A. The "Societe Anonyme " ( S.A.) (Public limited company)
- The share capital
- Incorporation
- Articles of Association
- Management
- Supervision
- The General Shareholders' meeting
B. The "Societe a responsibilite limitee" ( S.A.R.L.) (Private Limited Company)
C. The "Societe en nom collectif " (S.E.N.C..) (General Partnership)
D. The "Societe en commandite simple" (S.E.C.S..) (Limited Partnership)
E. The "Societe en commandite par action" (S.E.C.A..) (Partnership Limited by shares)
F. The "Societe co-operative" (Co-operative Society)
Introduction
More than 50 years ago, the Grand-Duchy of Luxembourg, as one of the first European countries, introduced a special fiscal regime for holding companies, realising the necessity to create a precisely defined legal regime and to avoid the disadvantages of the lack of Double Tax Treaties existing at that time.
This consideration led to the law of July 31, 1929 which grants favourable tax treatment to Luxembourg companies qualifying as holding companies.
Are subject to the benefits of this special tax status not only pure controlling holding companies, but also patent holding companies or venture capital holding companies.
A company which fulfils the requirements of the 1929 law will be exempt from corporate income tax ("impot sur les Societes"), municipal business tax ("impot commercial communal") and net worth tax ("impot sur la fortune"), and merely liable to either a subscription tax ("taxe d'abonnement") or - if the company has adopted the status of a billionaire holding company - a special annual "income tax".
A first extension of the Luxembourg holding company legislation took place with the introduction, by a Grand-Ducal decree dated December 17, 1938, of the so-called "Holding Milliardaire" (Billionaire Holding Company) i.e. a company whose own funds are of at least LUF 1,000 million. The Billionaire holding companies are subject to a special tax regime which will be referred to hereafter as "Billionaire Holding Companies".
Pursuant to a decision of the Minister of the Treasury dated September 9, 1965, the authorities confirmed that holding companies with a substantial capital organised by major groups may finance the subsidiaries of affiliates of the group, though they did not hold direct interest in those subsidiaries of affiliates, provided several conditions are met.
Exempt from withholding tax on interest in Luxembourg, finance holding companies are a vehicle of choice for debt offerings on the international market by groups based in countries where fixed income investments are subject to withholding tax.
As the counterpart of this special tax treatment granted to holding companies consists in their exclusion from the benefit of double taxation agreements to which the Grand-Duchy of Luxembourg is a party and of the European Union Parent/Subsidiary Directive, dividends and interest derived from a foreign subsidiary of a Luxembourg resident company remain subject to full withholding tax in the State of the source.
Aware of the difficulties resulting from this exclusion, the Luxembourg authorities, within the framework of the implementation of the EU parent/subsidiary directive, modified the unilateral tax privilege and extended the latter to profits made on the transfer of holdings (Grand-Ducal decree of December 24, 1990).
Hence, it has become possible to set up a Luxembourg resident "holding" company - called SOPARFI (Societe de participation financiere) which is basically subject to the same taxation rules as all other Luxembourg resident corporations. The advantage of this status is that such company may benefit from the protection of double tax treaties of which the Grand-Duchy is a party and from tax exemption according to the EU parent/subsidiary directive of July 23, 1990.
The advantage of this 1990 holding company, also called "1990 Holding" is to benefit from a preferential tax regime as the 1929 holding company, without suffering from the disadvantages due to subjective tax exemption.
It has to be noted that all of the aforementioned laws or decrees only special fiscal regimes were introduced and that none of them created a new corporate form.
All the above-mentioned companies take the form of a commercial company (even if for some types of holding companies some defined forms of company are compulsory).
As a consequence it seems necessary to give a brief survey of a Luxembourg company law.
I) Brief survey of Luxembourg Company Law
Luxembourg resident companies are subject to the provisions of the co-ordinate Company Act of August 10, 1915 as amended.
Since Holding Companies and SOPARFI take the form of commercial companies, essentially "Societe anonyme" - or in very rare cases "Societe a responsabilite limite", they are necessarily subject to the provisions of the 1915 Company Act.
The 1915 Company Act recognises 6 types of commercial companies, all of them having separate legal personality from their partners:
As the legal regime of each of these company types is different, the choice of one definite type company will depend on economic consideration.
- the "Societe anonyme", ("S.A.") ( joint stock company),
- the "Societe a responsabilite limitee" ("S.a.r.l."), (limited liability company),
- the "Societe en nom collectif ", ("S.E.N.C.."), (general partnership),
- the "Societe en commandite simple", ("S.E.C.S.."), (limited partnership),
- the "Societe en commandite par actions", ("S.E.C.A.."), (partnership limited by shares),
- the "Societe co-operative", (co-operative society),
Normally, company promoters and investors choose the form of a "Societe anonyme" or of a "Societe a reponsabilite limitee", as both types of company limit their shareholders' liability to the capital put into the company. "S.A." and " S.A.R.L." are treated as taxable entities and are subject to corporation tax, whereas for partnerships each partner has to declare his respective distributive profit in his personal tax return.
A) The Societe anonyme (S.A.)
The S.A. is comparable to a joint stock company or public limited company.
The share capital
The minimum share capital of a "S.A." is LUF 1,25 million. It must be fully subscribed and at least 25% of the subscribed capital has to be paid up on incorporation.
The capital may be expressed in any currency.
Generally, shares must be freely transferable. However, the law or the articles of association may provide for certain restrictions e.g. no transfer before definitive incorporation of the company or strictly limited acquisition by the company of its own shares.
