Question Body: 1. What is the legal system in your jurisdiction based on (for example, civil law, common law or a mixture of both)? Answer Body: The legal system of the Grand-Duchy of Luxembourg (Luxembourg) is based on written civil law inspired by the French Napoleonian Civil Code (inherited from the Roman civil law tradition). Companies are governed by the Law of 10 August 1915, as amended (Company Law), which was heavily inspired from the liberal Belgian corporate legislation. Although amendments have been made over time to keep corporate law in line with Luxembourg’s economic development, the legislature has been able to maintain a great amount of flexibility in respect of EU standards.
Question Set: Business vehicles
Question Body: 2. What are the main forms of business vehicle used in your jurisdiction? What are the advantages and disadvantages of each vehicle? Answer Body: Luxembourg law recognises the following seven types of company, each of which has a legal personality distinct from that of its members: · Public limited liability company (Société anonyme) (SA). · Private limited liability company (Société à responsabilité limitée) (SARL). · Public simplified company (Société par actions simplifiée) (SAS). · Partnership limited by shares (Société en commandite par actions) (SCA). · General partnership (Société en nom collectif) (SENC). · Common limited partnership (Société en commandite simple) (SCS). · Co-operative company (Société coopérative) (SC). Luxembourg law also recognises the special limited partnership (Société en commandite spéciale) (SCSp), which does not have a legal personality. Luxembourg has implemented EU legislation allowing for the incorporation of societas europeae (SE). The choice of a company type over another depends on both economic considerations (for example, amount of share capital, capacity to raise funds from the public, and credibility) and legal considerations (for example, scope of members’ liability, flexibility of corporate organisation and free transferability of shares).
Limited liability companies (SA, SAS, SARL, SC and SE) The SA and the SARL are the most widely used forms of company. The difference between them lies mainly in the fact that the SARL cannot raise funds from the public through the issuance of shares (although they can issue public bonds). Companies can have their share capital denominated in euros or in other freely traded currencies. The minimum subscribed share capital for an SA or an SAS is EUR30,000, of which at least a quarter must be fully paid up on the date of incorporation. The minimum subscribed share capital for an SARL is EUR12,000 and must be fully paid up. An SA, SAS or SARL can have a single shareholder. An SA is managed by one director or a board of directors (with at least three members) and must appoint a statutory auditor. The shareholders in an SA must meet at least once a year. An SA may also have a two-tier management structure (with a board of directors and a supervisory board). An SAS is managed by a single president and must appoint a statutory auditor. An SARL is managed by a single manager or a board of managers. The shareholders must meet at least once a year if their number exceeds 60. The SA is designed for large businesses, while the SARL is the most frequently used vehicle for mid-sized businesses and financial investments. Partnerships (SCA, SCS and SCSp) The share capital of a Luxembourg partnership is held by a general partner with unlimited liability and one or more limited partners, whose liability is limited to their contribution to the company. The SCA is recommended when the management intends to retain full control of the company’s investments. The SCS and SCSp are generally used for their tax transparency efficiency (the taxation of an SCS or SCSp is directly borne by the partners). The SCA, SCS and SCSp are the preferred vehicles for private equity houses and venture capital investors.
Question Set: Establishing a presence from abroad
Question Body: 3. What are the most common options for foreign companies establishing a business presence in your jurisdiction? Answer Body: Overseas companies can establish a presence in Luxembourg by appointing a local agent, a distributor or a franchisee. Depending on the type and size of commercial activity they wish to establish on the territory, foreign companies may prefer to set up a subsidiary or a local branch. For financial activities (such as investment, holding of participating interest or real estate acquisition in other countries), foreign investors will generally establish a Luxembourg special purpose vehicle (SPV) in the form of a limited liability company (SA, SCA or SARL) or a partnership (SCS or SCSp) (see Question 2). The choice for a limited liability company over a partnership structure will generally depend on the contemplated investment, its internal governance rules and the expected tax treatment of the structure. Partnerships are generally tax transparent, while limited companies are opaque structures from a tax standpoint. While a partnership is mainly governed by the partners’ contractual arrangements, limited liability companies must comply with certain mandatory governance rules set out in the Company Law.
