The Luxembourg legislator introduced in December 2016 by the enactment of the law of December 12th 2016 (the Law) a new legal framework for companies with a social or societal impact, la société d’impact sociétal (SIS).
Since 2009, the Luxembourg government has strongly supported the development of the social and solidarity economy. In this context, the Union Luxembourgeoise de l'Economie Sociale et Solidaire (ULESS) was created in July 2013, and aims to defend and to promote the interests of the social and solidarity economy, a fast-growing sector in Luxembourg.
The creation of SIS is the official recognition of the importance of the social and solidarity economy in Luxembourg.
Because the existing structures were not necessarily best suited to support both social/societal and commercial activities, the Law aims to create a specific legal framework for those companies dedicating their activities to supporting people in a fragile situation or contributing to the preservation or development of specific social or societal issues as well as combating exclusion or inequality and discrimination.
Derogation to the principle of financial benefit
The Law derogates from the provision of the civil code by virtue of which a commercial company is normally driven by the aim of procuring a financial benefit for its shareholders. As a consequence, a SIS may provide in its articles of association that it is not incorporated with the view to procure a financial benefit for its shareholders.
Form and conditions
The Law provides that any public limited liability company (société anonyme), private limited liability company (société à responsabilité limitée) or cooperative company (société coopérative) which complies with the principles of the social and solidarity economy may opt for the status of the SIS and be granted approval by the Ministry responsible for social and solidarity economy.
However, any SIS must comply with four cumulative conditions:
- perform a continuous activity of production, distribution or exchange of goods or services;
- support people in a fragile situation or contributing to the preservation or development of specific social or societal issues as well as combating exclusion or inequality and discrimination;
- maintain an autonomous management; and
- half of potential benefits must remain in the SIS and be reinvested for the maintenance and development of the corporate purpose.
The Law further provides that the maximum annual remuneration paid by a SIS to any of its employees may not exceed six times the amount of the social minimum wage.
Corporate object and Ministry agreement
As stated above, any of the above mentioned company forms may apply for the SIS status which shall be granted by the Ministry responsible for social and solidarity economy provided that the corporate object of the SIS complies with the above indicated cumulative conditions and that key performance indicators (KPIs) allowing for the effective and fair measurement of the implementation of the SIS corporate object are indicated in the articles of association thereof.
The Law further provides that any resolution likely to amend the corporate object and KPI clauses must be submitted to the Ministry for prior approval.
As explained above, the SIS derogates from the principal laid down in article 1832 of the Luxembourg civil code and therefore allows SIS to be financed by philanthropic investors and non-philanthropic investors.
Therefore, in compliance with the Law, the share capital of the SIS shall be represented by “parts d’impact” (Impact Shares) which do not entitle their holders to participate in the profits of the SIS, if any; and “parts de rendement” (Return Shares), which entitle their holders to profits under the conditions that the KPIs measurement evidences that the social and societal objectives set in the articles of association have been met. Potential benefits allocated to Impact Shares are exclusively aimed at the performance of the corporate object of the SIS and are entirely reinvested in the SIS.
Impact Shares and Return Shares are exclusively issued in registered form with a determined nominal value. Holders of Return Shares may request the conversion of their Return Shares into Impact Shares at any time but Impact Shares cannot be converted into Return Shares.
In all circumstances, the entire share capital of a SIS must always be represented by at least 50% of Impact Shares.
From a tax perspective, a SIS is generally a fully taxable company like any other commercial company unless its share capital is composed exclusively of Impact Shares, in which case it will be fully exempt from corporate income tax, municipal business tax and net wealth tax.
Cash donations made to a SIS which has only issued Impact Shares are deductible as special expenses, akin to donations made to qualifying not-for-profit organisations.
The SIS is submitted to the control of a special commission specifically created to assist the Ministry and control on a continuous basis that SIS comply with the authorization granted.
Annual accounts are audited by an independent auditor (réviseur d’entreprise agréé) also in charge of controling that no debt instruments have been issued or that no loans have been contracted directly or indirectly from shareholders.
The SIS is submitted to the law dated August 10th 1915 on commercial companies, as amended, except for specific provisions provided in the Law.
Entry into force
The Law became effective as of December 19th 2016.