The Code of Companies and Associations (CCA) also provides some important new points for foundations.
The CCA not only replaces the existing Companies Law; it also repealed the Non-Profit Associations, Foundations and European Political Parties and Foundations Law of 27 June 1921.
The earlier reform of enterprise law – inter alia, via the abolition of the Companies Law – profoundly affected existing associations and foundations. For instance, the distinction between trader and non-trader was eliminated, and the general concept of the "enterprise" was introduced for these entities too.
In this contribution, we discuss in more detail the implications of the new CCA regime for existing and future foundations.
1. No fundamentally new features
Although the new CCA slightly simplifies and reformulates the definition of a foundation (stichting), it adds no fundamentally new features. So, the CCA makes no change or innovation here.
Thus, a foundation will still be a legal entity without members constituted by a legal act of one or more founders.
As from time immemorial, its capital will be used to realise a disinterested aim, which forms the framework of all of the foundation’s activities.
As with a Non-Profit Association , there is a strict ban on payment of pecuniary advantages, which can only be deviated from if such payment takes place in the context of the disinterested aim.
Of course, public foundations can still be constituted, provided they focus on the achievement of a work of a philanthropic, ideological, religious, academic, artistic, educational or cultural nature.
2. But a few major changes
Although no fundamentally new features were introduced, there are a number of changes relating to foundations, which must be considered.
It is noticeable that these changes largely reflect the rules laid down for companies and associations, and that, here too, all legal entities-enterprises are placed on an equal footing.
We summarise these changes below:
- As with the articles of association of companies and associations, the articles of association of a foundation must indicate the region in which the foundation’s registered office is located.
This stipulation is laid down on pain of nullity, and is therefore important. If this stipulation is not fulfilled after 1 January 2020, in principle, any interested party can request that the foundation be declared null and void.
In principle, an alteration of the articles of association is required. However, if this alteration is not made, and someone requests that the foundation be declared null and void, a regularisation period can be requested.
But this adaptation must definitely be made at the very next alteration of the articles of association.
- The terminology of some provisions is adapted: thus, "the management body" replaces "the Board of Directors", and each reference to the Non-Profit Associations, Foundations and European Political Parties and Foundations Law of 27 June 1921 (hereinafter "A&F Law") is replaced by a reference to the CCA.
This must be adapted at the very next alteration of the articles of association.
- The CCA also provides one-man management for foundations, (where previously a board of directors of at least 3 directors was compulsory). However, one-man management is a possibility and not an obligation. This makes the foundation a more practical instrument for family asset planning.
So, the articles of association need not be adapted to comply with the CCA, except when actually opting for one-man management.
- For foundations which provide specific rules in the event of a legal entity being appointed director, the CCA introduces a fundamental change, similar to that for companies and associations.
A permanent representative of a legal entity is no longer able to "de-duplicate" himself, and thus, can no longer sit on the managing body of the foundation, both in his own name and as permanent representative of a legal entity-director, at the same time.
- As regards the liability of directors, the CCA provides a more extensive liability regime for directors.
Henceforth, the directors of a foundation will be subject to the same level of liability as the directors of companies and NPAs.
In many cases, this will not require an adaptation of the existing articles of association, because this regime is of compulsory law (and even of public law), and the existing articles of association do not generally contain incorrect provisions regarding this point.
However, it is extremely important to pay the necessary attention to this when management decisions are taken, and the management body (or each individual director) would be well advised to take out adequate liability insurance.
- The CCA has introduced a new, generalised arrangement for conflicts of interest of directors, which also applies (applied) to associations and foundations.
The conflict of interest rule is of compulsory law, and will always apply, even if articles of association are not adapted to include it.
It would be useful for foundations to adopt the (stricter) rule of the CCA at the next amendment of the articles of association, to avoid misunderstandings arising at its implementation. After all, in certain situations, the management body uses the articles of association as a guideline on this subject.
- The concept of day-to-day management is laid down by law.
Although not necessary, it may be useful to also include this legal description in the articles of association. In the event of doubt, these articles of association will serve as a guideline for categorising the nature of some actions as day-to-day management or not.
In summary, we can state that the Code of Companies and Associations (CCA) introduces a number of new points which are also important for foundations.
Only the compulsory mention of the region in which the foundation’s registered office is located, is stipulated on pain of the foundation being declared null and void, and may in itself justify an alteration of the articles of association. However, we regard the chances of a foundation being declared null and void for that reason, as minimal. And if this did occur, a regularisation period could still be permitted.
At any event, all of the compulsory provisions of the CCA (directors’ liability regime, permanent representatives, conflicts of interest, etc.) are already applicable from 1 January 2020, even if the articles of association are not altered. In addition, the supplementary provisions of the CCA enter into force on the same date, if the articles of association do not provide otherwise. In principle, articles of association must indeed be adapted from 1 January 2024.