On 13 July 2016 the Luxembourg Parliament adopted a major company law reform, which is (i) modernizing the Luxembourg corporate law, (ii) granting legal certainty for certain practices that were previously subject to legal practices, (iii) introducing a new corporate entity, and (iv) introducing added flexibility in the mostly used form of companies. The two underlying principles to this reform are enhancement of the contractual freedom and the promotion of a business friendly environment. This reform adapts the legal framework to the economic realities and improves the consistency of Luxembourg corporate law and the competitiveness of the Grand Duchy of Luxembourg.
Existing companies have 24 months to comply with the mandatory provisions of the revised company law, after which the provisions become directly applicable.
The key points of the reform are:
- The creation of a simplified company limited by shares (S.A.S. - société par actions simplifiée). The main characteristic of this legal entity is the contractual freedom granted to its shareholders, particularly regarding the governance of the company which could in many respects be freely determined by the articles of association.
- The private limited liability company (S.à r.l. - société à responsabilité limitée), one of the most widely used corporate form in Luxembourg, is becoming even more attractive and flexible, particularly for joint ventures and private equity investments. The main changes relate to:
- The introduction of authorized share capital, allowing the board of managers to issue shares within the limit of the authorization;
- The issuance of beneficiary shares and redeemable shares;
- The introduction of a day-to-day management function;
- The simplification of majority thresholds for shareholders meetings; and
- The increase of the maximum number of shareholders to 100.
- The legal requirements for a public limited liability company (S.A. - société anonyme) are lowered and the introduction of new features makes it more attractive, notably for management participation plans and special purpose vehicles. The main changes relate to:
- The possibility to issue shares below par value, subject to certain requirements;
- The possibility for the board of directors to allocate free shares to employees and corporate officers of related companies, subject to certain requirements;
- An enhanced regime for non-voting shares;
- The suppression of the audit report for debt to equity conversion;
- The possibility to create executive committees and chief executive; and
- The simplification of the convening procedures.
- The reform has also formalized a number of mechanisms which are already in practice, dealing with matters such as:
- Voting agreements;
- The ability for a company to issue so-called 'tracking' shares;
- Provisions aiming to suspend voting rights of a shareholder defaulting on a financial or non-financial undertaking or obligation;
- Lock-up provisions, i.e. contractual restrictions on the transfer of shares; and
- Simplified liquidation (i.e. dissolution without liquidation) for companies with a sole shareholder.
- Finally, the law implements changes applicable to all form of companies regarding:
- The possibility to issue public bonds and convertible instruments;
- The creation of an usufruct regime;
- The enhancement of the conversion possibilities between the various form of companies; and
- The implementation of a nullity regime regarding certain shareholders resolutions.
Please note that this update only summarizes some of the main changes introduced in the Luxembourg company law.