New company law: is it useful to convert your partnership, vof or gcv to a private limited company?

The reform of Belgian company law that we are writing about in this series of articles is an ideal opportunity for you as an entrepreneur to consider whether the organization of your company is actually ideal today and whether the new company law might offer opportunities for legal framework than to organize your company better, safer or more efficiently. That is, of course, first and foremost for those who work within a private limited liability company (bvba) today and who have to transform it into a private limited company (bv) within the foreseeable future, but also those who work under any of the company forms that do not offer limited liability (“maatschap”, “vof” or “gcv”), should also ask themselves whether this will still be the best company form for them in the future.

Partnership, gcv and vof, company forms with amazing success

Under the old company law the ordinary limited partnership or gcv and the general partnership or vof are somewhat peculiar company forms within the family of different types of companies. They form a small minority of all companies purely in terms of their number and only very limited attention is paid to them within company law itself. After all, the rules related to the gcv and the general partnership are clearly not in line with the long detailed chapters in our Companies Code that regulate the operation of the nv and the bvba.

And yet these three forms of partnership appear to be relatively popular, especially with starting entrepreneurs and sole traders such as independent consultants. After all, there are a number of clear advantages to the vof and the gcv in their old form.

The major advantage of the three forms is that they can be established without minimum capital, without a financial plan and without having to go to the notary as an entrepreneur to draw up statutes. In addition, you are not required to maintain full double accounting and publish annual accounts, as is mandatory in the private limited liability company.

Fast, cheap and easy. Anyone who wants to start a gcv today only needs a piece of paper for the deed of incorporation and a silent partner who wants to sign the deed of incorporation. The same goes for the vof, it is sufficient that two people sign a partnership deed to get started. Only request a VAT number afterwards and you are in business.

Not surprisingly, therefore, these forms of partnership enjoy some popularity.

Risks

However, there are also very serious risks and disadvantages associated with these types of companies.

The most important and greatest risk lies in the unlimited liability that each of the partners has within a partnership, a gcv or a vof. This unlimited liability is a logical consequence of the fact that no starting capital is required. Because no minimum capital is required, creditors of the company have no guarantee that they will see their money back. That is why the partners themselves are responsible for this guarantee. They are liable without limits with their own private assets for the commitments of the company. This means that in the event of any future financial difficulties, the entire private assets of the partners are at risk.

Moreover, all three types of companies require the presence of at least two partners. In the gcv, one of the two must also be a “silent” partner, who cannot actively intervene in any transaction at the risk of being personally liable. In the case of a vof, on the other hand there are very strict transfer restrictions, which means that partners are virtually unable to transfer their share in a vof.

Advantages of switching to a ‘bv” type company under the new company law?

The new company law seriously reduces the number of company forms. Many companies are disappearing. With regard to companies with unlimited liability, the general partnership (vof) and ordinary limited partnership (gcv) still exist. They become a kind of special form of the general partnership (“maatschap”). Entrepreneurs do not have to worry about the continued existence of their company after May 2019. However, there is still unlimited liability between the partners (except in the limited partnership, where the silent partners are still only liable for the amount of their contribution). ).

The new law, however, entails a whole series of reforms within the private limited company (bv) that might make it interesting to transform an existing gcv or vof into a private limited company (bv). The big advantage of the private limited company is precisely the limited liability of the managers and the exclusion of the risk of having to take care of the debts of the company with your personal assets.

In the past, the benefits of a gcv or vof clearly outweighed the disadvantage of unlimited liability for many, but this could change dramatically in the future. After all, the rules for the bv change fundamentally and become much more flexible, so that almost all the benefits of a general partnership, vof or gcv also apply to the bv in the future and, in addition, a number of additional benefits are created that may make the choice of a bv the future will be more evident than this for a gcv or vof.

  • No minimum capital required. Just as for vof and gcv, a bvb can also be established in the future or continue to live without minimum social capital. In other words, one of the major advantages of the gcv or vof is now extended to the bv. It should be noted that companies without share capital or with only a very low share capital may find it difficult to find financing.
  • Only one partner required. One of the difficulties for many independent consultants, for example, that made it difficult to use a gcv was the need to take a silent partner on board. Usually the only option was to ask for a husband or father or mother to be a silent partner, stating that this would not entail any risk, which in itself is correct insofar as the silent partner would always remain silent. However, if the silent partner in question were to commit a single act of control at a given moment, the consequence would be that he or she would immediately be personally and indefinitely liable. This need to find a silent partner means that in the future the person who chooses a private limited company rather than a limited partnership or general partnership will be eliminated, since the new limited company can be set up and managed by a single partner. Ideal for consultants and sole traders.
  • Ample freedom in shaping the articles of association. One of the reasons for choosing a general partnership was the great freedom to write out the articles of association. Associates were to a large extent free to regulate voting rights and profit distributions among themselves as they deemed appropriate. The same flexibility did not exist within the bvba. The bv will also respond to this in the future, as it becomes much easier to distribute profit, voting rights, pre-emption rights and transferability of shares.

Attention, not all that glitters is gold …

At first glance, nothing but benefits, so when switching from a partnership, gcv or vof to a private limited company, but appearances are deceptive and where there are advantages are usually also disadvantages.

The bv naturally entails a number of obligations that do not apply to the other forms of company and which may have practical or financial consequences:

  • the obligation to have a financial plan (more extensive than before under the limited liability company) at incorporation
  • the obligation to maintain full double accounting (although this is actually a necessity for every entrepreneur) and to publish annual accounts
  • the obligation to prepare articles of association via the notary and to publish them in the Belgian Official Gazette

In other words, a good balance of interests in consultation with your accountant and lawyer is necessary. It is best to switch to a private limited company or adjust your articles of association only to the slightly modified version of the vof or gcv, that question must be answered in function of the advantages and disadvantages in your specific situation, although the limited liability seems to us very many cases a decisive argument for choosing to switch to the private limited company.

What needs to be done in practice?

Well, the law requires that at the next amendment to the articles of association or otherwise at the latest on January 1, 2024, your articles of association are adjusted to comply with the new law.

Anyone who chooses to to turn their partnership, gcv or vof into a bv has some (tailor-made) work ahead of them to ensure that the new bv is set up so that it precisely suits the needs and expectations of you and your associates. In many cases it is not advisable to use a “standard template” from your notary. The possibilities for individual tailoring within the bv will are far too broad for this. Taking the time to create a customized solution is really recommended in the light of these new possibilities.

Moreover, when transforming your company into a private limited company (bv), it may be useful to immediately think of a shareholder agreement between the partners and a management agreement for the manager / director, best immediately linked to good liability insurance for the director in question.

Sirius Legal can of course help you on your way. You can find more information on our company law page.

Questions about your company?

We are happy to assist you. Feel free to contact Bart Van den Brande or one of the other members of our team on bart@siriuslegal.be or on +32 486 901 931