Question Body: 4. How can an overseas company trade directly in your jurisdiction? Answer Body: Carrying out commercial, craft and industrial activities, as well as certain liberal professions (for example, economic advisers, chartered accountants, architects, and so on) require a business licence (autorisation d’établissement or autorisation de commerce). The licensing rules are set out in the Law dated 2 September 2011 on access to commercial, craft and industrial activities. They apply to any company wishing to trade in Luxembourg, whether established in Luxembourg or abroad. A business licence will be granted to a business (in fact to the individual professional operating under his/her own name or that of the trading company) within three months from receipt of a duly complete application file if both: · The person responsible for the operation or management of the business satisfies the legal qualification and professional integrity requirements for the activity in question. · The business has a fixed and substantial place of establishment in Luxembourg (that is, it is not a “letterbox” company). The future manager/director of the company, agency or branch applying for the business licence must also provide evidence, by means of a notarised declaration, that he/she was not formerly involved in an insolvent business. Applications must be submitted to the General Directorate for SMEs and Entrepreneurship (which is a division of the Ministry of Economy) by standard mail or online. Tacit authorisation is granted if no decision is rendered within three months from receipt of a duly complete application file. EU companies that supply occasional and temporary services in Luxembourg do not need to obtain a business licence but must submit a prior notification to the General Directorate for SMEs and Entrepreneurship. The administrative process is slightly different for EU and non-EU applicants. As a result, this should be considered in particular by applicants from the UK after the UK leaves the EU (Brexit). The rights and procedures may depend on the entry into force of the withdrawal agreement negotiated between the EU and the UK.
Question Body: 5. What are the formalities for setting up a partnership? Answer Body: As described in Question 2, the Company Law recognises and governs three types of partnerships: the partnership limited by shares (SCA), the common limited partnership (SCS) and the special limited partnership (SCSp). In each type of partnership, there must be at least both: · One unlimited partner (associé commandité), with joint and unlimited liability for all the obligations and liabilities of the partnership. · One limited partner (associé commanditaire), whose liability is limited to his/her contribution to the partnership. Since July 2013, the management of a partnership can be entrusted to one or more persons who are not partners of the partnership. While an SCA must be incorporated before a notary (who will enact its articles of incorporation), SCSs and SCSps are not required to execute their partnership agreement before a notary. An SCA’s articles of incorporation must be published entirely, while SCSs and SCSps are only required to publish limited information. An SCSp does not have a legal personality, but must be registered with the Luxembourg Trade and Companies Registry. The partners in an SCS and SCSp can freely determine the rules that apply to the partnership in the partnership agreement (for example, governance, partners’ rights, investments and return, and so on). An SCA’s partnership agreement will generally be implemented through its articles of incorporation, and will need to comply with certain restrictions and rules applicable to public limited liability companies with regard to governance, shareholders’ mandatory rights and distributions. The main reasons for using an SCS or an SCSp are the relative flexibility of their legal structure, the flexibility in drafting the partnership agreement, as well as their tax transparency features.
Question Body: 6. What are the formalities for setting up a joint venture? Answer Body: Luxembourg is the preferred European jurisdiction for setting up international joint ventures (JVs). JVs are generally implemented through a Luxembourg special purpose vehicle in the form of a limited liability company or partnership, depending on the contemplated investments and the corporate flexibility sought by investors. The JV partners generally enter into a JV or shareholders’ agreement, which is not published. Some clauses of the JV agreement are typically reproduced in the JV company’s articles of incorporation, which become public through their publication and are, to a certain extent, enforceable against third parties. Question Body: 7. Are trusts available in your jurisdiction? Answer Body: The Anglo-Saxon trust concept, distinguishing between legal and beneficial ownership of assets, does not exist per se under Luxembourg law. However, Luxembourg recognises trusts validly created in foreign jurisdictions, in accordance with the Law dated 27 July 2003 on trust and fiduciary agreements (2003 Law), which ratifies the HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985. Under the 2003 Law, fiduciary agreements transferring ownership of assets to a fiduciary agent (equivalent to a trustee), who must be a credit institution or a professional of the financial sector, can be created. In such a case, the assets of the transferor are segregated from other assets of the fiduciary agent and protected from collective proceedings. A draft bill was introduced in March 2013 for the creation of foundations in Luxembourg (with equivalent or similar features to those of Anglo-Saxon trusts), but has not been passed yet.
Forming a private company
8. How is a private limited liability company or equivalent corporate vehicle most commonly used by foreign companies to establish a business in your jurisdiction formed?
The Company law governs private limited liability companies.
Depending on the type of business to be run by the company, a company may be subject to other legislation, specific requirements and to the supervision of certain regulatory authorities.
- There are business licensing requirements for conducting trading activities
- Credit institutions and professionals of the financial sector must comply with the Law dated 5 April 1993 on the financial sector and are subject to the supervision of the Commission for the Supervision of the Financial Sector (Commission de Surveillance du Secteur Financier) (CSSF).
