Change the purpose of the business
Verified 01 January 2024 - Directorate for Legal and Administrative Information (Prime Minister)
L'social object defines all the activities which the business is entitled to pursue, that is to say its main activity and its secondary, related or complementary activities. When the business wants develop a new activity unrelated to the core activity or to change completely the sector of activity, it is necessary to amend the object of the company in accordance with certain formalities.
Step-by-step approach
The object of the company is entered in the statutes from the creation of the company. A change in the object of the company (change of sector of activity or addition of a non-complementary activity) implies a amendment of the statutes and so a collective decision shareholders or members. The manner in which this decision is taken depends on the legal form of the business.
FYI
When the the new activity is complementary and falls within the scope of the social object, it is not no need to change statuses.
SARL
The decision to change the object of the company must be voted on and approved by the partners meeting in special general meeting (AGE)
If the status change is not approved at the first meeting, the partners are consulted again.
For LLCs formed before 4 August 2005
The decision must be adopted by the members representing at least 3/4 of the shares. There's no pitch of quorum required, a minimum number of participants present or represented at the AGE is not required.
For LLCs formed after 4 August 2005
The general meeting may validly deliberate only if the partners present or represented possess at least 1/4 of the shares (on first notice) and 1/5 of these (on second notice).
If not, a new meeting must be convened within 2 months.
If the quorum is met, the amendments must then be decided on at the 2/3 majority of shares held by the members present or represented.
LOCK
The decision to change the object of the company must be adopted and approved under the conditions laid down in the articles of association:
- Body empowered to take the decision : Governing Board, General Assembly
- Number of votes required
- Quorum required
In the vast majority of cases, the decision to change the object of the company is taken collectively by the partners. However, the statutes may provide for the decision to be taken by the President.
Warning
In the absence of any particulars in the Statute, the Agreement unanimous partners are required.
SA
The decision to change the object of the company must be voted and approved by the shareholders meeting in special general meeting (AGE) Any change requires a qualified majority of 2/3 the votes of shareholders present or represented.
CNS
The decision to change the object of the company must be voted on and approved by the partners meeting in special general meeting (AGE) If the status change is not approved at the first meeting, the partners are consulted again.
Any amendment to the Articles of Association shall require the agreement of the unanimity of the members (100%). However, the statutes may provide for certain decisions to be taken with the agreement of a majority (50%).
SCI
The decision to change the object of the company must be voted on and approved by the partners meeting in special general meeting (AGE) If the status change is not approved at the first meeting, the partners are consulted again.
Any amendment to the Articles of Association shall require the agreement of the unanimity of the members (100%). However, the statutes may provide for certain decisions to be taken with the agreement of a majority (50%).
Please note
The amendment to the articles of association must be reproduced in a report indicating the new business object. Statutes must be updated.
The change in the object of the company, recorded in the minutes of the meeting, must be published in a legal listing support within a period of1 month.
The amending notice shall contain following mentions :
- Mention of changes made: old and new object of the company
- Name of company of the business
- Shape of the business
- Address of registered office of the business
- Unique business identification number (Siren number)
- Amount of the share capital of the business
- The words ‘RCS’ followed by the name of the city of the registry where the business is registered.
Once published, a certificate of publication the notice of amendment is issued.
The change in the object of the company must finally be declared within the1 month, on the website of the company formalities office.
In the event of a change in the sector of activity, Bodacc (Official Bulletin of Civil and Commercial Advertisements) will make the change to the corporate purpose enforceable against third parties.
When reporting, you must submit the supporting documents following:
- Copy of the minutes deciding on the change in the object of the company: the document indicates the old and the new object of the company.
- Copy of the updated articles of association: dated and certified as original by the legal representative
- Certificate of publication of the notice in a legal listing support
The modification of the objects of the company may, under certain conditions, lead to a change in actual activity.
The change in actual activity means theaddition, of theabandonment or the transfer (e.g. divestment) of the activity which results in an increase or decrease of more than 50% :
- Either from turnover of the business
- Either by the average number of staff and the gross amount of the components of thefixed assets.
