After years of speculation regarding an overhaul of the companies’ law in the Grand Duchy of Luxembourg, on 13 July 2016 the parliament adopted the bill of law 5730 modernising the law on commercial companies of 10 August 1915, amending the Civil Code and the law of 19 December 2002 on the trade and companies register, and the accounting and annual accounts of undertakings (the « New Law »).
All companies are required to amend their articles of association to reflect the changes introduced by the New Law within 24 months. During this period, the current legislation will remain applicable to all provisions of the articles of association while the New Law will apply to all matters not mentioned in the articles of association. After such period, any provision in the articles of association contrary to the New Law shall be deemed unwritten and the mandatory rules under the New Law will apply. For any new company incorporated after the entry into force, the New Law shall automatically apply in its entirety. The stated objective of the New Law is to modernise the existing legal framework, improve the flexibility and legal certainty of the Luxembourg legal framework and provide Luxembourg companies with a set of tools and techniques allowing them to further enhance their attractiveness in a continuously changing international environment.
The New Law contains a number of helpful improvements and new opportunities but also additional constraints and limitations. We have outlined below some of the main key changes.
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Changes affecting all companies
- all companies can now issue tracking shares
- ability for the board to suspend voting rights of shareholders failing to comply with their obligations
- possibility to issue shares of different value
- possibility for shareholders to invalidate shareholder meetings
- unanimity is no longer required to change the nationality of a company
- validity of voting agreement and clauses providing for restrictions on transferability of shares are now formally recognised
- prohibition to adopt a denomination similar (but not identical) to an existing company which would be misleading for the public
- simplified liquidation procedure (dissolution without liquidation) is formally recognised for companies with a sole shareholder company
- possibility for the board to change the registered office of the company within the Grand Duchy of Luxembourg without shareholders’ consent
Changes affecting S.à r.l.
- the minimum share capital is now set at EUR 12,000
- the maximum number of shareholders is increased to 100
- a S.à r.l. is now entitled to issue redeemable shares (actions rachetables), founder shares (parts de fondateurs), profit shares (parts bénéficiaires) as well as non-convertible shares to the public
- changes to the articles of association of a S.à r.l. only require a majority representing three-quarters of the corporate capital (as opposed to the previous situation where changes to the articles of association required a dual majority (i) a majority of the shareholders (in number) and (ii) representing three-quarters of the corporate capital)
- decrease of the required majority to transfer shares to non-shareholders to 50% (if provided for in the articles of association)
- confirmation that a S.à r.l. may implement an authorised share capital allowing the board of managers to issue shares to existing shareholders within the limit of the authorisation
- confirmation that a S.à r.l. may appoint a day-to-day manager
- confirmation that a S.à r.l. may pay interim dividend (subject to the same rules currently applicable to SA)
Changes affecting SA and SCA
- the minimum share capital is now set at EUR 30,000
- possibility to issue shares below par value (subject to certain conditions)
- more flexible regime for non-voting shares: non-voting can now represent more than 50% of the issued share capital and no more requirement for non-voting shares to receive a preferred dividend
- contribution in kind of a claim (if certain, due and payable) will be treated as a contribution in cash (no audit report will be required)
- possibility to create committees and delegate the management to a general director or a management committee
- convening notices for general meetings can now be sent by email or courier services (if provided for in the articles of association)
- possibility for shareholders holding at least 10% of votes to take legal action against management on behalf of the company for mismanagement, breach of the law of the articles of association
- lock-up clauses which restrict the transferability of shares, beneficial units or debt securities are formally recognised
A new form of company is introduced into Luxembourg law: the SAS
A new form of company, the simplified public limited company (société par actions simplifieés - SAS) has also been introduced into the Luxembourg legal system. SAS offers far more flexibility to the shareholders and managers than the SA. An SAS can be registered with no minimum share capital requirement and have both legal and natural persons as shareholders. Its mode of governance is flexible and can be tailored to the shareholders’ needs. The New Law provides that, subject to compliance with mandatory rules (for example, representation of the company by a president, exclusive power of the shareholders’ general meeting for some corporate decisions such as those relating to annual accounts and profits, share capital and the transformation of the company), the articles of association of the SAS can freely provide for the organisation, the management and the operation of the company. Such flexibility will allow setting up governance modalities adapted to the different profiles of the investors in private equity operations, but also within the framework of joint ventures.