Following the vote of a new law by the Luxembourg Parliament on 13 July 2016, the rules applying to SA and S.à r.l. companies have been modified and modernised, in line with the objectives of contractual liberty and shareholder safety.

The scope of the new law is extremely broad. It notably impacts the governance of SA and S.à r.l. companies, widens the type of shares that can be issued, clarifies the conditions applying to certain transactions (e.g. dividends distributions, transfer of seat, dissolution of the company), and creates a new type of contractually-based company, the SAS.

These recent changes bring better visibility to the corporate landscape on the legality of corporate mechanisms, comforting private decision-makers to resort to Luxembourg vehicles.

The new rules will become applicable in the coming weeks after publication of the law, which shall occur during the month of August. The articles of association of Luxembourg companies will have to be amended to comply with this new law, but existing companies will benefit from a 2-year grace period to amend their articles of association.

Below, we have provided you with a practical and detailed list of all the key changes introduced by the law.

We are confident that the new law will contribute towards making Luxembourg a safer and even more attractive jurisdiction for companies and investors and all our M&A/Corporate Luxembourg team remains at your disposal for further information.

Amendments applicable to all companies

Dissolution without liquidation

Implementation of a general rule providing for dissolution without liquidation when shares come to be held by a sole shareholder and all assets are transferred by law (art. 1865 bis).

Issuance of bonds

All companies are now allowed to issue bonds, including within the context of a public subscription. Convertible bonds become allowed in S.à r.l. (art. 11ter).

Validity of shareholders’ meetings

The action to request nullity of the deliberation is limited in time by a short six-month prescription. (art. 157).

Questions to the board

Possibility for one or several shareholders to ask a written question to the board of directors, and to obtain a written answer, if they represent together at least 10% of the share capital (art 154).

Usufruct of shares

Introduction of a legal framework applicable to usufruct and bare ownership of shares: precisions with respect to the rights attached to the usufructuary and the bare owner regarding share capital increase preferential subscription rights, depreciation of the share capital, voting rights, restrictions to transfers of shares in S.à r.l., and right to information (art. 154, 32-1bis, 32-3, 69-1, 73, 185bis, 189, and 198).

Clarification of certain rules applicable to the liquidation of civil and commercial companies

Applicability of rules of conflict of interest to liquidation of companies in SA and SE. Possibility for minority shareholders representing at least 10% of the share capital to require the convening of a general meeting during the liquidation (art. 141 to 148quarter).

Change of form of company

Implementation of a new process of conversion into another form of company which includes the preparation of interim accounts and the requirement of an auditor’s report on the net asset value of the company (art. 308bis-15 to 308bis-26).

Unconscionable clauses

Confirmation that agreements on shares, such as option share agreements, do not infringe per se the prohibition of pactes léonins (art. 1855 Civil code).

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Amendments applicable to SA and S.à.r.l.

Voting agreements

Recognition of the validity of a voting agreement under certain conditions, in particular the compliance with the corporate interest of the company. Prohibition of commitment to follow instructions of corporate bodies of the company (art. 67bis and 195bis).

Transfer of the registered office

The articles of association can allow the board of directors (without the need of a shareholders’ meeting approval) to transfer the registered office of the company within all the municipalities of the Grand Duchy of Luxembourg (art. 67-1 and 199).

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Modifications to the scheme of a public limited company (société anonyme or SA)

Capital structure

Minimum share capital

The minimum required capital to create SA is reduced from EUR30,986.69 to EUR30,000 (art. 26).

Issuance of shares below their par value

Authorisation to issue shares below their par value under certain conditions (i.e. a special report from the board of directors is required) (art. 26-5).

Preferential subscription rights of shareholders

Preferential subscription rights must be exercised at least within 14 days of the publication of the offer (art. 32-3 (3)).

Stock options

The granting of the stock options can be facilitated through an authorisation given by the articles of association to the board of directors. (art. 32-3 (5bis)).

