Part II: Associations

The most fundamental change for not-for-profit associations that is brought along by the new Code consists of the abolition of the restriction on economic activities. Associations will be allowed to engage in any type of activities, without limitation, provided these are well-defined in the association’s bylaws.

Consequently, the distinguishing criterion between not-for-profit associations and companies will be the possibility to distribute profits. While the final goal of a company is to distribute profits to its shareholders, an absolute prohibition to do so applies to not-for-profit associations.

Before starting to engage in significant economic activities, associations should, however, take into account the impact thereof on a number of areas. In particular, the impact on income taxation (corporate income tax vs. legal entities tax) and volunteer work (nonfulfillment of the conditions for tax-free volunteer compensation) should be considered.

The new Code also introduces a number of changes in terms of the composition and functioning of the governing bodies of associations. The most notable changes concern the reduction of the minimum number of full members from 3 to 2, the abolition of the (obsolete) rule that the number of directors should be inferior to the number of full members, the introduction of the possibility of cooptation of board members and the obligation for boards to comply with a conflict of interests procedure.

One of the goals of the new Code is to subject associations and companies to the same (or similar) legal regimes in areas where there is no good reason to have differing regimes. Most of the commonly applicable provisions can be found in Book II (Provisions common to all legal entities) of the new Code and more particularly relate to directors’ liability, nullity and dissolution and liquidation. In these areas, the current NPO Law of 1921 shows considerable gaps.

In relation to restructurings of (international) associations and foundations, the new Code provides for a new “merger and demerger” procedure. The current “merger” procedure, consisting of a contribution without remuneration of a universality (“inbreng om niet van een algemeenheid” / “apport à titre gratuit d’universalité”), continues to exist alongside this new procedure, subject to a few limited changes.

Under the new Code, it will also become possible for not-for-profit associations to convert into international not-for-profit associations and vice versa. The conversion option from “vzw”/“asbl” into “ivzw” /“aisbl” may proof useful in circumstances where it is essential – e.g. in order to be eligible for (EU) funding - to obtain legal personality at short notice.

Finally, the new Code sets out a brand new regime for outbound and inbound crossborder conversions of (international) associations and foundations. In combination with the abandonment of the real seat theory, this will increase Belgium’s attractiveness vis-à-vis foreign not-for-profit entities (e.g. UK charities against the background of Brexit) envisaging a transfer of their legal seat to continental Europe.

In next week’s newsletter, we will discuss the main changes brought along by the new Code to the private limited liability company (“besloten vennootschap” / “société à responsabilité limitée”).

Your contacts of the Curia Corporate and Not-for-profit team:

Yvette Verleisdonk, partner (yvette.verleisdonk@curia.be)

Sarah Verschaeve, partner (sarah.verschaeve@curia.be)