KPMG Start-up Lecture: Company Formation Legal and Tax Perspectives

Guest Lecture:
Company start-up
from a legal and
tax perspective
September 2013

© 2013 KPMG Tax and Legal Advisers, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Agenda
Tax
■ Accountancy
■ Determination of taxable base
■ R&D incentives
■ Financing
■ Foreign expansion
Company law
■ Introduction
■ Definition
■ Legal Forms
■ Setting-up a company
■ Commonly used forms
■ Corporate Bodies / Governance
■ Case Study
Q&A

4
Introduction: Why start with a company?
Four reasons to start with a company
- A company as a form of cooperation
- Cooperation between labor and capital
- Limitation of liability
- Tax reasons

5
Introduction: A company as a form of cooperation
No subordination - common goal

6
Introduction: Cooperation labor and capital
Interaction creativity - labor and capital

7
Introduction: Limitation of liability
Share capital VS personal liability

8
Introduction: Tax reasons
Individual taxation - Corporate taxation

9
Definition: What is the definition of a company ?
Article 1 Companies’ Code:
“A company shall be incorporated by an agreement pursuant to which two or more persons
agree to contribute something with as purpose to carry out one or more accurately described
activities and to give the shareholders a direct or indirect financial benefit.”

10
Definition: Constitutive elements
- An agreement
- Exceptions:
- E-BVBA
- NV after incorporation
- Purpose is to make profit
- Civil purpose / Commercial purpose
- Exception: social purpose
- In cash
- In kind
- Labor?
- Direct or indirect
- Important: Lion clause
Plurality Contribution
Profit Making Purpose Loss/Profit Participation
Article 1
Companies’
Code

11
Legal Forms
NO LEGAL PERSONALITY
Civil law partnership Maatschap La société de droit commun
Temporary partnership Tijdelijke handelsvennootschap La société momentanée
Silent partnership Stille handelsvennootschap La société interne

12
Legal Forms
LEGAL PERSONALITY
General partnership
Liability of partners for debts of
the company
Vennootschap onder firma
(VOF)
Société en nom collectif (SNC)
Ordinary limited partnership
Liability of the general partner
for debts of the company
Commanditaire vennootschap
(Comm. V.)
Société en commandite simple
(SCS)

13
Legal Forms
LEGAL PERSONALITY
Private limited liability company Besloten vennootschap met
beperkte aansprakelijkheid
(BVBA)
Société privée à responsabilité
limitée (SPRL)
Cooperative company without
limited liability
Cooperative company with
limited liability
Coöperatieve vennootschap
met onbeperkte
aansprakelijkheid (CVOA)
Coöperatieve vennootschap
met beperkte aansprakelijkheid
(CVBA)
Société coopérative à
responsabilité illimitée (SCRI)
Société coopérative à
responsabilité limitée (SCRL)
Public limited liability company Naamloze vennootschap (NV) Société anonyme (SA)
Limited partnership with a share
capital
Commanditaire vennootschap
op aandelen (Comm. VA)
Société en commandite par
action (SCA)

14
Legal Forms
LEGAL PERSONALITY
European company Europese vennootschap (SE) Société européenne (SE)
European cooperative company Europese coöperatieve
vennootschap (SCE)
Société coopérative
européenne (SCE)
Agricultural partnership Landbouwvennootschap (L.V.) Société agricole (S. Agr.)
(European) Economic interest
grouping
(Europees) Economisch
samenwerkingsverband
((E)ESV)
Groupement d‘intérêt
economique (Européen) (GIE
(E))

15
Setting-up a company

16
Think smart… act smarter!

17
Requirements:
- Financial plan (liability!)
- Deed of incorporation
- Share capital / bank account
- Registration of the company in the crossroad bank for enterprises
- Application VAT-number
- Registration company with a social security fund
- Registration directors with a social security fund

18
Commonly used forms: characteristics
Private limited liability company (BVBA)
- One or more founders (E-BVBA)
- Minimum capital:
- € 18.550,00
- paid up with one SH: € 12.400,00
- paid up with two SH: € 6.200,00
- in any case pay up 1/5th per share
- Notary deed of incorporation
- Conditional transition of shares
- S-BVBA?
Public limited liability company (NV)
- Two or more founders
- Minimum capital:
- € 61.500,00
- paid up € 61.500,00 at least
- in any case pay up 1/4th per share
- Notary deed of incorporation
- Free transition of shares ↔ shareholders agreement
- More flexible financing techniques:
- Warrants
- Convertible bonds
- Solicit funds from the public

19
Commonly used forms: characteristics
Private limited liability company (BVBA)
- Manager(s) (Zaakvoerder(s) – Gérant(s)):
- One or more managers
- Possibility of Board of managers
- Duration mandate: definite or
indefinite
- Statutory appointment
possible
Public limited liability company (NV)
- Directors (Bestuurders – Administrateurs):
- Minimum three directors (exception: two
directors in case of ≤ 2 shareholders)
- Board of directors
- Duration maximum: 6 years
- Ad nutum dismissal

20
Corporate bodies governing the Public Limited Liability Company
- At least 3 directors
(Exception: 2
shareholders)
- Residuary powers
- Convene the
General Meeting of
Shareholders
-Conflicts of
interest
- Explicit powers
in Companies’
Code or articles of
association
- Approval annual
accounts
- Discharge of
directors
- Amendments to
the articles of
association
- Needs to be
foreseen in the
articles of
association
- Transfer of powers
by the board of
directors (exception
general management)
- At least 2 persons
- Needs to be
foreseen in the
articles of
association
- Can be a director,
but also a non-
director
- Daily management