Increase of capital other than cash

Confirmation that the conversion of convertible debt and the conversion of reserves and share premiums do not require an auditor’s report (art. 32-4).

Issuance of shares with different par value

Possibility to issue shares of different values, which confer a voting right proportional to the share capital percentage they represent (art. 67 (4)).

Beneficiary shares

Removal of the requirement of an auditor’s report upon issuance of beneficiary shares (fmr. art. 37 al.3).

Share transfer restriction

Confirmation of clauses of lock-up and right of first refusal subject to limitation to a certain period of time (ex. art. 37 (2) and (3)).

Future shares

Removal of the provisions which formerly forbade the trading of future shares or bonds (art. 43 al.1 and fmr. art. 37 (3)).

Non-voting shares

Removal of the restriction on the requirement that non-voting shares shall not represent 50% of capital shares.

Removal of the requirement for non-voting shares to have preferred dividend rights, subject to the obligation to specify the financial rights of the shares in the articles of association (art. 45 to 47).

Acquisition by the company of its own shares

Clarification that the acquisition offer should be made equally to all the shareholders of the same category, except for a listed company (art. 49-1 to 49-7).

Management

Conflict of interest

Several modifications to the rules regarding conflict of interest, including the rules applying to the person in charge of the day-to-day management (art. 57, 60, 60-2, 60bis-8, 60bis-18).

Action against the directors of the company

The action for liability of directors (action sociale) may now be exercised by a minority of shareholders representing at least 10% of the share capital, and no longer requires an approval of the general meeting of shareholders (art. 63bis).

Recognition of the possibility to create committees (comités)

Possibility for the board of directors to create new committees which carry out their activities under the board’s responsibility. The board decides on the scope of the powers that are delegated to them. (art. 54, 60bis-7).

Creation of an executive committee and of the position of chief executive officer

Introduction of the executive committee (comité de direction) and the chief executive officer (directeur général) as new corporate bodies.

The articles of association can authorise the board of directors to delegate them its powers of management, provided that this delegation does not include the general policy of the company or actions reserved to the board of directors by law (art. 60-1).

Written board resolutions

Possibility for the articles of association to authorise the board of directors to take decisions through unanimous written decisions (art. 64 (1)).

Election of the chairman

Election of a chairman of the board is no longer mandatory (art. 64bis).

General meeting of shareholders

Attendance list of the general meeting

In all SA, the obligation to establish an attendance list of the present or represented shareholders for all the general meetings (art. 67 (2)).

Postponement of the general meeting of the shareholders

In all SA, general meetings of shareholders can be postponed at the request of shareholders representing at least 10% of the share capital (art. 67 (5)).

Suspension of voting rights

The articles of association may authorise the board of directors to suspend the voting rights of any shareholder being in breach of the articles of association or its obligations (art. 67 (8)).

Holding of the general meeting of the company

Certain clarifications on the convening and the holding of the general meeting (art. 70).

Information of the shareholders

Shareholders’ access to information is reduced to eight days before the general assembly. The right of information is extended to every right holder in split-right shares (art. 73).

Issuance of bonds

Certain amendments to the rules of bonds issuance and representation, particularly the fact that the articles of association can prevent the bondholders from participating in the meeting and the removal of the rules of bond insurance by a random draw (art. 84 to 98).

Reduction of the net asset below half of the share capital

In the case of losses reducing the net assets below half or more of the share capital of the company, the board of directors or supervisory board shall issue a special report preparing actions to improve the financial health of the company (art. 100).

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Introduction of a simplified form of société anonyme (société par actions simplifiée or SAS)

Applicable scheme

Unless otherwise stipulated in the new law, rules applicable to an SA are generally applicable to an SAS (art. 101-108).

Governance

Improved flexibility in the designing of the governance rules in the articles of the association (art. 101-20 to101-24).

Transfer of shares

Shares of an SAS are tradable securities (actions) which may however not be issued to the public.

