New company law | Part 5: Abolishment of the concept of share capital

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The recent revision of the Code of companies and associations (“CCA”) is characterized by fundamental changes in the regime of the private limited liability company (the former SPRL/BVBA) and in particular the abolishment of the concept of share capital for that type of company.

The former SPRL/BVBA had to have a minimum share capital of EUR 18.500 intended to act both as a protection for creditors and as a distribution key for shareholders. The abolishment of the concept of share capital thus has a major impact on rules about issuance of shares, distribution to shareholders and the alarm bell procedure.

The SRL has neither legal share capital nor minimal required share capital. However, founders must make sure that the SRL/BV has sufficient equity at the time of its incorporation with respect to its projected activities, and given its other sources of financing (such as bank loans) (art. 5:3 CCA). Hence, founders shall provide a detailed financial plan including a justification regarding initial equity at the time of incorporation of the company with respect to its projected activities. If it appears later on that the initial equity was clearly insufficient at the time of incorporation to ensure the normal exercise of projected activities for at least 2 years, founders can be held liable for all or part of the company’s undertakings.

Moreover, creditors now benefit from a dual protection in the context of distribution to shareholders (for instance, distribution in the form of dividends). Indeed, two tests need to be satisfied for a distribution to shareholders to take place:

Net Assets Test: The General Assembly shall make sure that the net assets of the SRL/BV do not become negative following a distribution (art. 5:142).
Liquidity Test: At the time of effective payment, management must confirm in an internal report that the SRL/BV will be able to repay its outstanding debt for a duration of at least 12 months from the date of distribution (art. 5:143).

The company can ask for a refund of any distribution made in violation of the Net Assets and Liquidity tests.

 It shall be noted that the legislator has decided to maintain several equity-protection rules in parallel with the abolishment of the concept of share capital.
For instance, shares issued by the company must always be integrally and unconditionally subscribed (art. 5:5). Similarly, contributions in kind must always be subject to an evaluation report by a company auditor (art. 5:7).

It is worth noting that all SPRLs/BVBAs will be automatically converted into capital-free SRLs/BVs, which entails that the share capital and legal reserve of all existing SPRLs/BVBAs will be converted into non-distributable equity (art. 39 Law introducing the Code of Companies and Associations on various provisions). These equity funds can be released with an amendment of the bylaws.