CORPORATE LAW
Introduction
In a decision dated 16 December 2010, the Constitutional Court
(Grondwettelijk Hof/Cour Constitutionnelle) ruled on a
preliminary question on the raised minimum paid-up capital
(volgestort/libéré) of a single member
private limited liability company (éénhoofdige
besloten vennootschap met beperkte
aansprakelijkheid/société privée à
responsabilité limitée unipersonelle).
Facts
A single member private limited liability company was incorporated in 2001 with a minimum share capital and minimum paid-up capital. In 2004, the statutory minimum paid-up capital for single member private limited liability companies was raised from EUR 6,200 to EUR 12,400. If this raised amount would not be fully paid up within one year, the sole shareholder was deemed to be liable for all obligations of the company without any limitation (article 213 of the Belgian Companies' Code). In the case at hand, the company went bankrupt, and the minimum paid-up capital was never raised to EUR 12,400. As a result, the single shareholder was held liable without any limitation for all obligations of the bankrupt company.
Alleged discrimination
The defendant did not argue the facts, but claimed that the difference in the minimum paid-up capital for a single member on the one hand (i.e. EUR 12,400) and a common private limited liability company on the other hand (i.e. EUR 6,200), is unlawful and discriminatory. Moreover, the consequences of not fully paying up the required minimum capital (i.e. the unlimited liability), is not reasonably justified.
Position of the Constitutional Court
The Constitutional Court ruled that the difference relating to the minimum paid-up capital between a single member and a common private limited liability company is duly justified and based upon an objective criterion, namely the fact that, within a single member company, the sole shareholder enjoys all the decision making powers. Further, the difference is duly justified by the intended purposes of the law, that is the fight against tax fraud, money laundry and the prevention of bankruptcy.
The unlimited liability in case the minimum paid-up capital of the single member company would not be fully paid up, is not disproportionate according to the Court, taking into account the fact that this sanction must assure that the capital is indeed be fully paid up.
Analysis
Whereas the difference between the various amounts of minimum paid-up capital may have had, once, an objective basis (even though the reasoning of the Court does not convince at all, and, more importantly, does not seem to take into account the fact that the recently introduced starter's private limited liability company only requires an initial share capital of EUR 1, regardless of the number of shareholders), the related sanction does not seem proportionate at all. It does not seem logical or proportionate that a single shareholder becomes unlimitedly liable for not having paid up another EUR 6,200, whereas multiple shareholders remain only limitedly liable up to the amount of their subscribed share capital, even though they did not pay up the minimum required paid-up capital.
In general terms, the entire set of minimum and paid-up capital mechanisms does not seem consequent and logical anymore. It may make more sense to review the entire set of company forms that are available under Belgian law, and limit them to, broadly, (i) unlimited liability companies, (ii) private limited liability companies with various modalities, large flexibility and low capital requirements for smaller businesses, and (iii) more regulated and capitalised limited liability companies for larger businesses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
