Non-profit or company: how to choose the right structure?

Ready to start your new business? There are several possible legal forms, including a non-profit organisation (NPO). Why choose this legal structure? What criteria should guide your choice? Here is everything you need to know.

If you are not a lawyer, it is not always easy to identify the "right" legal form to regulate your activities and best meet your goals. A new Companies and Associations Code (CAC) went into effect on 1 May 2019 to simplify matters.

What are some of the important changes since that date?

• The number of company types has been greatly reduced. Indeed, many company types have disappeared, leaving only the ordinary limited partnership, the limited liability company (SRL), the public limited company (SA), the cooperative society (SC), the partnership (S.N.C.), the limited partnership (S. Comm.) and the European legal forms (European company, European cooperative company and the European economic interest grouping).
• NPOs can now carry out commercial and industrial activities without any limit, provided that these activities are carried out with the aim of obtaining the resources necessary to finance their disinterested object;
• The Company with a Social Purpose has disappeared, while the Cooperative Company has "recovered" its original specificity based on the cooperative model.

Despite this simplification, how do you know whether you should opt for an NPO or a company? And if you opt for a company, which corporate form should you choose: a Private Liability Company or a Cooperative? (the most common forms, the others being reserved for more specific projects)?

What is a non-profit ?

Founded by a minimum of two members, the non-profit must pursue a non-profit-making objective (its social object), but is now authorised to carry out commercial activities without any limits.

It is therefore a company "almost" like any other, registered with the Crossroads Bank for Enterprises, which can:

• go bankrupt;
• use the provisions of insolvency law;
• and the law on directors' liability.

What makes the non-profit unique? It is absolutely forbidden from distributing profits to its members or directly or indirectly procuring any patrimonial benefit for its founders, members or directors.

Find more information about the functioning of a non-profit in this article.

Non-profit our company : what are the differences?

The purpose and distribution of profit

This is THE fundamental difference. As explained above, for an NPO, profit is allowed but its distribution is not. This is what makes it so different from a company, such as a private liability company (PLC).

You should therefore choose non-profit status if your goal is to use the profits from the association's activities for selfless purposes, within the framework of the corporate purpose stated in the articles of association.

But there are other differences between non-profits and companies, notably of a financial, tax and administrative nature.

The minimum capital

Unlike the public limited company, the legislation does not impose a minimum capital requirement for the formation of an NPO. It should be noted that since the entry into force of the new Companies and Associations Code in 2019, the incorporation of a limited liability company (SRL) or a cooperative society (SC) no longer requires a minimum capital either.

Of course, this does not mean that a non-profit does not need funds to pursue its non-profit purpose and survive. Generally, its financing comes from four sources:

• its members and third parties, through membership fees, donations, sponsorship, etc.;
• public subsidies;
• the non-profit's own activities, whether commercial, events, fundraising, etc.;
• bank credit.

Taxation

Unlike companies, a non-profit, which does not carry out lucrative commercial activities, can enjoy a more advantageous tax regime.

In fact, it is not subject to corporation tax (Isoc) - which is levied on its profits - but to the tax on legal entities, which is levied on:

• income from real estate (rental income, cadastral income, certain capital gains, etc.);
• certain types of movable income (e.g. investments).

This advantage does not apply to non-profit organisations that carry out profit-generating commercial activities (sale of goods and services), because in this case they are subject to the corporation tax system (ISOC)

Funding 

The source of funding can also influence the business form of your project.
It is a good idea to consider where you intend to apply for/obtain funding. The not-for-profit form is not the most appropriate for those who do not want to rely on subsidies, for example. 

Why not a cooperative?

For a project with a social or solidarity objective, the question of the legal form often arises between non-profit and Cooperative Company (SC). The latter legal structure - on the basis of the cooperative model - makes it possible to share a common objective in order to meet the economic, social or cultural needs of the partners.

Like the non-profit, the CC is often found in the social and solidarity economy sector. In Brussels, the movement of cooperative platforms is also very active and many initiatives are emerging, consolidated and equipped by the Platform Coop Brussels structure.

In Belgium, there are three types of cooperatives:

• the Cooperative Company (CC);
• the CC accredited as a Social Enterprise (SE);
• the accredited SCES.

