All questions

Corporate leadership

i Board structure and practicesStructure

Although the Act of 25 August 2006 introduced the possibility for public limited liability companies to choose a two-tier board structure, the one-tier board structure remains by far the preferred option in Luxembourg, with a company being managed exclusively by a board invested with the broadest powers to act in the name and on behalf of the company.

In a two-tier system, a company is managed by two bodies: the management board, charged with the day-to-day management of the company, and a supervisory board. The supervisory board's responsibilities include the appointment and permanent supervision of the management board members, as well as the right to inspect all company transactions. No person may at the same time be a member of both the management board and the supervisory board. Members of the supervisory board are liable towards the company and any third party in accordance with general law. However, there is no specific guidance relating to the exercise by members of the supervisory board of their duties.

Composition of the board

The board is composed of appointed members (the company's directors). The Companies Act requires a minimum of three directors; the maximum number of directors is undefined (the LuxSE Principles advise 16 directors as a reasonable limit). While the directors are appointed by the shareholders of the company, the directors choose a chair from among their members. The Companies Act does not provide any specific powers to the chair of the board, although companies may choose, for example, to grant a power of representation to the chair in the articles of association. However, unlike in other civil law jurisdictions, the chair of the board does not act on behalf of the company in his or her position as chair, but rather on the basis of his or her position as director of the company.

The Companies Act provides that where a legal entity is appointed as director of a public limited liability company, it shall designate a permanent representative to exercise that duty in the name and for the account of the legal entity. This provision technically only applies to public limited liability companies. However, in an interlocutory decision delivered in 2013, the District Court of Luxembourg recognised the applicability of this provision to a partnership limited by shares. In particular, the Court concluded that the obligation to appoint a permanent representative of a legal person to a board of a public limited liability company also applies to the legal person of a general partner of a partnership limited by shares. This decision was implicitly upheld in a judgment of the District Court pronounced in 2015.

As for the representation of the company, most articles of association provide that any two directors can represent the company without evidence of a board resolution (although in practice, the board may ratify actions taken previously by directors acting individually).

In this respect, the Companies Act provides for three mechanisms: the board can adopt a decision and give specific mandates (limited in time and scope) to one or more of its members, or other individuals, to act on its behalf; the articles of association may entitle one or more directors to represent the company for the purposes of any instrument or in any legal proceedings, either individually or jointly; or the board may designate a director as a general representative of the company charged with its day-to-day business (the day-to-day manager), and representing the company, individually or jointly, towards third parties for that business.

Under the third option, power may be delegated to one or more directors, managers or other agents, who may but are not required to be shareholders, acting either individually or jointly. While their appointment, removal from office and powers may be specified, limited or extended by the articles of association or the competent corporate body, the Companies Act states that no restrictions to their representative powers may be validly opposed in relation to third parties, even if their appointment is published. The liability of the day-to-day manager is based on the general rules relating to mandates. When a member of the board is appointed as the day-to-day manager, the Companies Act requires the board to report annually to the shareholders on the salary, fees and any benefits granted to that director.

A company will generally be bound by the acts of its directors or by the person entrusted with its day-to-day management, even if those acts exceed the company's corporate object, unless the company proves that the third party knew that the relevant acts exceeded the company's corporate object or could not, in view of the circumstances, have been unaware of it. The publication of a restriction to a director's powers in the company's articles of association is deemed insufficient to constitute such proof.

Regarding listed companies, the LuxSE Principles distinguish between executive and non-executive managers: executive managers are defined as senior managers who are not board directors but who are members of a body of executives charged with the day-to-day management of the company. There is no other distinction under Luxembourg law, with all board members having the same rights and obligations. A more permanent division of tasks and responsibilities between board members is possible (e.g., by providing for different classes of directors), but any such division is purely internal and is unenforceable towards third parties. It is, however, possible for the board to delegate certain specific powers to individual board members or non-board members in the framework of a specific delegation of power.

Finally, the European Commission has proposed legislation with the objective of attaining a 40 per cent presence of women among non-executive board member positions in publicly listed companies., Luxembourg is currently reported as having an average of less than one in 10 female board members, with over half of the largest companies having no women on their boards at all.

