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The International Association:
New Belgium Legislation
The Law of 2nd May 2002 concerning the "not-for-profit association", the "international association" and the "foundation" was published in the Belgium official gazette of 18th October 2002. This new law aims at modernising, among others, the legal rules for International Association, created by the Law of 1919, and to adapt them to new concepts of European and Belgian law.
I. A new perspective
The rules that are applicable to the "International Association" have been influenced by the new legislation for the not-for-profit association in Belgium (ASBL or VZW). The legislator, however, has made a number of important differentiating rules. The most important change is the name, which officially is now International Not-for Profit Association (INPA) or in Dutch: "internationale vereniging zonder winstoogmerk-IVZW".
The International Association was rather popular in recent decades. It is said that about 2,700 such associations have been founded, of which two-thirds are still active.
The significant increase of this legal instrument was caused in particular by the move of European Union institutions to Brussels. The total revenue of the active International Associations is estimated at €1bn, 75% of which is spent in Belgium. The importance is further underlined by the contribution to employment (more than 8,000 people).
II. What is an INPA about?
Many associations with an international membership have adopted the INPA form. They are mainly based in Brussels. In most cases they are interest groups or lobby associations, which are active in the context of the European and other international institutions. Traditionally they are federations of national associations from various countries, whereby they function as a platform for consultation and exchange of information. Some examples are: associations that establish a knowledge centre, trade unions, and many sector associations consisting of companies from the same industry or representing a product and services value chain. In addition, several international professional societies play an important role in cultural, scientific and research domains.
There are several reasons for choosing the INPA. First of all, its name gives it an international flavour. Moreover, as it is a legal entity, it can exercise rights and obligations and has own assets and liabilities. The members and directors are in principle not personally liable for the association's debt and liabilities. Finally, the INPA has to be formalised by Royal Decree. This means a certain quality label and aura.
III. Rules for the INPA
The legislator stipulates the INPA can only have goals that are in line with its not-for-profit status. The new law no longer refers to a "charitable, religious, cultural, or education goal". The new description is certainly less restrictive and it is anticipated that more association initiatives will increasingly incorporate in an INPA.
The INPA is not allowed to run a commercial business or to provide net benefits to its members. It implies that the assets or net revenues, even in the case of dissolution, may not be distributed among members, directors of the Board or third parties.
The INPA has to be open to Belgian and non-Belgian nationals. Contrary to past legislation, the INPA is no longer obliged to have Belgian members. That provision was ruled incompatible with Article 6 of the Treaty of Rome.
Because the INPA is a Belgian legal entity, its seat has to be in Belgium. However, the association's secretariat or administrative seat may be based abroad. Therefore, INPAs can benefit from the benefits of the legal statute even though they could be mostly active abroad.
IV. Formation
Two members can form an INPA. They may be natural persons or legal entities. The statutes have to contain at least seven clauses including the following:
1) Name and address
2) Detailed description of the purpose, goals and activities
3) Rules about members, member categories
4) Rights and obligations of the members
5) Competences and working rules of the General Assembly
6) Governance rules, including at least the competence and working of the Board of Directors. The Board leads the organisation internally and represents the association vis-à-vis third parties. These powers can be delegated to one or more Board members acting severally or jointly.
7) Conditions about changing of statutes and rules for dissolution, liquidation and winding down of the association's assets
The above clauses have to be detailed and consistent, and formulated in accordance with legal requirements. In practice the founding members (or their lawyer) write the statutes of the INPA. The statutes can be formalised by the act of a public Notary – it is not mandatory.
The statutes have to be submitted to the Belgian Ministry of Justice in order to obtain legal personality. The procedure includes a submission to a special department of the Ministry, which will check the draft statutes for legal compliance. Once reviewed, the founders sign the formation documents. They are again submitted to the Minister for legitimisation, resulting in a Royal Decree and legal personality. An abstract of final documents is published in the Belgian Official Gazette: including the statutes, the identity of Board members, and the rules about representation of the INPA to third parties
V. Publication Requirements
The law contains new rules about the submission of a file with the Ministry of Justice. This applies to INPAs as well as associations formed under foreign law (abroad) but with a centre of activity in Belgium. The file has to include:
-- Statutes and changes thereof;
-- Integral text of the statutes;
- Any acts of the appointment, dismissal and termination of the Board members;
- Decisions about winding down or dissolution;
- Annual accounts
Most decisions have to be published in the Belgian gazette. The above rules are essential in case the INPA would be in Court, as non-compliance would lead to suspension of the proceedings.
VI. Accounts, Administration and Audit
The law establishes new rules for the administration, the budget and accounts, the audit and publication of the annual report.
As a rule the smaller INPA can adopt a simplified accounting system, consisting of "cash accounting" and resulting in a Statement of receipts and expenditures and the Notes. The model is defined by Royal Decree 26th June 2003.
Large INPAs are required to follow the accounting rules of corporations. It applies to INPAs, which at the end of a fiscal year reach the amounts of two of the following thresholds:
- An annual average of 5 employees (Full-Time equivalents)
- Total revenues of € 250,000 excl. VAT (not counting extra-ordinary revenues)
- Balance sheet total of € 1,000,000.
Every year the governing body of the INPA has to approve the annual accounts of the year and the budget of the next year. The larger INPAs (as above) will need to comply with the Belgian Accounting Law, which is for the moment still in progess.
A statutory audit was not required up to now. However, several international associations with corporations as members (trade associations) established internal rules requiring the appointment of external auditors, who for the benefit of all members, carried out an audit of the financial state of the association.
As the new law comes into force a new regime starts to apply for the largest INPAs. These are the INPAs that, counted over the fiscal year ended, have an average of 100 employees "or" surpass the amounts of two of the following thresholds:
- An annual average of 50 employees (Full Time equivalents)
- Total revenues of € 6,250,000 excl. VAT (not counting extra-ordinary revenues)
- Balance sheet total of € 3,125,000.
The General Assembly of these largest INPAs have to appoint one or more auditors to check the financial status, the annual accounts and the regularity of transactions.
VII. Entry into force
The Law of 2nd May 2002 will enter into force once the decisions for implementation have been published. One has already been published and the other is expected at the end of 2003. Some of those decisions will enter into force immediately. For other rules, such as file of the association, administration, annual accounts and audit, enforcement will start in the accounting period starting 1st January 2004. INPAs that have been established before 1st January 2004 may start to adopt those rules in the accounting period starting 1st January 2005.
By Luc Stolle
Advocaat aan de Balie te Gent
Peeters Advocaten-Avocats
and
Alfons Westgeest
Partner
Kellen Europe, Brussels