Modernisation of Luxembourg Company Law (2016)

On 13 July 2016, the long awaited bill modernising the Luxembourg Company Law was adopted.

The focus of the amendments is: (i) contractual freedom and a promotion of an investor and business friendly environment; (ii) granting legal certainty to matters that were previously subject to legal practice; (iii) creating a new investment vehicle which can be tailored to suit the needs of large investors; and (iv) introducing flexibility and certainty in certain widely used existing investment vehicles.

Existing companies have twenty four months to comply with the provisions of the new Law, absent which mandatory provisions will apply. Some of the more relevant changes brought into effect by the new Law are listed below for information purposes. Your dedicated Loyens & Loeff team member will be available to guide you through any changes relevant or beneficial to your existing and future investment structures.

I. A new corporate form: the Luxembourg simplified company limited by shares (SAS), a company à la carte

a limited set of rules while preserving limited liability
the share capital of the SAS is divided into shares and shareholders have limited liability;
the SAS may not issue shares to the public;
the SAS is represented by its chairman which is appointed in accordance with its articles of association;
far-reaching contractual freedom on governance terms
the articles may provide for directors having similar powers to the chairman;
the articles are free to provide for the governance terms in the discretion of the shareholders;
the articles detail the matters reserved to shareholders’ votes including the format and requirements of such votes;
the articles provide for the rules relating to the transfer of shares;
enclosed within rules applicable to SAs but retaining flexibility
competence of the general meeting of shareholders in an SA regarding share capital increase, decrease, amortisation, merger, demerger, dissolution, change of corporate form, appointment of auditor, approval of annual accounts, are exercised by the shareholders but in accordance with the provisions of the articles;
the provisions regarding SAs are applicable to the SAS so long as compatible with the above provided specific set of rules.

II. The modernisation of the private limited liability company (SARL) and public company limited by shares (SA) regime

a. The Luxembourg SARL becomes more attractive

for co-investments and joint ventures
termination of the so called “double majority” (number of shareholders and number of shares for quorum) and simplification of the majority threshold required to amend the articles of association (now only ¾ of the share capital unless the articles of association provide otherwise);
possibility to reduce the shareholders’ approval threshold required to transfer shares to non-shareholders (from ¾ to ½ the share capital);
formal recognition of the validity of voting arrangements (for an SA as well);
possibility for the board to suspend the voting rights of shareholders who fail to comply with their applicable obligations and express recognition that shareholders may waive the exercise of any or all of their voting rights temporarily or permanently (for an SA as well);
applicability of SA’s conflicts of interest provisions and confidentiality provisions;
for private equity co-investments and management incentive schemes
increase of the maximum number of shareholders from 40 to 100;
possibility to issue beneficiary shares (parts bénéficiaires)outside of the stated capital with, or without, voting rights;
possibility to issue shares (not representing the share capital) in exchange for a contribution of work or services (apports en industrie) under certain conditions (as opposed to a previously cash or in kind contribution only);
introduction of an authorised share capital whereby the board of managers may be authorised by shareholders to issue shares to existing shareholders, or third parties approved by existing shareholders;
for cost control
no supervisory auditor (commissaire) required under 60 shareholders (25 before);
no formal annual general meetings under 60 shareholders (25 before);

b. The Luxembourg SA regime is aligned more to the requirements of investors

Expansion of the freedoms regarding securities issued by an SA
more flexible regime for non-voting shares;
possibility for the general meeting (or the board, within the framework of the authorised share capital) to issue shares without nominal value, below the accounting par value, but subject to certain requirements;
introduction of a regime for the free allocation of shares by the board to employees and corporate officers of the issuing company and other related companies (useful in the context of structuring management incentive programmes);
possibility for the board of a non-listed public limited company to create a priority right for existing shareholders who have already exercised their statutory preferential subscription right during the preferential subscription period to subscribe for any shares remaining following the exercise of the statutory pre-emption right and to define the terms on which these shareholders subscribe for the remaining shares;
the reclassification of a share capital increase by a contribution to the company of a certain, due and payable claim against the company as a contribution in cash (negating the need for an audit report);
rationalises corporate governance provisions
formal recognition of the ability to create executive committees (comités de direction) and a chief executive (directeur général);
clarification as to what constitutes a conflict of interest;
simplification and standardisation of the form and procedure of convening notices for all kinds of general meetings, being ordinary and extraordinary general meetings;
reinforcement of minority shareholder rights;
formal recognition of the validity of lock-up clauses if they are limited in time and if they fulfil certain conditions;

III. Legal recognition of past practices, simplifications and clarifications

formal recognition of tracking shares;
possible dissolution without liquidation for companies with a sole shareholder, triggering a universal transfer of all the company’s assets and liabilities to the company’s sole shareholder;
extended company conversion possibilities and creation of a general regime of conversion;
creation of a legal framework for the issuance of public bonds in all forms of companies (including the SARL);
creation of a legal framework for the issuance and conversion of convertible instruments in all forms of companies (other than SA) and specification of the regime applicable to such issuance and conversion in the SA;
creation of a legal framework relating to usufruct over shares;
specific nullity regime regarding certain shareholder decisions;
introduction of a legal framework for the distribution of interim dividends in a SARL (more or less identical to the SA regime);
creation of a legal framework for the issuance of redeemable shares in a SARL (more flexible than the one existing for the SA);
possibility for the managers to appoint a day-to-day manager in a SARL;
possibility for the articles of association to allow video-conferences and correspondence voting forms for general meetings in an SARL (as is the case for the SA).
possibility to change the nationality of the company with the identical requirements as to an amendment to the articles (unanimity requirement revoked);
possibility for the articles of association to authorise the board to transfer the registered office of the company anywhere within the Grand-Duchy of Luxembourg (no longer a shareholder decision); and
formal recognition of the validity of circular (written) board resolutions if the articles of association so provide.