Please note
If the change in the object of the company resulted only in an increase of more than 50% staff numbers, without having the same impact on fixed assets, the change in real activity is not characterized. The evolution of these 2 elements is necessary.
To assess this positive or negative change in 50%, the amounts reported during the the exercise of the change in the objects of the company (or the following financial year) compared to the previous year.
Example :
A business carries on a hotel and restaurant business and, in the year ended 31 December of year N, generates a turnover of €500,000.
In February N+1, the business changes its corporate purpose and develops (in addition to or instead of) a new personal service activity.
For the financial year ended 31 December N+1, the business shall achieve a turnover of €800,000, or a increase of 60% compared to the previous year. The change in actual activity is characterized.
Where the change in real activity is proved, the change in the object of the company is treated for tax purposes as a cessation of activity.
It then induces tax consequences following:
- Immediate taxation of operating profit realized up to the date of the transaction
- Abolition of the right to carry forward deficits incurred until the same date
Please note
The business may request a approval of the minister responsible for the budget to avoid the loss of the right to carry forward deficits. Approval shall be granted if the change of the objects of the company is essential for the continuation of the activity which causes the deficits and for the sustainability of the jobs. The application for approval must be submitted front the achievement of the change of social purpose.
Immediate taxation of profits
The change in real activity makes immediately taxable the business shall be for the following amounts:
- Operating profits not yet taxed : results achieved from the end of the last effective tax period to the date of the change in the object of the company, increased where appropriate by the results of the previous period which have not yet been subject to tax.
- Earnings on tax deferral : tax-free provisions and deferred capital gains.
- Unrealized gains included in the assets : Gains resulting from the difference between the real and book values of assets.
As such, the business must make, at the company Tax Office (SIE), a declaration of results in a 60-day period as from the change in the objects of the company. This return is used to determine the amount of tax payable.
The return varies according to the tax system of the business: business tax (IS), income tax (IR) in BIC: titleContent, income tax (IR) in NBC: titleContent.
Company subject to SI
You must complete Form No. 2065 along with the annexes to the tax book.
Company subject to IR (BIC)
You must complete Form No. 2031 along with the annexes to the tax book.
Industrial and Commercial Benefits (BIC) Return [2024 Income Statement 2023]
Company subject to IR (BNC)
You must complete Form No. 2035 along with the annexes to the tax book.
Non-Commercial Profit Reporting (NTB) - Controlled Reporting Regime
However, businesses may benefit from attenuation according to which profits suspended from taxation and unrealized capital gains are not not immediately taxed.
The benefit of such mitigation shall be subject to compliance with 2 conditions :
- No changes shall be made to the accounting entries
- Taxation of these profits and capital gains remains possible under the new tax regime applicable to the business.
Abolition of the right to carry over deficits
In principle, a company subject to business tax (SI) that experiences a deficit in a fiscal year may defer deficit for to deduct it from the profits of its next financial year.
However, in the event of a change in real activity, the deficits incurred before the change in the object of the company are permanently lost and can no longer be counted against any subsequent profits.
Example :
A business carries on a hotel and restaurant business and, in the year ended 31 December of year N, generates a turnover of €1 000 000. It shall have at its disposal on that date a stock of deferrable deficits of €500,000.
In February N+1, the business changes its corporate purpose and develops a new personal service activity. The gross fixed assets and the average number of staff increased by no more than 50% in N+1 and N+2.
For the financial year ended 31 December N+1, the business shall achieve a turnover of €1 200 000 for taxable profit of €300,000.
For the financial year ended 31 December N+2, it had a turnover of €1 800 000 for taxable profit of €400,000.
In N+1, the turnover of the business changed only by 20% in relation to financial year N. The change in real activity is not characterized. This will allow the company to set off its previous deficits against the full amount of its profit (500,000 - 300,000). It still has a reportable deficit of €200,000.
In N+2, the turnover of the business changed from 80% in relation to financial year N, the change in real activity is characterized and past deficits can no longer be imputed to profit-making. For that financial year, the business therefore has a taxable profit of €400,000 and the deficit of €200,000 is definitely lost.
Deficits remain chargeable against profits which are immediately taxable because of the change in actual activity.
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Assessment of the tax in the event of a change in the objects of the company