Loyens & Loeff New York regularly posts 'Snippets' on a range of EU tax and legal topics. In this snippet, we discuss the governance and control of Luxembourg asset acquisition vehicles.
The Luxembourg private limited liability company
("Sarl") is the preferred European asset acquisition
vehicle for US fund managers ("USFMs").
The Sarl's key decision-making body is its board of managers
("BOM"). The managers can be individuals or legal
entities. The BOM can take any action to achieve the Sarl's
corporate object, except for actions reserved by law or the
articles of association ("AoA") to the general meeting of
shareholders ("GMS") such as the amendments of the
AoA.
The BOM's composition is a balancing act between control and
local footprint. To secure control over the Sarl, USFMs usually
want to appoint one or more of their US based team members as
manager ("USM"). On the other hand, because the
composition of the BOM is a crucial factor in evaluating the
Sarl's Luxembourg legal and tax footprint, a majority of the
managers are typically (professionally) based in Luxembourg
("LM"). Those two factors are often reconciled by having
two classes of managers (USM and LM, respectively) and by providing
in the AoA that the approval of at least one manager of each class
is required for decisions by the BOM and to represent the Sarl for
e.g. signing contracts. The AoA may permit a shareholder to remove
a manager without cause.
BOM decisions can be adopted during in-person meetings, virtual
meetings (unless otherwise provided in the AoA) or a combination of
both. In practice, BOMs often hold an in-person meeting in
Luxembourg at least once per year. A manager who cannot attend may
be represented by proxy given to another manager. Decisions made
during meetings are documented in minutes. In addition, the AoA
usually allow BOM decisions to be taken through circular written
resolutions signed by all managers.
Managers, which bear the risk of liability, must manage the Sarl
with the care, diligence and skill that a reasonable person would
exhibit in similar circumstances. To adhere to that standard and to
secure Luxembourg footprint, all the managers (including USM)
should e.g. actively participate in BOM meetings.
By law, each manager can validly bind the Sarl toward third
parties. In case a Sarl has two classes of managers, the AoA
usually require joint representation of the Sarl towards third
parties by one manager of each class and this is opposable to third
parties. This mechanic protects the Sarl against an LM validly
signing a contract without the backing of an USM (control) while
also ensuring that an LM is involved (Luxembourg footprint). If
permitted by the AoA, the BOM can grant power to a third party to
represent the Sarl for one or more specific transactions.
The AoA may provide for other limitations of the decision powers of
all or some of the managers. Such limitations are not opposable
towards third parties. A manager that does not comply with such
limitations may be responsible towards the Sarl and third parties.
The Luxembourg private limited liability company ("Sarl")
is the preferred European asset acquisition vehicle for US fund
managers ("USFMs").
The Sarl's key decision-making body is its board of managers ("BOM"). The managers can be individuals or legal entities. The BOM can take any action to achieve the Sarl's corporate object, except for actions reserved by law or the articles of association ("AoA") to the general meeting of shareholders ("GMS") such as the amendments of the AoA.
The BOM's composition is a balancing act between control and local footprint. To secure control over the Sarl, USFMs usually want to appoint one or more of their US based team members as manager ("USM"). On the other hand, because the composition of the BOM is a crucial factor in evaluating the Sarl's Luxembourg legal and tax footprint, a majority of the managers are typically (professionally) based in Luxembourg ("LM"). Those two factors are often reconciled by having two classes of managers (USM and LM, respectively) and by providing in the AoA that the approval of at least one manager of each class is required for decisions by the BOM and to represent the Sarl for e.g. signing contracts. The AoA may permit a shareholder to remove a manager without cause.
BOM decisions can be adopted during in-person meetings, virtual meetings (unless otherwise provided in the AoA) or a combination of both. In practice, BOMs often hold an in-person meeting in Luxembourg at least once per year. A manager who cannot attend may be represented by proxy given to another manager. Decisions made during meetings are documented in minutes. In addition, the AoA usually allow BOM decisions to be taken through circular written resolutions signed by all managers.
Managers, which bear the risk of liability, must manage the Sarl with the care, diligence and skill that a reasonable person would exhibit in similar circumstances. To adhere to that standard and to secure Luxembourg footprint, all the managers (including USM) should e.g. actively participate in BOM meetings.
By law, each manager can validly bind the Sarl toward third parties. In case a Sarl has two classes of managers, the AoA usually require joint representation of the Sarl towards third parties by one manager of each class and this is opposable to third parties. This mechanic protects the Sarl against an LM validly signing a contract without the backing of an USM (control) while also ensuring that an LM is involved (Luxembourg footprint). If permitted by the AoA, the BOM can grant power to a third party to represent the Sarl for one or more specific transactions.
The AoA may provide for other limitations of the decision powers of all or some of the managers. Such limitations are not opposable towards third parties. A manager that does not comply with such limitations may be responsible towards the Sarl and third parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