Separation of CEO and chair roles: chair's role and responsibilities

While the roles of CEO and chair tend to be separated in practice, there are no legal provisions or guidelines pertaining to a separation of roles or responsibilities.

For listed companies, the LuxSE Principles requires that the chair prepares the board meeting agendas after consulting the CEO, and ensures that the procedures for preparing meetings, deliberations, decision-making and the implementation of decisions are correctly applied. Under this non-compulsory guideline, the chair should ensure the proper application of the rules of governance and provide advice to the board.

Luxembourg law does currently not provide for a specific procedure for direct communication between the CEO or the chair and the shareholders.

For listed companies, according to the LuxSE Principles, companies should 'establish a policy of active communication with the shareholders' and allow shareholder dialogue with the board and the executive management.

Remuneration of directors and senior management

Directors are not employees of the company as such, and their remuneration falls under the general rules on mandates and corporate law. Generally, and unless otherwise provided by the articles of association, services rendered by the company directors are considered to be provided remuneration-free. If the articles of association authorise remuneration, the global amount to be paid to the directors will be fixed by the general meeting of shareholders, and the board will allocate that amount between board members as it deems fit. The rules on conflicts of interest forbid directors from taking part in or voting on resolutions relating to their own remuneration.

Senior managers are generally employees of the company, and the Luxembourg Labour Code will be applicable as regards their relationship with the company.

Concerning listed companies, the LuxSE Principles recommend establishing a remuneration committee to deal with these issues. The LuxSE Principles state that the company must 'secure the services of qualified directors and executive managers by means of a fair remuneration policy that is compatible with the long-term interests of the company', thereby introducing a sustainable aspect rather than concentrating on short-term gains.


The company's articles of association may allow for the creation of committees appointed by the board to ensure that the directors' obligations are fulfilled. The LuxSE Principles advise listed companies to establish, from among the board's members, inter alia:

  1. a committee to assist the board in relation to corporate policies, internal controls, financial and regulatory reporting, and risk management;
  2. an audit committee;
  3. a nomination committee to nominate suitable candidates as directors; and
  4. a corporate governance committee to ensure compliance with corporate governance practice.

The articles of association will outline the number of members of each committee, their function and the scope of their powers, and the committees themselves will be appointed by and under the supervision of the board.

The LuxSE Principles require listed companies and their boards to establish such committees as are necessary for the proper performance of the company's tasks. The Principles also recommend that the board appoint as many special committees as are needed to examine specific topics and to advise the board. The board itself shall remain responsible for decision-taking.

ii Directors

Although no general legal obligations are in place, the LuxSE Principles require that listed companies' boards have a sufficient number of independent directors (the number depends on the nature of the company's activities and share ownership structure), defining independent directors as not having 'any significant business relationship with the company, close family relationship with any executive, or any other relationship with the company, its controlling shareholders or executive managers which is liable to impair the independence of the director's judgement'. While there are no specific legal provisions regarding independent directors, it is generally understood that all directors, including independent directors, should be provided with timely information for the proper performance of their duties.

Liability of directors

The directors' duties are owed to the company, and as such they may be held liable towards the company both on civil and criminal grounds. They are jointly and severally liable in accordance with the general provisions on civil liability and the provisions of the Companies Act, both towards the company and towards all third parties, for any damage resulting from a violation of the Companies Act or of the articles of association of the company.

Directors must act in the best corporate interests of the company, and are obliged to comply with the Companies Act and with the company's articles of association. This includes the obligation to act as reasonably prudent businesspersons. They must manage the company's business in good faith, with reasonable care, in a competent, prudent and active manner, at all times in the company's best interests, and must refrain from doing anything that does not fall within the scope of the company's corporate objectives. The Companies Act also imposes certain general duties on directors, including the general management of the company, representation of the company towards third parties and upholding their duty to avoid any conflicts of interest.

The Luxembourg legislator has remained silent on what should be considered a company's best corporate interest. In a judgment delivered in 2015, the Luxembourg District Court made some observations on this notion. It explained that it is an adaptable concept, the exact interpretation of which depends on the company concerned and the nature of its activities. For some companies, the corporate interest is aligned to the interests of a company's shareholders. For other companies, it includes the interest of the legal entity as a whole, including the interests of shareholders but also those of employees and creditors. The Court remarked that for companies that are used for purposes of financing and pure holding companies, the interest of the company's shareholders will be of overriding importance as the focus of the company's activities is on the rate of return of its investments.

