On 1 July 2015, the Luxembourg Ministry of Labour, Employment and the Social and Solidarity Economy introduced a new draft bill no. 6831 aimed at creating social impact companies – “Société d’impact sociétal” (“SIS”).

Background

With an increasingly instrumental role in promoting social inclusion, providing alternative sources of employment for marginalised social groups and contributing to growth, social entrepreneurship is seeing a boost in the European Union, notably through the entry into force of Regulation (EU) No. 346/2013 on European social entrepreneurship funds and the creation of the “Social Impact Accelerator” funds by the European Investment Fund ("EIF") in May 2013.

Currently, Luxembourg companies with a social or societal purpose have to choose the legal form of a non-profit organisation or a commercial company. The challenge they face is that, on the one hand, according to prevailing case law, a non-profit organisation is not able to legally incur a professional activity and therefore cannot become party to, for example, a public contract and, on the other hand, legal forms of commercial companies, whose purpose is to make a profit, are incompatible with the spirit of socially engaged enterprises.

With the forthcoming transposition of Directive 2014/23/EU on the award of concession contracts and Directive 2014/24/EU on public procurement, which allow EU member state public authorities, under certain conditions, to award concessions to entities with a social and professional integration purpose, the Luxembourg legislator sees an opportunity to rethink the legal position of socially engaged enterprises.

The bill

An SIS will be able to have a divided capital, split into two types of shares: the new “impact shares” and the “return shares”, with the “impact shares” constituting at least 50% of the capital. Benefit generated through the “impact shares” will go to the “impact reserve” of the SIS to secure its funding and will not be allowed to be paid out as dividends.

To avoid unfair competition between an SIS and other commercial companies, only an SIS whose capital is constituted entirely of “impact shares” will be able to perceive tax deductible donations as funding.

An SIS will not be allowed to enter into any loan contracts with its shareholders.

A compensation policy will have to be deposited and communicated to the competent minister. The remuneration of SIS managers will be limited to a maximum of five times the social minimum wage.