There exist various types of business entities under Belgian law which may be available to foreign businesses wishing to do business in Belgium. Hereafter is a description of the most important ones and a summary of the rules applicable to these entitites.
a) Joint Stock Company (naamloze vennootschap/societe anonyme, or N.V./S.A.)
The joint stock company is a limited liability company which may be publicly held. It is the vehicle most often used by foreign investors.
b) Private Limited Liability Company (besloten vennootschap met beperkte aansprakelijkheid/societe privee a responsabilite limitee, or B.V.B.A./S.P.R.L.)
The private limited liability company is a company similar to a joint stock company, with a more closely held character. It is often used for family business.
c) General Partnership (vennootschap onder firma/societe en nom collectif, or V.o.F./S.N.C.)
The general partnership is characterised by the unlimited liability of the partners for the debts of the partnership.
d) Limited Partnership
- limited partnership (gewone commanditaire vennootschap/ societe en commandite simple);
- limited partnership with shares (commanditaire vennootschap op aandelen/societe en commandite par actions).
In limited partnership, there are two categories of partners. The first category of partners is fully liable for the debts of the partnership. The second category is only liable for the amount invested in the partnership.
e) Branch
The branch does not have a legal personality separate from the legal entity setting it up. It is a mere part (or division) thereof.
f) Joint Venture
g) Sole Proprietorship
Any individual with the capacity to contract may engage in a commercial activity. To do so, he/she must register with the competent registrar and comply with the other rules of the Commercial Code. All debts generated by his/her business are enforceable against all his/her personal property.
h) Varia
A number of commercial entities without legal personality also exist, such as the temporary commercial incorporation (tijdelijke vereniging/association momentanee), often used by construction businesses to participate in public bids.
Joint Stock Company
a) Incorporation and Registration
A joint stock company must have at least two shareholders who may be Belgian or foreign individuals or legal entities. Its incorporation requires the execution of a notarial deed of incorporation.
The founding shareholders of a joint stock company must submit draft articles of incorporation to a notary together with a budget forecast covering two years of operation as of the time of incorporation and justifying the proposed amount of corporate capital. The founding shareholders may be held personally liable if the company goes bankrupt within three years of its incorporation and if it can be shown that the company was undercapitalised for the carrying out of its activities during the first two years. The founding shareholders may decide - and provide in the deed - that only one of them shall bear the possible liability in case of under-capitalisation, the others being mere subscribers.
The articles of incorporation must indicate, among other things, the name of the company, its corporate purpose, the amount of corporate capital, and the amount of authorised capital (where applicable).
The new company comes into existence when the notarial deed is executed by all founding shareholders and the notary.
The notary procures the publication of an extract of the deed in the Belgian State Gazette, which makes the existence of the company enforceable against third parties.
The registration of the notarial deed with the clerk of the commercial court is a duty of the company and is handled by the notary. A registration tax equal to 0.5% of the corporate capital must be paid upon incorporation. The notary's fees and administrative expenses together usually amount to BEF 60,000 to 70,000.
At the same time, the newly incorporated company must apply for a registration number with the Commercial Register. In most cases, it also has to register with the local VAT (value added tax) office of the Ministry of Finance. A company may not do business before it has been granted a Register of Commerce number and, if applicable, a VAT number.
b) Capital and Shares
The corporate capital of the joint stock company must be entirely subscribed and may not amount to less than BEF 1,250,000. At least a quarter of the corporate capital must be paid up, with a minimum of BEF 1,250,000. Contributions may be made in cash or in kind. In the latter case, a report must be made by the founding shareholders which justifies their assessment of the contribution and a second report must also be prepared by a statutory auditor. In the event a contribution in kind is being made and partially paid up, the remainder must be contributed within the five years thereafter.
Capital reductions and capital increases are decisions to be made by the shareholders. The shareholders may, however, authorise the Board to increase the corporate capital up to a certain amount, called the authorised capital.
The corporate capital of a joint stock company consists of ordinary voting shares which may be in bearer or in registered form, with or without par value. All shares are and remain in registered form until they are fully paid up.
Bearer shares are transferred by the simple transfer of possession of the shares themselves, while the transfer of registered shares requires an entry to that effect in the shareholder book in order to be enforceable against third parties and the company. No transfer of shares may take place before the company has been duly incorporated. The articles of incorporation may restrict share transferability in accordance with strict rules, but may not exclude it entirely.
The articles of incorporation may also authorise up to a third of the corporate capital to be represented by preferred voting shares. In addition, preferred non-voting shares may be issued following a mandatory scheme.
A joint stock company may issue a particular class of equity-like securities, generally called "parts beneficiaires," which do not represent capital contributions but share in the profits of the company.
c) Corporate Structure
- Shareholders' meeting
The shareholders' meeting is vested with certain specific powers reserved to the shareholders by virtue of the Belgian company laws (such as capital increases and decreases, mergers, modification of the articles of incorporation and of the corporate purpose, appointment of directors, etc.). All residual powers are vested with the Board of Directors.
The articles of incorporation may restrict the power of the Board of Directors and reserve to the shareholders' meeting or any other body, certain matters in addition to those provided by law. Such restrictions are not effective against third parties, even when published.
A general meeting of shareholders must be held at least once a year at the time and place set forth in the corporate articles of incorporation, but no later than six months following the end of the business year. At the meeting, the shareholders approve the annual accounts of the company and release the directors from personal liability for the acts they performed as directors of the company during the elapsed business year. The approved annual accounts of the company have to be filed with the National Bank within one month of their approval.