- Investment funds must comply with specific legislation depending on their form, purpose and investment policies and are subject to the supervision of the CSSF.
- Alternative investment fund managers must comply with the Law dated 12 July 2013 on alternative investment fund managers and are subject to the supervision of the CSSF.
- Insurance companies are subject to the Law dated 6 December 1991 on the insurance sector and supervised by the Insurance Commission (Commissariat aux Assurances).
The Luxembourg Stock Exchange has established corporate governance guidelines that are generally recognised by practitioners as reference governance rules in non-listed companies.
For more information on the CSSF and the Insurance Commission see box: The regulatory authorities.
Tailor-made or shelf companies
The Luxembourg Company Law and corporate practice are based on freedom of contract. They provide great flexibility in the way articles of incorporation of private limited liability companies can be drafted. Some local services providers offer shelf companies (that is, companies with standard articles of incorporation). However, their use is limited as they can be costly due to the need to comply with “know your customer” and tax substance requirements, as well as the need to amend the company’s articles of incorporation. Investors usually prefer to incorporate a company tailored to their own needs as, once the company’s bank account is opened, a company can be incorporated within 24 hours.
The incorporation of a private limited liability company requires the following steps:
- Checking the company’s name availability with the Luxembourg Trade and Companies Registry.
- Opening a blocked bank account for the company under incorporation, on which the minimum amount of share capital must be deposited.
- Obtaining certification by the bank, addressed to the notary, that the share capital is available for incorporating the company.
- Anti-money laundering declarations by the ultimate beneficial owners of the company.
- Drafting the company’s articles of incorporation (with a mandatory translation into German or French).
- Incorporation of the company before a Luxembourg notary.
- Release of the company’s share capital through the notary’s certification addressed to the bank that the company has been incorporated.
- Electronic filing of the company’s articles of incorporation by the notary with the Luxembourg Trade and Companies Registry.
- Publication of the articles on the Electronic Journal of Companies and Associations (Recueil Electronique des Sociétés et Associations).
- The company comes into existence immediately on incorporation, but its articles of incorporation are only enforceable against third parties from the date of their publication, which is now carried out electronically, reducing any adverse delay in this respect.From the date of incorporation, the company’s share capital is freely available to the company and the directors can use it to run the company’s business.Company constitutionThe articles of incorporation are the sole legal documents required to incorporate a private limited liability company. There are no legal model articles, but local practitioners have standardised the structure and drafting of articles of incorporation.The articles of incorporation of limited liability companies and partnerships limited by shares are fully published. Only certain extracts of partnership agreements are published.
Shareholders’ agreements are frequently used in Luxembourg and are not published. Certain provisions of shareholders’ agreements may be inserted in the articles of incorporation.
9. What financial reports must the company submit each year?
Luxembourg companies must draft and publish financial statements and profit and loss accounts in accordance with the Law dated 19 December 2002 on the Trade and Companies Registry and the accounting and annual accounts of companies (Accounting Law).
The format of the balance sheet and profit and loss accounts must follow that of the Luxembourg Standard Chart of Accounts (Grand Ducal Regulation dated 10 June 2009).
The branch of a foreign company must publish certain accounting documents of the foreign company with the Luxembourg Trade and Companies Registry. These documents must be prepared in accordance with Luxembourg generally accepted accounting principles, as referred to in the Accounting Law.
10. What are the statutory trading disclosure and publication requirements for private companies?
Limited liability companies and partnership limited by shares must include the following information on their letterhead, invoices and any document issued by them:
- Company’s name.
- Form of the company (see Question 2).
- Company’s registered address.
- Luxembourg Trade and Companies Registry’s registration number.
Companies that are registered for value added tax (VAT) purposes must add their VAT number on their documents.
11. How do companies execute contracts or deeds?
A contract will be validly binding on a company if it is signed by its directors or authorised representatives in accordance with the company’s articles of incorporation and/or the Company Law. There are no other formalities required under Luxembourg law.
12.Are there any restrictions on the minimum and maximum number of members?
Limited liability companies can be incorporated by a single shareholder. Partnerships must be incorporated by at least one unlimited partner and one limited partner (see Question 5).
Private limited liability companies (SARLs) cannot have more than 100 shareholders.
Minimum capital requirements
13.Is there a minimum investment amount or minimum share capital requirement for company formation?
The minimum share capital requirements are as follows:
- Public limited liability company (SA), public simplified company (SAS) and partnership limited by shares (SCA): EUR30,000, of which a quarter must be fully paid up on incorporation.
