Hot summer for Luxembourg company law

In June we already posted that Luxembourg introduced a new legal publication system and that it would soon adopt a “1-Euro-company”.The latter indeed occurred in July, and this type of company will be available as from 16 January 2017. But that was not the end of the legislative activities for this summer.

In July, Luxembourg parliament adopted a bill of law modernizing Luxembourg company law, and especially the provisions for the S.A., S.C.A. and the S.à r.l. This new regime entered into force on 23 August.

This modernization of company law is intended to enhance Luxembourg’s attractiveness as a jurisdiction of choice for setting up corporate and investment fund structures in Europe. The new law provides greater flexibility for boards and shareholders, and also increases legal certainty by codifying certain standard market practices. For instance, the simplified liquidation of a company and the distribution of interim dividends by an S.à r.l., as commonly applied in practice, are now recognized by the new law.

The new law shall apply not only to companies incorporated as from 23 August, but also to existing companies. Such already existing companies have been granted a period of 24 months to adapt to the new law. Therefore, all S.A.’s, S.C.A.’s and S.à r.l.’s shall have to review and align their articles of association and possible further internal regulations during the upcoming two years. Please note that the new law shall apply instantly to those provisions of the articles of association that are already compliant with that new law. To the non-compliant provisions, the “old” law shall still apply. This means that existing companies will also have to steer prudently and not by automatic pilot during the upcoming period.

It is to be noted that some of the changes listed below merely confirm practices which have already been followed by legal practitioners for a number of years.

Herewith some of the key changes for the S.A.:

• minimum share capital of EUR 30,000
• shares with different nominal values and related pro rata voting rights are allowed
• shares issued below par value of the existing shares is permitted
• the maximum amount of non-voting shares that may be issued by a S.A. may exceed 50% of the share capital, and non-voting shares do not necessarily need to receive a preferred dividend
• redeemable shares forming part of the share capital are permitted
• issuance of free shares to staff members is permitted
• suspension of voting rights of a defaulting shareholder by the management
• conversion of convertible bonds, contribution of claims by set-off and incorporation of any type of reserves to the share capital shall be considered as a contribution in cash and does not require an auditor’s report
• lock-up clauses in the articles of association are now permitted, and any share transfer made in breach of such clause shall be null and void
• if the net asset value of the company drops below 50% of the share capital, the management will be required to issue a report on whether or not to continue the company’s activities
• shareholders agreements on the exercise of voting rights shall be permitted in certain circumstances
• new convening formalities for shareholders meetings are introduced (for instance: by email, reduction of notice periods from 15 to 8 days)
• lowering of thresholds for voting on change of nationality
• amending the corporate object of the company no longer requires the approval of the bondholders
• the board can appoint a CEO and can create an executive committee or other committees. The appointment of a chairman of the board is optional
• the board can relocate the company anywhere within the Grand Duchy of Luxembourg
• shareholders representing at least 10% of all voting rights may, on behalf of the company, bring an action against the management for mismanagement, breach of law or breach of articles
• general meetings of shareholders held by videoconference are deemed to be held at the registered office of the company.

And some key changes for the S.à r.l.:

• minimum share capital of EUR 12,000
• classes of shares, redeemable shares and beneficiary shares are permitted
• introduction of “authorized share capital”, in specific in regard to the issuance of additional shares
• for the transfer of shares, an approval of at least 1/2 of the share capital is required (instead of 75%)
• suspension of voting rights of a defaulting shareholder by the management
• shareholders agreements on the exercise of voting rights shall be permitted in certain circumstances
• lowering of thresholds for voting on change of nationality (unanimous consent no longer required)
• the board can relocate the company anywhere within the Grand Duchy of Luxembourg
• maximum number of shareholders has been raised to 100 (instead of 40)
• possible to issue bonds to the public (although the issuance of shares to the public is still prohibited)
• interim distributions by the management is permitted
• managers are subject to the same conflict of interest and confidentiality rules as with the S.A.
• amendment of the articles of association is to be done by 3/4 of the present share capital (and no longer also by a majority of shareholders in number)
• at least one general meeting per year when there are more than 60 shareholders (instead of 25)
• the day-to-day management may be delegated to one or more managers (previously, the day-to-day management body did not formally exist in a S.à r.l.)
• board meetings may be held in writing or by video and teleconference. Board resolutions taken by such means are deemed taken at the registered office
• general meetings of shareholders held by videoconference are deemed to be held at the registered office of the company.