UK: Major Reform Of The Luxembourg Company Law: What's New?

Last Updated: 27 July 2016
Article by Gérard Maîtrejean, Delphine Tempé and Mathilde Lattard

Bill 5730 amending the Luxembourg Company Law (the Bill of Law n°5730 amending the law of 10 August 1915 on commercial companies, the Civil Code and the law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of undertakings) was voted by the Luxembourg Parliament yesterday, 13 July 2016. Subject to an exemption from a second vote granted by the Council of State (Conseil d'Etat), the new law is expected to enter into force in August 2016.

The new law offers more contractual freedom to shareholders, while providing greater legal certainty for all parties.

Below is a summary of the key changes to the Company Law. We are at your disposal to advise you on the amendments to be made to your current articles of association and to incorporate your new companies in accordance with the new law.

Grandfathering period: 24 months

The new law shall apply to any companies incorporated after its entry into force.
Companies in existence before the new law's entry into force shall have 24 months to adapt their articles of association. Laws and regulations in force prior to the new law shall continue to apply to existing companies in respect of the provisions of their articles of association which are not compliant with the new law. However, for those provisions of the articles of association which are compliant with the new law, the new law shall be applicable immediately.

Key modifications of the Civil Code:

  • Determination of the respective rights of the bareowner and the usufructuary in case of a strip of shares: The new rules of the Civil Code apply to every civil and commercial company; furthermore certain specific rules on this subject have been introduced into the Luxembourg Company Law,
  • Recognition of tracking shares: Tracking shares currently used will now be recognized as valid.
  • Recognition of the "conventions de portage" in the form of put/call option agreements: Agreements, where shareholders organise the transfer or acquisition of shares, are no longer considered to be contrary to certain provisions of public order.
  • Consecration of the dissolution-confusion: This applies in cases where all the shares are held by a single shareholder.

Key modifications of the Luxembourg Company Law:

  • New type of company: The amendment introduces the "société par actions simplifiée" (S.A.S.) which operates mostly on a contractual basis. The new S.A.S. will not be able to proceed to a public issuance of shares.
  • Issue of bonds: Any type of commercial company can make a public issue of bonds and proceed with the listing of bonds.
  • New rules in respect of the transformation of companies.

Key modifications regarding public limited liability companies ("S.A."):

Most of these key modifications will also apply to corporate partnerships limited by shares.

Funding:

  • Minimum share capital: € 30,000
  • Issuance of shares below par value of the existing shares is permitted.
  • Shares with different nominal values are permitted.
  • Issuance of free shares to staff members is permitted.
  • 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, not requiring an auditor's report.
  • Limitations for issuance of shares without voting rights have been waived. However, the financial rights shall be stated in the articles of association.
  • Shares without voting rights shall recover their voting right when the resolutions of the general meeting amend their rights.

Transfer of shares:

  •  Restrictions on transfer of shares and founder shares are permitted.

Management and the holding of meetings:

  • The Board of Directors can create committees.
  • The law introduces an executive committee or managing director as a new corporate body.
  • Convening procedures have been simplified.
  • There are new rules on conflict of interest.
  • The management body is authorised to transfer the registered office anywhere in the Grand-Duchy of Luxembourg.
  • The management body shall issue a report in case of losses which reduce the net assets below half of the share capital of the company (waiver admitted if approved unanimously).

Shareholders and general meetings:

  • New convening formalities have been introduced.
  • General meetings held by videoconference are deemed to be held at the registered office of the company.
  • Unanimous consent is not required for the change of nationality, which requires a quorum and majority vote for the amendment of the articles of association.
  • The suspension of voting rights for defaulting shareholders can be instigated by the company or by a waiver of the shareholders themselves.
  • The amendment creates an actio mandati for the minority shareholders representing at least 10% of the share capital.

Key modifications regarding private limited liability companies ("S.àr.l."):

Funding:

  • Minimum share capital: € 12,000
  • Units may have different nominal values.
  • Redeemable shares forming part of the share capital are permitted.
  • Profit shares not forming part of the share capital are permitted.
  • Sweat equity contributions are permitted without external revision.
  • Authorised share capital is permitted.
  • Public issuance and listing of bonds are permitted.
  • Interim distribution by managers is permitted.

Management:

  • Day-to-day managers are permitted.
  • Written resolutions and attendance at board meetings via video-conference are permitted if provided for in the articles of association.
  • Managers are subject to conflict of interest and confidentiality rules, similar to those applying to the directors of a public limited liability company.
  • Managers are authorised to transfer the registered office anywhere in the Grand-Duchy of Luxembourg.

Transfer of shares:

  • It will be possible to reduce the agreement of three quarters of the share capital to half of the share capital. The law also introduces a new procedure in case of refusal, to ensure that the transferor will not be prevented from proceeding with the transfer.

Shareholders and general meetings:

  • The maximum number of shareholders is now 100 and there is a statutory procedure in case the threshold is reached.
  • General meetings of shareholders are not obligatory where the number of shareholders does not exceed 60.
  • Written resolutions and resolutions via video-conference and by correspondence are permitted if provided for in the articles of association.
  • Headcount is no longer a condition for the Extraordinary General Meeting which shall be adopted by shareholders representing three quarters of the share capital.
  • Unanimous consent is not required for the change of nationality, which requires a quorum and majority vote for the amendment of the articles of association.
  • Voting arrangements are legally permitted if certain statutory conditions are met. The suspension of voting rights for defaulting shareholders can be instigated by the company or by a waiver of the shareholders themselves.

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