The Act of 10 August 2016 (the "Act"), modernising the Luxembourg Companies Act of 10 August 1915 as amended, introduces a formal legal basis for both the redemption of shares and the issuance of redeemable shares by a SARL. The Act also amends certain provisions regarding the redemption of shares by an SA. The amended rules will facilitate the implementation of management incentive plans and the buy-back of shares by listed companies.
1. Redemption of a SARL's shares
The issuance of redeemable shares by a SARL is subject to the terms and conditions set out in its articles, which must authorise redemption before the shares can be subscribed.
It should be noted that ordinary shares may be redeemed at any time with the consent of the relevant shareholders.
Redemption is subject to compliance with the equal treatment of shareholders principle and may not result in the nominal or par value of the outstanding shares, excluding treasury shares, falling below the minimum statutory share capital of EUR 12,000.
The managers must assess the consequences of redemption and may decide to withhold payment of all or a portion of the redemption price if paying the full price would likely cause the company to be unable to pay its debts as they fall due. Such a decision by management suspends, until further notice, the company's payment obligation to the relevant shareholders.
The voting and financial rights attached to the shares are suspended for as long as they are held by the company or a subsidiary (within the meaning of Article 309(2) of the Companies Act). The articles may authorise the management organ to cancel the redeemed shares and reduce the share capital accordingly, subject to the enactment of a notarial instrument within one month from the cancellation decision.
The new rules enhance legal certainty amongst contracting parties and protect third parties against unsound distributions by the company.
2. Redemption of an SA's shares
The Act introduces more flexible rules regarding the redemption of an SA's shares.
The redemption conditions are less stringent in the event of redemption for the purpose of distributing shares to the personnel of the company or its affiliates (within the meaning of Article 309 of the Companies Act). The financial assistance rules are also not applicable to the acquisition of shares by or for the personnel of a company or its affiliates.
While previously the redemption of shares was subject to compliance with the equal treatment of shareholders principle, the Act now clarifies that this requirement may be waived if the shareholders unanimously agree to do so.
Furthermore, listed companies may buy back their shares on the market without making an offer to all shareholders.
As before, the voting rights of treasury shares are suspended, but the Act now authorises the board to suspend the dividend rights attached to such shares as well. In this case, the company can either reduce its distributable profits by the amount attributable to the treasury shares and set this amount aside until the shares are transferred or allocate it to the shares whose rights are not suspended.
The amended rules will facilitate the implementation of management incentive plans as well as the buy-back of shares by listed companies. They also provide greater flexibility when it comes to determining the financial rights attached to own shares.