- Private limited liability company (SARL): EUR12,000, which must be fully paid up.
There is no minimum share capital requirement for a common limited partnership (SCS) or a special limited partnership (SCSp). The partners can freely determine their contribution to the partnership.
14.Are there restrictions on the transfer of shares in private companies?
Shares in a public limited liability company (SA), public simplified company (SAS) and partnership limited by shares (SCA) are freely transferable, unless the articles of incorporation include specific restrictions.
Transfers of shares in a private limited liability company (SARL) to a non-shareholder are subject to the prior approval of shareholders representing 75% of the company’s share capital (or 50% if the articles of incorporation provide for such a threshold).
Unless otherwise provided for in the partnership agreement, limited partners’ interests in a common limited partnership (SCS) or special limited partnership (SCSp) can only be transferred with the prior approval of the general partner. Interests held by the general partner can only be transferred with the consent of all the partners.
Shareholders and voting rights
15.What protections are there for minority shareholders under local law? Can additional protections be given?
The Company Law provides for the following minimum minority shareholders’ rights:
- In a public limited liability company (SA), public simplified company (SAS) and partnership limited by shares (SCA), shareholders representing 10% of the company’s voting rights can:
- initiate a liability claim against the company’s management;
- request the adjournment of a shareholders’ general meeting or request that certain items be added to the meeting agenda.
- Right to be provided with the company’s annual accounts, the annual management report, the annual auditor’s report, the name and details of the company’s directors, the list of shareholders who have not fully paid up their contribution, and, in the event of a change to a company’s articles of incorporation, the full text of the suggested changes.
- Shareholders representing 10% of a company’s share capital and/or voting rights can ask questions to the management body on certain operations of the company or its affiliates.
- Rights and protection against dilution in the event of a cash share capital increase (preferred subscription rights).
Minority shareholders may have additional rights under the company’s articles of incorporation.
16.Are there any statutory restrictions on quorum or voting requirements at shareholder meetings? Must quorum or voting rights be proportionate to shareholdings?
Although the principle of “one share equals one vote” generally applies in Luxembourg, the Company Law was amended in August 2016 to introduce a form of plural voting in public limited liability companies (SAs), public simplified companies (SASs) and partnerships limited by shares (SCAs). The Company Law now allows these companies to implement votes commensurate to shareholders’ interests in the company’s share capital.
Depending on the nature of the decisions to be taken at the shareholders’ general meeting, the following requirements apply, unless otherwise restricted in the company’s articles of incorporation (Company Law):
- Ordinary shareholders’ general meetings of SAs, SASs and SCAs: there are no quorum requirements and decisions are adopted by a majority of the votes of shareholders present or represented at the meeting.
- Ordinary shareholders’ general meetings of private limited liability companies (SARLs): there are no quorum requirements, but decisions must be adopted by shareholders representing more than half of the company’s share capital on a first call (50% plus one vote). On a second call, decisions will be validly adopted by a majority of the votes, regardless of the portion of share capital represented.
The management can suspend voting rights under certain conditions, for example, if a shareholder has not complied with its funding commitments towards a company and such suspension is provided for in the company’s articles of incorporation. A shareholder can also renounce its voting rights, temporarily or permanently.
17.Are specific voting majorities required by law for any corporate actions (for example, increasing share capital, changing the company’s constitution, appointing and removing directors, and so on)?
Decisions related to the company’s shares, share capital, shareholders’ rights and changing the company’s name require amending the company’s articles of incorporation.
An amendment to the company’s articles of incorporation must be passed at an extraordinary general meeting of the shareholders before a Luxembourg notary. Decisions are adopted as follows:
- In a public limited liability company (SA), public simplified company (SAS) and partnership limited by shares (SCA): amending the company’s articles of incorporation requires, on a first call, the approval of two-thirds of the shareholders representing half of the company’s share capital. On a second call, an amendment must be adopted by the majority of the shareholders present or represented, without the need to comply with quorum requirements.
- In a private limited liability company (SARL): amending the company’s articles of incorporation requires the approval of shareholders representing three-quarters of the company’s share capital.
Decisions to appoint and remove directors or managers are subject to the voting requirements applicable to ordinary shareholders’ general meetings (see Question 16).
18.Can voting majorities required by law be disapplied to protect a minority shareholder (for example, through class rights or weighted voting)?
Quorum requirements and voting majorities provided by law can only be increased and must be implemented through the company’s articles of incorporation.
Certain type of companies can issue non-voting shares. Beneficiary interests (parts bénéficiaires), with or without voting rights, can be created by the company’s articles of incorporation.
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