Today, many companies are organised as cooperatives because of the flexible mechanism of entry and exit of partners. An example of this are the numerous professional companies of liberal professions, such as lawyers.
However, with the introduction of the CCA, the cooperative form of company will again be reserved for cooperative purposes as defined by law. The CCA thus returns to the original image of the ‘real cooperatives’ as it was established in the 19th and 20th centuries by farmers and laborers, among others. Under the new law, many existing cooperatives will therefore have to convert into BVs/SRLs. But do not worry: an essential characteristic of the cooperative society (hereafter ‘CV/SC’), which includes a major advantage for many entrepreneurs, will be transferred to the new BV/SRL with the introduction of the CCA. The possibility of withdrawal and exclusion at the expense of the company’s assets will thus also become a reality in the BV/SRL. Note that the flexible system whereby partners can easily enter into the current CV/SC was not transferred to the BV/SRL in the CCA.
The possibility of withdrawal and exclusion are systems that need to be implemented through the articles of association. They are regulated by a number of mandatory provisions and a number of rules from which it is possible to derogate under the articles of association (the so-called ‘defaults’ in the law). In essence, this exit option means that the shares of the partner who wishes to exit (or is excluded) are not transferred to another partner, but to the company itself, which also bears the cost. In what follows, the main features of the new regime are set out.
Withdrawal at the expense of the company’s assets
Note : The initial contribution is most likely lower than the real economic value of the shares (the market price). It is therefore recommended to include a different valuation formula in the articles of association. Since the withdrawal at the expense of the company’s assets takes place outside the court, there is no judicial discretion in determining the amount of the separation share. The new Code does, however, make the latter possible in the case of the classic withdrawal and exclusion claims within the framework of the dispute settlement procedure, where the court can decide on a fair price increase or reduction for the shares.
The general assembly is not consulted in the case of a request for withdrawal, so that the administrative body is obliged to report to the next general assembly on the requests for withdrawal during the past financial year. All relevant information on the permitted withdrawals must be included in this report, with the aim of providing the other shareholders with sufficient information.
Exclusion at the expense of the company’s assets
Note : It is recommended to include a different valuation formula in the articles of association, which differs depending on whether it concerns a voluntary withdrawal (good leaver) or a forced exclusion (bad leaver).
Advantages and disadvantages of the new exit mechanisms
The major advantage of both the withdrawal and the exclusion at the expense of the company’s assets is that a flexible exit mechanism can be created under the articles of association, which avoids (possibly time-consuming, uncertain and expensive) court proceedings. All shareholders know in advance what they can expect, which can only benefit the rapid resolution of conflicts.
Even shareholders who are unable to demonstrate any valid reasons justifying recourse to the traditional dispute resolution procedure, can still leave the company with this exit option, and thus do not remain ‘imprisoned’ against their will. In this sense, shareholders have every interest in the statutory implementation of this option.
However, there are two sides to the coin: majority shareholders who wish to exclude a minority shareholder for well-founded reasons will probably be more inclined to opt for an exclusion at the expense of the company’s assets than for an exclusion claim under the dispute resolution procedure. This way, the price (the separation share) that they will have to pay to the excluded partner will most likely be lower.
The exit option described in this article concerns one of the many statutory opt-in’s that will become possible under the new company law. Deminor will be happy to assist you with drafting your articles of association and/or a shareholders’ agreement.
Please contact Jan Baptist Cooreman for further information.