Although substantially restricted in scope, shareholder voting agreements are permitted for a limited period of five years.
- Board of Directors
A Belgian joint stock company is managed and represented towards third parties by a Board of at least three directors (individuals or legal persons, foreigners or Belgian nationals), appointed at the shareholders' meeting.
A director may not be appointed for a period exceeding six years and may be removed without cause at any time by the shareholders. Directors are eligible for reelection. A vacancy on the Board may be filled temporarily by the Board itself, except if the articles of incorporation provide otherwise. At least a majority of the directors must be present or represented for a Board meeting to be validly held.
The Board of Directors is obliged to convene a general meeting of shareholders on at least a yearly basis or when necessary. For instance, the Board must convene such a meeting and present it with a special report in case the company's assets fall to less than 50% of the corporate capital. This meeting must be held within two months of the time the Board first noticed the loss of net assets.
Special rules govern the case where a director finds himself faced with a possible conflict of interests.
- Executive Managers
The Board of Directors may delegate daily management of the company, as well as the power to represent it towards third parties, to one or several executive managers. Such managers may be members of the Board (managing directors), company employees or third parties. The delegation of daily management and of the power to represent the company within the scope of daily management requires a Board resolution, an extract of which must be published in the Belgian State Gazette in order to be enforceable against third parties.
- Statutory Auditor
Except for small limited liability companies, the shareholders at the general meeting should appoint a certified public accountant, i.e., an individual or a legal entity, which is a member of the Instituut der bedrijfsrevisoren/Institut des reviseurs d'entreprises, to act as its outside auditor. This person or entity is entrusted with the auditing of the corporate books and accounts as well as with the control over the company's operations as reflected in the annual accounts.
d) Directors' Liability
- Civil Liability
A director may be held liable, under the general contract law regime, for the performance of his/her office duties as mandataire.
Directors may also be held jointly liable, by the company or by third parties, for the damages caused by acts committed in violation of the Belgian company laws and/or the articles of incorporation, as well as in the case of bankruptcy of the company if it can be shown that a wrongful act contributed to the bankruptcy.
Shareholders holding at least one percent of the votes or a stake of at least BEF 50 million may file a derivative suit against a director who has either violated the provisions of the Belgian company laws or the articles of incorporation of the company, or who has performed incompetently.
Directors who violate the conflict of interest rules may be sued by all parties concerned.
- Criminal Liability
A director can be subject to criminal sanctions for his/her own offenses committed in the performance of his/her duties as well as for offenses committed by the company itself. Indeed, in Belgium, a company cannot itself be subject to criminal sanctions.
Criminal offenses which may give rise to the personal liability of a director include violations of general criminal law (such as fraud, usurpation of corporate assets, etc.), violations of specific criminal provisions of the Belgian company laws (drafting of false annual accounts, failure to draw up and/or file the annual accounts on time, etc.), as well as violations of other statutes or regulations (insider trading, money laundering, etc.).
e) Shareholders' Liability
In principle, the shareholders or the parent company of a joint stock company may not be held liable for the debts or transactions carried out by the company. Nevertheless, the corporate veil may be pierced in very exceptional circumstances if it can be established that the subsidiary is a fictional company.
Private Limited Liability Company
A private limited liability company is incorporated by notarial deed by one or several persons whose liabilities are limited to the amount of their own specific contribution and whose rights may only be transferred under certain circumstances. Most of the rules which are applicable to the joint stock company apply to the private limited liability company. Nevertheless, the private limited liability company possesses some distinctive characteristics :
- A minimum capital of BEF 750,000 must be subscribed with at least BEF 250,000 and 20% of each share being paid up. All contribution in kind must be fully paid up. All shares are capital shares and must be registered.
- The founding shareholders may not decide that only one of them shall bear the possible liability in case of under-capitalisation.
- Specific legal provisions govern capital increases because of the closely held nature of the private limited liability company. Share transfers are also subject to specific rules and may be restricted by the articles of incorporation.
Partnerships
The general partnership is formed by persons wishing to exercise a specific trade under a business name. This vehicle has a legal personality distinct from that of the partners. The partners have unlimited, joint and several liability for the debts of the partnership. No notarial deed is required for formation. There is no minimum capital requirement.
The limited partnership is freely constituted by one or several partners who are jointly and severally liable and one or several partners who only risk their own contribution for the debts of the partnership. The limited partnership is managed by one or several partners with unlimited liability. There is no minimum capital requirement. The approval of all partners is required for any share transfer.
The limited partnership with shares is incorporated by notarial deed. A category of shareholders is jointly and severally liable for the debts of the partnership and another one is not liable for the debts of the partnership. Shares are in principle freely transferable. Most of the rules governing the joint stock company apply.
Branch
A branch, even if it constitutes a separate economic entity, is not endowed with a distinct legal personality.
The setting up of a Belgian branch requires inter alia a resolution by the Board of Directors of the foreign company specifying the scope of activities to be carried out and the name of the legal representative of the branch. Copies of the resolution, together with the articles of incorporation and the by-laws of the foreign company must be certified by a public notary and legalised by the appropriate governmental authorities. These documents must be translated, filed with the commercial court and published in the annex to the Belgian State Gazette.
Joint Venture
Joint ventures may take the form of a company or partnership, or be in the form of a contract between the relevant parties. The European Economic Interest Grouping and the Belgian Economic Interest Grouping are legal entities that are also available for companies wishing to develop common economic interests.
The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.
De Bandt, van Hecke & Lagae - Brussels. (32-2) 501.94.06.
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