21
Corporate Governance
- Anglo Saxon approach:
organization of relationship between owners & managers of the company:
- Separation of ownership & control
- Protection of the minority shareholders
- Creation of Committees, Non-Executive directors,…:
- Audit Committee
- Remuneration Committee: Golden Parachutes
- Nomination Committee
- Corporate Governance Statement
- Comply or explain
- Quid other stakeholders: Corporate Social Responsibility

22
Case study

23
Case study
- Start-up: Spin-off of Ghent University in 1997
- Founder: Thierry Bogaert (CEO)
- Employees: 250
- Sector: Agricultural Biotechnology
- Worldwide activities: Belgium - USA - South-East Asia
- Products: Pesticides – agrotechnology - crop seeds
- Legal form: Public limited liability company (NV)

24
Case study: Timeline
1997: Start up as Spin-Off of UGent
- Initial investors: Gimv and AIST (Agency for Innovation by Science and Technology)
- 1999: FMC Corporation Partnership
- 2003: Sumitomo Chemical Company Partnership
- 2004: Monsanto Partnership – Pioneer Hi-Bred (2004-2008) Partnership
- 2005: IPO at Euronext Brussels - successfully raised more than 33 million euro
- 2009: Leads agri Partnership
2012: Syngenta (Swiss Biotechnology company) takeover-bid for an amount of 403
million euro

25
Case study: Shareholdership

26
Case study: Stock price 2005 - 2012

28
Accounting result as starting point
The starting point for determining taxable income are the financial statements and
accounting result
■ In principle, all Belgian companies are obliged to keep (some kind of) financial accounts
■ Needs to be coherent and documented so that tax authorities can verify

29
Balance sheet - liabilities
To start a company, funding is necessary
■ Share capital
■ Debt, such as
– Shareholder loan
– Bank loan
– WinWin-loan (only for Flemish SMEs)
 These resources compose the ‘liabilities’ side of the accounts
 Interaction (Belgian) tax law
 Notional interest deduction on equity
 Interest cost on debt

30
Balance sheet - assets
With these resources, operations can be funded and the necessary assets can be
developed and acquired
■ Non-current assets
– Tangible fixed assets
■ Land/buildings
■ Machinery and equipment (computers etc.)
■ ...
– Intangible fixed assets
■ Patents
■ ...
■ Current assets
– Accounts receivable
– Stock
– Cash
 These assets compose the ‘assets’ side of the accounts, used in running the business

31
Income statement
Running the operations leads to revenues and expenses
■ Revenues
– Business income
– Financial income
■ Expenses
– Goods & Services
– Salaries
– Depreciation
– Financial costs
■ Difference = accounting result
 Profit & Loss account

32
Link between accountancy and taxation
Primacy of accounting legislation
■ Accounting rules are applicable for taxation unless the tax legislation provides an explicit
deviation
■ Accounting law = basis for taxation
Taxable income is determined on the basis of the income statement
■ However: Taxable base ≠ accounting result!
■ Corrections on net income

33
Determination of taxable base

34
Foreign expansion and taxes
■ Taxable presence in foreign jurisdiction?
– Provision of services or negotiations of contracts abroad
– Joint venture / partnership
– Local company or branch
■ Tax treaty between Belgium and foreign jurisdiction?
– Purpose is avoidance of mitigation of
double taxation on same income in Belgium and
abroad

35
Tax attention points regarding funding
Debt (loans)
■ Interest remuneration: in principle tax deductible
Equity (capital)
■ No interest remuneration, but dividends  not tax deductible
■ But notional interest deduction possible in Belgium
Thin capitalization rule
■ If intercompany debt exceeds 5 times equity
 interest is not tax deductible without requalification in dividend
■ Requalification of interests into dividends
– Loans by individuals who are shareholder of the company (or the spouse or the minor
children of these persons) and by individuals or foreign companies being a director if these
exceed the equity

36
R&D tax incentives
80% Patent Income Deduction (PID)
■ 6,8% income tax on qualifying patent income
■ Intellectual Property (IP) development and overall operational expenses: fully deductible
■ For SME’s, the condition of research center constituting a branch of activity is abolished
Wage withholding tax exemption
■ For researchers employed: 75% exemption of the wage withholding tax due the tax authorities
(as from 1 July 2013: 80% exemption)
Increased investment deduction
■ Only for assets related to R&D
–One-off deduction: 14,5% of acquisition or investment value
–Spread over depreciation period: 21,5% of the depreciation amount
■ Alternative: R&D tax credit
–Refundable if not effectively used after five consecutive assessment periods
■ Full tax exemption qualifying R&D subsidies (e.g. IWT)

Thank you
Presentation by
Gert Cauwenbergh
gcauwenbergh@klaw.be
+32 2 708 49 85
Koen Van Ende
kvanende@kpmg.com
+32 2 708 36 72
Thomas Zwaenepoel
tzwaenepoel@kpmg.com
+32 2 708 38 61

© 2013 KPMG Tax and Legal Advisers, a Belgian civil
CVBA/SCRL and a member firm of the KPMG
network of independent member firms affiliated with
KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through
complexity” are registered trademarks or trademarks
of KPMG International Cooperative (“KPMG
International”).

KPMG Start-up Lecture: Company Formation Legal and Tax Perspectives

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