Transfers of shares made in violation of the rules stipulated in the articles of association are expressly declared null and void by the law, which is strengthening the enforceability of transfer restrictions stipulated in the articles (art. 101-19 and 101-26).

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Modifications to the scheme of the corporate partnership limited by shares (société en commandite par actions or SCA)

Permanent member representing legal entity

Designation of a permanent representative is no longer mandatory if a legal entity is an administrator (art. 107).

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Modifications to the scheme of the partnership and civil companies

New case of nullity

Requirement of the identification of the contributions in the deed of incorporation of sociétés en nom collectif (SNC), société en commandite simple (SCS) and sociétés civiles, failing which the company will be null (art. 4ter and 12ter).

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Modifications to the scheme of the cooperative company (société coopérative)

Liability

Possibility of establishing a société coopérative under an unlimited liability scheme or a limited liability scheme (art. 113).

Minimal number of shareholders

The minimum number of shareholders is decreased to two (art. 114).

Founders’ liability

Even if provided otherwise, founders of cooperative companies with limited liability bear a joint liability (art. 117bis (2)).

Beneficiary shares

Possibility of creating beneficiary shares. The articles of association shall determine the rights attached to these beneficiary shares (art. 127).

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Modifications to the scheme of a private limited liability company (société à responsabilité limitée or S.à r.l.)

Capital structure

Maximum number of shareholders

The maximum number of shareholders is set to 100 in a S.à r.l. If this threshold is exceeded, the company must be transformed within a year (art. 181).

Minimum share capital

The minimum required capital to create a S.à r.l. is reduced from EUR12,394.68 to EUR12,000 (art. 182).

Redeemable shares

Recognition of the possibility for a S.à r.l. to issue redeemable shares, the voting and dividend rights of which are freely determined by the articles of association. In the case of a hook participation, the voting and financial rights of the subsidiary in the parent company are suspended (art. 182).

Issuance of nominative beneficiary shares

A S.à r.l. is now allowed to issue nominative beneficiary shares (instruments that do not represent capital) which voting and dividend rights are freely determined by the articles of association (art. 182).

Company’s incorporation

The minimum mandatory content of the articles of association of S.à r.l. is now clearly defined in the law (art. 184 (1)).

Mandatory mentions in the S.à r.l. corporate documents

It is no longer required to mention the amount of share capital in the documents of S.à r.l. (art. 187).

Transfer of shares

The non-approval by the shareholders’ general meeting of the sale of shares to a non-shareholder may no longer result in the transferring shareholder being forced to stay in the company.

New rules have been introduced to allow the company to procure the purchase of all shares within a maximum period (art. 189).

Management

Board of managers

Express recognition by the law of the practice consisting in establishing a board of managers (art. 191bis).

Interim dividend distribution

Express recognition of the validity of the practice of interim dividend distribution under certain conditions provided by the law, particularly the drawing up of an interim financial statement showing sufficient distributable reserves. An auditor’s report is only required when the S.à r.l. has already appointed an auditor (art. 198bis).

Creation of an authorised share capital

Subject to the same conditions applying to SA companies (art. 32 (2)), the board of managers of a S.à r.l. has the power to increase the share capital within the limit of the authorised share capital (art.199).

Appointment of an auditor

In a S.à r.l., the threshold for the appointment of an auditor is set at 60 shareholders  (art. 200).

General meeting of shareholders

Clarifications on the shareholders’ meeting process

Recognition of the possibility to vote by correspondence or through videoconferencing.

New threshold of 60 shareholders for compulsory shareholders’ meeting instead of written circular resolutions (art. 193 and 196).

Suspension of voting rights

The articles of association may authorise the board of managers to suspend the voting rights of any shareholder being in breach of the articles of association (art. 195).

Classes of shares

An amendment to the terms and conditions of a class of shares requires a quorum and supermajority, not only with respect to all shares of the company but also in the specific class of shares concerned by the amendment (art. 196bis).