After 9 years of parliamentary work, and 2 years after after the appointment of the Parliamentary Sub-Commission on Companies Law presided by rapporteur Franz Fayot, the bill of law n° 5730 was adopted during the public session of Parliament of 13 July 2016 leading to a substantial modernization of the law on commercial companies of 10 August 1915 (as amended) (the “law of 1915”)
The purpose of the reform was to modernize company law while preserving the spirit prevailing in the law of 1915, promoting contractual flexibility in the relationship between shareholders and enhancing legal certainty towards third parties. Therefore the Parliamentary Sub-Commission on Companies Law has followed three principles throughout its 26 work sessions:
- follow and give a legal basis to the established practice in the field of company law
- avoid excesses in the reform of company law in order not to distort the characteristics of the different types of companies or the major principles of corporate law
- not to legislate where the practice is unchallenged, well-established and in compliance with the existing provisions of the law of 1915.
Here is an overview of some of the main changes brought by bill of law 5730. This legal alert does not have the ambition of providing a complete overview of the more than 300 amendments enacted by the new law. Some amendments concern all forms of companies, such as the introduction of a general right to issue bonds, a reform of the convertibles shares’ regime, the regime of voidness of companies and an overhaul of legal terminology.
The société anonyme now has the ability to issue shares under their par value (art 26-5). As for the authorized capital, it is made more flexible by the introduction of an option for issuers to make the authorized capital effective as from the date of publication or the date of the deed introducing the authorized capital, if the statutes allow for it (Article 32 (5)).
Another important change is the introduction of an actio mandati, a minority action right for shareholders representing at least 10% of the capital (art 63bis) based on the Belgian model, which allows shareholders and holders of beneficiary shares to act on behalf of the company against members of the board of directors, the management board or the supervisory board.
The unanimity rule in shareholder meetings for the transfer of the company from Luxembourg to another country has been repealed, which makes it more straightforward for companies to migrate out of Luxembourg.
A type of plural vote has been introduced, as well as the possibility to allocate free shares to employees.
The convening and communication methods allowed for general meetings are facilitated by the use of modern communication technologies, such as email (Articles 70 and 70bis).
Simplified limited company or Société par actions simplifiée
A new form of company, the “société par actions simplifiée” or “SAS” inspired by French law where it has had some success, is introduced into Luxembourg law. The SAS is characterized by a wide contractual freedom, (art 101-20) which is also an overall feature of Luxembourg’s company law.). The terms of the company are broadly defined in the company’s articles of association with the residual application of the rules pertaining to the SA.
Partnership limited by shares or société en commandite simple
The partnership limited by shares (“SCA”) regime has been amended in particular to react to recent case law. An amendment clarifies that there is no obligation to appoint a natural person as a permanent representative of a general partner who is a legal person (Article 107).
Shareholders’ right to ask questions
One or more shareholders representing 10% of the share capital or 10% of the voting rights attached to all existing securities may individually or in group ask written questions to the management body on one or more management operations of the company (article 154).
Limited liability company (“SARL”)
The regime of limited liability companies was also considerably amended. The new law introduces a lower share capital requirement, which is down to a minimum of 12 000 euros (art 182) and it increases the limitation of the shareholders’ number from 40 to 100, similar to the French Commercial Code (article 181).
If this number is exceeded, the company has a period of one year to bring the number of shareholders down to a number equal to or less than 100 or to transform the company. It is now possible for the SARL to issue beneficiary shares (“parts bénéficiaires”) but also redeemable units, which contributes to the flexibility and competitiveness of the Luxembourg company law with regard to the English and American Laws (article 182).
The designation of the corporate form can now be done both by the use of the words ” limited liability company ” written in full but also the abbreviation “SARL”.
In the event of several managers, it is anticipated the possibility of forming a college that can take decisions by a written expressed unanimous consent and to hold its deliberations by using modern communication techniques. At the same time, the delegation of the daily management was recognised (art. 191bis).
The technique of the authorised capital is now possible to increase the share capital (article 199), which allows SARLs to use the same procedure than SAs and to respond quickly to funding requirements when they arise without having to go through the convening notice to shareholders’ meetings and quorum and majority requirements for the changes in the articles of association. The new law also introduces the possibility to pay out interim dividends in the SARL, subject to the same conditions as the SA. The restriction to sell shares to third parties was also reformed and made more flexible (article 189 of the new 1915 law).
One (1) euro SARLs are dealt with separately here.
A new section on company transformation is introduced into the legislation into articles 308bis-15 and subsequent providing that in the case of absence of the auditor (“commissaire”), an accredited auditor (“réviseur agréé”) will be appointed to make a report on the statement of assets and liabilities of the company and indicate especially whether there was an overstatement of net assets (308bis – art 17). Regarding the general meetings deciding on the transformation, it was decided to impose identical conditions of quorum and majority to the conditions applicable to the amendment of the companies’ articles of association (308bis-21). The transformation may be performed by a private deed and not necessarily by a notarial deed (308bis-23).
Changes to the Luxembourg Civil Code
Finally, the new law recognizes the issuance of tracking shares, which was traditionally considered problematic (Article 1853 al.2).
Nominee agreements are also recognized and are excluded from the scope of the prohibition of exclusive profit or loss allocation clauses (“clauses léonines”) by the amendment of the article 1855.
Finally, article 1865 specifies the regime of dissolution of a company in case all the shares are held by a single shareholder.