of the former BVBA/SPRL (that is one of the primary characteristics of this legal form) is henceforth removed pursuant to the articles of association of the BV/SRL, meaning that whether shares can or cannot be freely transferred no longer constitutes a distinctive difference between the NV/SA and the BV/SRL, as had been the case in the past.
Finally, a day-to-day management body can also be set up in the BV/SRL. This possibility had already been in existence for some time in the NV/SA, but no provision had been made for it in the BVBA/SPRL.
So here we focus not so much on the changes that the CAC has ushered in with regard to the two legal forms, but rather on what (significant) differences now still remain between the two.
Capital (or lack of capital)
One of the biggest differences is that a BV/SRL no longer has capital. In this respect it should be pointed out that this does not mean that founders of a BV/SRL can start without equipping the company with the necessary financial resources. After all, they have to make sure that upon incorporation the BV/SRL has equity capital, which, partly taking into consideration the other sources of financing, is sufficient in the light of the BV's/SRL’s intended activity. These financial resources may take the form of equity capital (by means of capital contributions made by the founders), but loan capital (for example shareholders’ loans or bank financing) is also eligible.
If it transpires that the starting capital (in other words the financial resources provided for) upon incorporation was clearly insufficient for the normal performance of the intended activity for at least two years, the founders are jointly and severally liable for the company’s commitments in the event of compulsory winding up being ordered within the first three years of the company’s incorporation.
This financing exercise takes concrete shape in the form of a detailed financial plan that the founders have to hand over to the notary drawing up the deed of incorporation.
In an NV/SA, the founders still have to pay up in full a minimum capital of €61,500, either in the form of a capital contribution or a non-monetary contribution. For the rest, the aforementioned rules concerning provision for sufficient financial resources for the first two years, the drafting of a financial plan and the founders’ liability also apply to an NV/SA.
Impact of the difference on the choice of legal form:
Creation of a statutory reserve
In an NV/SA the general meeting must withhold an amount of at least 5% of the net profit every year for the creation of a reserve fund (often referred to as the ‘statutory reserve’). This obligation comes to an end when the amount of the reserve fund has reached 10% of the capital.
This kind of obligation to create a reserve fund does not exist in a BV/SRL.
Impact of the difference on the choice of legal form:
Different rules on profit distribution
Both in the NV/SA and the BV/SRL, dividends can be distributed by the general meeting of shareholders and by the management body. However, the management body must be expressly vested with this power in the articles of association.
In both company forms a dividend distribution of this kind is done on the basis of a net assets test, the specific details of which largely depend on the timing of the distribution and the corporate body taking the decision to this end. Broadly speaking, what it boils down to is that the distribution may not lead to the company’s net assets falling to a certain threshold amount specified by law.
In the case of the NV/SA this is the amount of the capital plus a number of equity capital items not liable for distribution.
In the case of the BV/SRL the net assets may not become negative or fall below the amount of equity capital rendered unavailable pursuant to the law or the articles of association (if this is present in the BV/SRL). In the absence of equity capital rendered unavailable pursuant to the law or the articles of association, the entire net assets in the BV/SRL (including the capital contributions made) may thus be distributed, meaning there is greater scope and freedom in the BV/SRL for profit distribution than is the case in the NV/SA.
This scope and freedom come at a price, however, since in the BV/SRL there is the obligation to carry out a ‘liquidity test’ whenever there is a profit distribution to shareholders. In this liquidity test the management body will have to establish that after distribution, according to the developments that can be expected in all reasonableness, the company will remain in a position to settle its liabilities as and when these become payable over a period of at least twelve months counting from the date of distribution. The management body’s decision is justified in a report that is not filed. In companies in which a supervisory director is appointed, the latter assesses the historical and prospective accounting and financial data contained in this report.
A liquidity test of this kind does not apply to an NV/SA, where only the unambiguous and quantitative restrictions of the net assets test are applicable.
In practice the liquidity test appears to raise various questions and lead to a number of implementation problems. Moreover, it creates extra paperwork and the additional advice of external accountants/financial consultants is often indispensable in this respect. After all, the liquidity test presupposes a difficult and complex appraisal by the management body, not only of the figures as presented in the annual accounts or in a recent interim statement of assets and liabilities, but also of the expected development of the company’s financial parameters in the year following the distribution.