However, it should be noted that directors of listed companies are held to a number of more specific duties under the Transparency Act and the Market Abuse Regulation, in addition to the LuxSE regulations and principles. According to the LuxSE Principles, the board of a listed company is bound by a fiduciary duty to its company and shareholders, and 'shall act in the corporate interest, and shall serve all the shareholders by ensuring the long-term success of the company'.

In the event of misconduct, according to prevailing doctrine and case law, the shareholders' meeting must decide whether to make any claim against a director in connection with faults committed by the director in the performance of his or her functions. Creditors of a company may, under certain circumstances, institute action on behalf of the company if the latter fails to do so and if that failure harms the company's creditors.

Directors' liability towards the company is exonerated further to cover the discharge granted to the board by the annual shareholders' meeting approving the annual accounts. This discharge is valid for the period covered by the accounts presented to and approved by the general meeting of shareholders, provided that they do not contain any omission or false statement of a material fact. Although a discharge given by the general meeting of shareholders extinguishes the board members' liability towards the company, it is important to note that proceedings initiated by third parties are not affected by such a discharge.

The company as well as third parties (including any shareholder or creditor with a legitimate interest) may bring an action against a director. Shareholders may, however, only seek compensation for a prejudice that is distinct from the company's collective damage, and that can be defined as an individual and personal damage. The possibility for a (minority) shareholder to sue a director has recently been given an explicit legal basis in Luxembourg law.

If the shareholders have suffered collective damage, it is up to the shareholders' meeting to demand compensation, in which case an action must be brought by the shareholders' meeting on behalf of the company (an action initiated by a single shareholder will be dismissed). The legal basis for the action differs depending on whether the proceedings are invoked by the company or by third parties.

Any action by the company has a contractual basis, whereas an action by third parties will be brought on the grounds of tort liability. Whereas, under contractual liability, only reasonably foreseeable damage is to be repaired (except in cases of fraud), under tort liability all damage caused by the misconduct must be repaired. To elude collective liability, a director must prove that he or she has not taken part in the breach of the Companies Act or of the articles of association of the company, that no misconduct is attributable to him or her, and that he or she reported the breach at the first shareholders' meeting following his or her discovery or knowledge of the breach.

For listed companies, the LuxSE rules and regulations provide a series of sanctions in the event its rules are breached, including fines or compensation for damage caused to the stock market.

The directors of a public limited liability company are appointed for a period that cannot exceed six years, although they can be re-elected if the company's articles of association do not provide otherwise. They may at any time be removed from office by the general meeting of shareholders without cause, by simple majority. It is also possible to provide for stricter conditions in the articles of association via a supermajority vote to appoint or revoke the directors. Another possibility is to authorise each category of shareholders to nominate candidates, among which the general meeting of shareholders will elect the directors.

Conflicts of interest of directors

Regarding the rules relating to conflicts of interest, any director who has, either directly or indirectly, a financial interest that is contrary to that of the company in a transaction submitted for approval to the board is obliged to inform the board of his or her conflict, refrain from taking part in the deliberations, abstain from voting and record his or her statement in the minutes of the meeting. A special report regarding the transactions in which one of the directors had a (potential) conflict of interest is then to be prepared and submitted at the next general meeting before voting on any resolutions. If, because of a conflict of interest, the number that is required by virtue of a company's articles of association to deliberate and vote on a certain matter is not reached, the board of directors can – unless otherwise provided by the company's articles of association – decide to defer the decision to the company's general meeting of shareholders. The above-mentioned obligations do not apply when a decision to be taken by the board relates to the company's normal course of business and is taken under normal conditions.

For listed companies, the LuxSE Principles require directors to show integrity and commitment. It is recommended that directors of LuxSE-listed companies:

  1. inform the board of any possible conflict of interest and any other directorship, office or responsibility, including executive positions taken up outside the company during the term of the directorship;
  2. take decisions in the best interests of the company;
  3. warn the board of possible conflicts between their direct or indirect personal interests and those of the company or an entity controlled by it; and
  4. refrain from taking part in any deliberation or decision involving such a conflict (unless they relate to current operations concluded under normal conditions).