News Flash – Reform of Luxembourg company law: Key changes for public and private limited companies
The bill of law n° 5730 adopted on 13 July 2016 (the “New Law”) is significantly modernizing Luxembourg company law by giving increased legal security and introducing additional flexibility in key areas such as voting rights, share transfers, financial instruments, governance or transfers of registered office.
This newsletter outlines some of the key changes for SA and SARL companies .
I. Voting rights
- Allocation of voting rights: the requirement that all shares are of equal value is abolished. It is now possible to dissociate the amount contributed to the share capital and the number of votes held by a shareholder (depending on the type of the company).
- Non-voting shares in SA: the limitation that non-voting shares may not represent more than 50% of the share capital, and the mandatory attribution of preferred financial rights are abolished.
- Waiver of voting rights: a shareholder may agree to waive in full or in part its voting rights.
- Suspension of voting rights: if provided by the articles, the management may suspend voting rights of shareholders who are in breach of their obligations (e.g. default under capital calls).
- Voting agreements are now recognised by law as being valid under specific conditions.
II. Share transfers
- Share transfers in SARL: the ¾ consent threshold may be reduced to a consent of up to ½ of the shares if provided by the articles.
- Clauses limiting the transfer of shares in SA are recognized, subject to time limits (e.g. maximum lock-up period of 12 months applicable to first refusal and first consent clauses).
III. Financing instruments and shareholders’ financial rights
- Shares of unequal nominal value may be issued (as stated above).
- Tracking shares are now statutorily recognised.
- The conversion of a shareholder loan into equity is now considered as a contribution in cash by set-off against the receivable under the shareholder loan and no longer requires an independent auditor’s report in a SA.
- Free attribution of shares in SA: the articles of association of a SA may authorise the board of directors to issue free shares in favour of employees or executives under specific conditions.
- Possibility to issue shares below par value in SA under specific conditions, notably the issuance of specific reports by the board of directors and the auditor.
- Capital increases by the management of a SARL (”authorized capital”) are allowed if permitted by the articles of association and provided the new shares are issued to existing shareholders or to third parties having received prior approval.
- Share redemptions in SARL (already common practice) are now explicitly recognized, as is the possibility for a SARL to issue redeemable shares.
- Beneficiary units in SARL may be issued to a determined person if provided in the articles of association, which shall also set out the rights attached to the beneficiary units.
- Interim dividends in SARL: the possibility for the management to distribute interim dividends is introduced in the SARL.
- Bonds and convertible bonds may be issued by any type of company (subject, where applicable, to statutory rules governing approval of non-shareholders in companies other than the SA).
- Executive committees/general directors in SA are recognized as statutory corporate bodies (to which management and representation powers may be delegated within specific limits).
- Minority shareholders’ action for directors’ liability in SA: shareholders holding more than 10% of the voting rights may initiate legal action for liability against the directors on behalf of the company.
- Rules regarding convening, holding and attendance at board meetings and shareholders’ general meetings are detailed and softened in some aspects (for instance written resolutions taken unanimously are now explicitly recognised at board level).
- Maximum number of shareholders in the SARL is increased from 40 to 100.
- Majority in extraordinary general shareholders meetings of SARL: a majority of ¾ of the share capital is now sufficient (the double majority requirement, i.e. majority in number + representing the ¾ of the share capital, is abolished), unless otherwise provided by the articles of association.
- Management in SARL: the possibility to appoint a day-to-day manager in the SARL is statutorily recognised.
- Conflict of interest rules: the procedure currently applicable to directors of an SA (slightly amended) is extended by law to other corporate bodies such as the day-to-day managers, liquidators and managers of a SARL.
V. Transfer of registered office
- Outside Luxembourg: the quorum/majority rules required for amending the articles of association are sufficient to resolve on a change of nationality (unanimity is no longer specifically required).
- Within Luxembourg: the management may resolve to transfer the registered office anywhere inside the Grand-Duchy of Luxembourg if permitted by the articles of association.
VI. Simplified liquidation
If a company is held by a sole shareholder, it may resolve to dissolve the company and assume, by way of universal transmission, all assets and liabilities of the dissolved company. Various certificates from public institutions are required and the creditors may request the constitution of collateral.
VII. Entering into force
As from the date of its entering into force , the New Law will be immediately applicable to:
- new companies (which must hence be incorporated with articles of association compliant with the amended company law); and
- existing companies (however, if specific clauses of their current articles of association require an adaptation for their compliance with the New Law, such clauses will remain applicable until their amendment, which must however be carried out within a timeline of 24 months).
This Newsletter has been prepared by MNKS for general guidance only. Although the greatest care has been taken to ensure that the information contained therein is accurate on the date of publication, MNKS does not accept any liability to any person for the information (or the use or reliance upon such information) which is provided in this Newsletter or incorporated into it by reference. On any specific matter, please contact us for appropriate advice.