Furthermore, directors who do not carry out the liquidity test, or do so in a careless or slapdash fashion, run risks that are anything but negligible. Directors who should have known that as a result of the distribution the company would clearly no longer be in a position to settle its liabilities during the year thereafter, are jointly and severally liable vis-à-vis the company and third parties for all loss or damage deriving therefrom. In addition, non-compliance with the provisions in respect of the liquidity test is one of the few infringements that can still give rise to directors’ liability under criminal law (in other words, a criminal fine of between €400 and €80,000 and – at least in theory – a prison sentence of between one month and one year).
Impact of the difference on the choice of legal form:
Resignation/debarment chargeable to the assets and liabilities
The articles of association of the BV/SRL can henceforth lay down that shareholders (i) on the one hand have the right to resign from the company and (ii) on the other hand, for a legal reason or on account of another reason stated in the articles of association, may be debarred. Such a resignation or debarment occurs at a price (and using a price formula) determined in the articles and “chargeable to the assets and liabilities”, which means that the payout of the shareholder who has resigned or in this case has been debarred is effected by the company and therefore not by fellow shareholders or third parties.
This possibility should afford shareholders of the BV/SRL the chance of entering and leaving the company easily, as used to be the case in the former cooperative companies with limited liability.
Such a resignation and debarment of shareholders chargeable to the assets and liabilities is not possible in the NV/SA.
Impact of the difference on the choice of legal form:
Differences as regards management models
In both the NV/SA and the BV/SRL it is possible to opt for a joint, plurality-based management body (called ‘board of directors’ in the NV/SA and ‘executive committee’ in the BV/SRL) or a ‘one-head’ management system (presided over by a single person).
What’s more, in the BV/SRL a working arrangement can be adopted in which there are several directors, all of whom with full authority and equal rights (‘several captains on the same ship’). In the NV/SA this set-up is not possible.
Finally, in the NV/SA the choice can be made for a dual management model with an umbrella supervisory board (appointed by the general meeting), which in turn puts together a board of directors. This set-up is not possible in a BV/SRL.
This is a ‘real’ dual system in which no director or manager can sit in both bodies. In addition, both bodies have an exclusive remit, each differing from the other: the supervisory board will, as its name suggests, exercise supervision over the board of directors, which will conduct the operational management of the company and will hold the ‘residual power’. This means that the board of directors will have competence for all matters not attributed, pursuant to the CAC and the articles of association, to the supervisory board or the general meeting.
Both the supervisory board and the board of directors must consist of at least three members. Members of the board of directors may not be members of the supervisory board. This means that at least six different members are needed to set up this management model.
Impact of the difference on the choice of legal form:
On account of the considerable statutory freedom and the convergence between the two legal forms since the CAC was introduced, the choice between an NV/SA and a BV/SRL appears to be less relevant than it used to be. By and large, what is possible in the BV/SRL is also possible in the NV/SA, and vice versa. The question is whether the liquidity test, with all its complexity and its strict penalisation, isn’t a millstone round the neck of the BV/SRL. Organisations that have no trouble forking out €61,500 in seed capital will for this reason perhaps nonetheless opt for the ‘simpler’ framework of the NV/SA.
[1] Another difference between the two corporate forms is the possibility of making a contribution in industry, which means the possibility of classifying “a commitment to perform work or render services” as a non-monetary contribution, which is only possible in a Private Limited Company. Given the difficulties of interpretation, particularly as regards the fiscal and accounting treatment/processing of such a contribution in industry, this appears as yet to be little used in practice. It is for this reason that we do not discuss the contribution in industry in any great depth in this article.
[1] comparable with a Public Limited Company
[2] comparable with a Private Limited Company
[3] Another difference between the two corporate forms is the possibility of making a contribution in industry, which means the possibility of classifying “a commitment to perform work or render services” as a non-monetary contribution, which is only possible in a BV/SRL. Given the difficulties of interpretation, particularly as regards the fiscal and accounting treatment/processing of such a contribution in industry, this appears as yet to be little used in practice. It is for this reason that we do not discuss the contribution in industry in any great depth in this article.