Are “common rules for all corporate forms” desirable or feasible?

Book II of the Belgian Company Code and the dangers of recycling antique legislative material

1.

Art. 1832 – 1873  of the Code civil (Title IX of Book III) dealt with the “contract of partnership” (du contrat de société). The articles outlined the rules for the unincorporated partnership.

In Belgium this type of partnership is currently known as “société de droit common” or “maatschap”. The French form which is currently closest to the société of the Code civil is the “société en participation” (and not the “société civile” as is a common misconception). Like the société of 1804, the “société en participation” does not need to be registered nor is it a legal person.

In addition to regulating unincorporated partnerships, the provisions on the contrat de société where used by judges and legal authors as a kind of “common law” for all other corporate forms (P. VAN OMMESLAGHE, “Le droit commun de la société et la société de droit commun” in Aspects récents du droit des contrats, Ed. JBB, 2001, 157, nr. 2). They were the hope of the legal counsel or judge when confronted with a legal lacuna for another form. They could, if everything else failed, always shop around in the Code civil looking for a rule (or a principle hidden behind a rule) which could serve their purpose.

The two-fold function of art. 1832-1873 lives on in the current Belgian Company Code. In the codification of 1999 the legislator took its scissors and cut art. 1832-1873 from the Code civil. One part was pasted in Book II on common rules for all corporate forms. Another part was pasted in Book III on the rules for unincorporated partnerships.

2.

An important take-away of this: the current Belgian rules on partnerships, while ostensibly promulgated in 1999, are still a carbon copy of rules handed down by Napoleon in 1804. (An urban legend has it that the French-speaking members of the Belgian parliament complained about the poor French translation of the Dutch version of the articles on the partnership, overlooking the fact that the French version was the original text from the actual Code civil des français.)

A current reader of those rules should never lose sight of the antiquity of these rules. The further the origin of a text recedes in the past, the weaker the force of gravity the text exerts on current interpretation.

3.

The title of Book II – “common rules for all corporate forms” –  vastly oversells its significance. Its most important provision is art. 18 of the Belgian Company Code which holds that the provisions of Book II only apply to companies if they are compatible with the provisions in other Books or the “rules and customs of commerce”.

Book II does not contain a “common law” but a “residual law of last resort”.

In practice the only other corporate forms for which Book II is relevant are partnerships with legal personality governed by Book IV (such as the “partnership under a common name” or  the “partnership en commandite”). For corporate forms other than partnerships, Book II could easily disappear without changing much in their day-to-day workings. Where the “common rules” still are  relevant, they are often a quirky historic relic. Think: societas leonina.

Elsewhere we have argued that the notion itself of rules common to all corporate forms is something we believe to be feasible nor desirable (J. Vananroye & R. Foriers, “Een juridische zombie: de maatschap als kwalificatie voor een onbenoemd of feitelijk samenwerkingsverband”, TRV 2015, 770). A similar point has been made for American law by the late Professor Larry Ribstein in his highly recommended gem The rise of the uncorporation (p. 30-31). It makes him even doubt the desirability of having one legislative instrument for all corporate forms.

The differences between corporate forms overshadow their common features and issues. This makes a relevant body of common rules illusory (other than for mundane issues). It would even not be desirable to fit all corporate forms in one bed of Procrustes.

Important rules which are common to all corporate forms, are also common to other organizational forms, such as non-profits, estates or joint estates. Again, this disqualifies them as the material for a “common corporate law”.

Arguably the most important example of the latter are the rules on the dissolution of companies (or in the late 18th century terminology of the Code civil/BCC: the “end” of companies).

These rule are the crude expression of answers applicable to issues applicable to all organizations with entity shielding. These rules try to strike a balance between the protection of the going concern of the entity and the need for liquidity for the ‘owners’ and their often overlooked personal creditors. Joeri De Smet has convincingly argued in a post that the issues of continuity and dissolution apply to all “organizational contracts” (even if they don’t entail entity shielding).

As an example of such expansion of corporate rules is found in another post, where we argue that Belgian case-law increasingly applies the rules for companies on continuity and dissolution on non-corporate joint ownership.

4.

We see three takeaways for the current attempt to reform Belgian company law:

  1. Forget about a Book II-type set of common rules applicable to all corporate forms.
  2. Be careful about re-recycling language from the Code civil of 1804. After a comprehensive reform, we will no longer have the argument of “Don’t take the text to seriously; it dates from time of Napoleon” which now often – if only implicitly – is made when dealing with Books II or III.
  3. Do not forget that the rules on dissolution of partnerships have wide ramifications, for other corporate forms and far beyond the frontiers of company law.

Joeri Vananroye

 

Author: Joeri Vananroye

Professor of economic analysis of law (KU Leuven), attorney (Quinz)

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