It is mainly the CC accredited as a Social Enterprise (SE) and the accredited SCES that are comparable to NPOs, due to their social purpose. But, despite their similarities, there are many essential differences between these forms of cooperatives and the NPO.

How to choose between non-profit and cooperative

Here are some important differences between these two legal structures:

The aim

The cooperative has an internal objective, that of satisfying the needs of its partners, who are its users or beneficiaries. It is therefore inward-looking and its activities are carried out for its partners.

In contrast, the NPO pursues a non-profit objective, which must not - and cannot - serve its members; it is therefore outward-looking and all its activities are developed to further the cause (its corporate purpose).

Constitution

A cooperative is constituted by a deed drawn up in the presence of a notary (a financial plan is also required), whereas a non-profit association can be constituted under private deed (in which case there are only publication costs). A notary and financial plan are not required.

The distribution of profits

If profits are made, the cooperative must first reinvest them in its project, but nothing prevents it from distributing dividends to its partners.

This is not allowed for the non-profit, since it cannot provide a direct or indirect patrimonial gain for its members.

Financing

The cooperative relies mainly on the contribution (financial, in kind and in industry) of its partners, as well as on bank loans. However, there is less emphasis on external sources of funding to maintain its autonomy and independence. This is an important feature in the world of cooperatives.

This is not the case for non-profits. In addition to the contributions of its members, associations generally finance themselves externally, through subsidies, donations, patronage, sponsorship, sales and contributions.

Memberships and departures

In a cooperative, membership is voluntary and open, which means that the partners must be able to enter and leave voluntarily and without hindrance, provided that they commit themselves and take on their responsibilities as members. Anyone who leaves a CC can also recover their contribution with a possible capital gain.

Whereas in a non-profit, admission conditions may be imposed and not every interested person has to be accepted, even if the conditions are met. In addition, the departure of a member does not de facto imply the reimbursement of their contributions.

Governance

If you want democratic, participative governance, the cooperative's articles of association will generally be more detailed than those of other structures 

Volunteering

With some exceptions, and unlike the non-profit, the cooperative cannot use volunteers.

From association to company : what about changing along the way ?

If you start your activities within the legal framework of a non-profit, can you change the legal structure to, for example, a Private Liability Company (PLC)? Since the reform of the Code of Companies and Associations (CSA), not everything is possible. For example, you cannot change from an ASBL to an SRL. 

The Companies and Associations Code (CAC) states that ASBLs can only be transformed into cooperative companies approved as social enterprises. There are two possible forms:  

• the CC approved as a social enterprise ("CC approved as an SE"); its main purpose is not to benefit its shareholders. 
  These are the conditions to be met:
  • The main aim is to generate a societal impact for people, the environment or society;
  •  Any asset benefit distributed to its shareholders, in any form whatsoever, may not exceed a certain interest rate;
  • On liquidation, the remaining assets must be allocated in a way that corresponds as closely as possible to the purpose of the approved social enterprise.
• CC approved social enterprise ("approved SCES"). In this case, the cooperative society is approved both as a genuine cooperative society and as a social enterprise.

Steps towards transformation

1. The ASBL's Board of Directors draws up a report explaining the conversion project, enclosing the draft articles of association of the approved cooperative society, a statement of the ASBL's assets and liabilities and a report from the ASBL's auditor (or chartered accountant or company auditor).
2. Proposed changes must be clearly stated in the notice convening the AGM, and two-thirds of the members must be present or represented at the AGM.
3. Any amendment requires two-thirds of the votes cast, except for amendments to the object or non-profit nature, which require four-fifths of the votes cast.
4. The articles of association of the SCES or CC approved as a SE are drafted. 
5. The transformation is recorded in a notarial deed before a notary.
6. The deed and articles of association are filed and published in the Belgian Official Gazette.
7. The ASBL's net assets must be included in the new company's annual accounts and may not be distributed. Be careful not to overestimate this amount (this is the responsibility of the ASBL's directors). In the event of dissolution, this amount must be transferred to a structure whose purpose is as close as possible to that of the company.
    

Please note that while an ASBL requires a minimum of two members, a cooperative requires a minimum of three committed members.

You can only transform your non-profit into a CC accredited as an ES or an accredited SCES. This change is also possible in the other direction, since a CC accredited as an ES or an accredited SCES can change to the status of a non-profit.