The shares may be registered or bearer shares. However, the capital of the company must be composed of registered shares until the capital is fully paid-up.
The conversion of registered shares into bearer shares is admitted unless the articles of association provide for departures of this rule. On the contrary, the articles must never prohibit the existence of registered shares.
Following article 37 of the 1915 Company Act, all shares issued by a Luxembourg company must be of equal value. However, a dispensation to this rule was introduced by a law of March 30, 1988 on investment companies which authorises, in its article 110, the issue of shares of different sections and, as a consequence, of different value.
An S.A. may also issue non-voting shares with preferential rights.
Article 45 of the company law provides for 3 different types of issuances of preference shares:
a) at the incorporation of the company, if the articles provide so,
b) at a capital increase,
c) by conversion of ordinary voting-shares into preferential non-voting shares.
In situations b) and c) the issuance is subject to the shareholders' meeting's decision.
It has to be added that the conversion of preferential shares into ordinary voting-shares is also permitted under the condition that the articles of incorporation provide expressis verbis for such a possibility.
Incorporation
The S.A. must be formed by notarial deed and the articles of incorporation must be published entirely in the Official Gazette - "Memorial"- Section C , under the heading "Special list of companies and Associations" ("Recueil special des Societes et associations") (Article 4 of the Company Act).
According to article 26 of the Company Act, there must be at least two shareholders. However, in case of concentration of all shares in one hand, there will not be an immediate liquidation. The principle is that if there is only one shareholder for a period exceeding 6 months, such shareholders will be jointly, severally and indefinitely liable for the company's debts. Also, the winding-up of the company can be decided by the court on request of anybody concerned.
The duration of the company may be limited or unlimited.
Articles of association
Following Article 27 of the 1915 Company Act, as amended by a law of April 24, 1983, the articles of association must indicate :
i. the identity of the natural person or legal entity signing the articles or in the name of whom the articles are signed; ii. the form of the company and its corporate name; iii. the head office; iv. the corporate aim; v. the amount of subscribed capital and, if needed, the amount of the authorised capital; vi. the amount of the initially paid-in capital; vii. the categories of shares, if different categories exist, the rights connected with each category, the number of subscribed shares and in case where an authorised capital is specified, the shares to be issued and the rights connected with such shares; as well as, - the par value of the shares or the number of shares with no indication of par value; - the special provisions limiting share transfer; viii. the indication if the capital is composed of bearer shares or of registered shares, as well as any provision complementary to or departing from the law relating to security conversion; ix. the specification of any shareholders' contribution which is not a contribution in cash, the conditions under which such contribution is made, the name of the contributor and an independent auditor's report (the conditions of such report are foreseen in article 26 § 1 of the 1915 Company Act); x. the conditions and substance of any particular advantage granted upon incorporation to any of the incorporators; xi. where necessary, the number of bonds and shares which are not representative of the capital and the rights connected with them, especially as regards the voting rights at the general shareholders' meeting; xii. the rules governing the number and appointment of the bodies entrusted with the representation of the company towards third parties, the administration, management, supervision or the auditing of the company , in case where such rules are not derived from the company act, as well as the distribution of competence between those bodies; xiii. the duration of the company; ivx. the amount, at least approximately, of the costs, expenses and fees or charges, of any form, resting with the company or charged to the company upon incorporation.
The company must be formed by notarial deed in which all the partners appear either personally or by holders of a proxy (article 28 of the Company Act). The articles may be written in English, provided they a followed by a French or German translation.
The persons present or represented in the incorporation deed will be considered as founders of the company.
However, if the deed of incorporation designates as founders one or several shareholders holding at least one third of the capital, the other shareholders who subscribe without receiving any particular advantage, will be considered as merely subscribers.
Management
The S.A. is managed by a board of directors ("conseil d'administration"), a collegiate body composed of at least three directors who may be either physical persons or legal entities. There are no particular conditions of nationality, residence or special professional qualification required, and directors need not to be shareholders of the company. They are appointed by the general meeting of shareholders.
Article 53 § 1 of the Company Act gives residual power to the board, providing that except where exclusive power is conferred to the general meeting of shareholders, the board of directors has the power to perform all acts necessary or helpful to fulfil the corporate object.
Also, article 60 of the 1915 Company Act foresees that one or several managers may be entrusted with the day-to-day management of the company.
These managers who need not to be members of the board of directors nor shareholders of the company, may act on their own or jointly.
Their appointment, dismissal and assignment will be determined by the articles of association or by decision of the competent body of the company. Restrictions to the managers' powers of representation for the purpose of the day-to-day management will not be opposable to third parties, even if regularly published.
However, the clause appointing one or several persons as day-to-day managers will be opposable to third parties if registered, filed with the corporate register and published in the Official Gazette (Memorial C).
Supervision and accountings
The supervision of the company is entrusted to one or several auditors ("commissaire aux comptes"). A law of March 8, 1989 introduced an obligation of supervision of annual accounts by external auditors having special professional qualification ("reviseur d'entreprises") for companies having a certain volume.
Auditors are appointed by the general shareholders' meeting for a maximum period of six years, re-election being possible.
The auditors have an unlimited power to supervise the activities of the company by inspecting all documents and writings.
The general meeting which appoints the auditors is also enabled to decide their dismissal at any time.
a) Balance sheet and profit and loss account
Luxembourg resident companies are subject to the provisions of a law of May 4, 1984 (amending the 1915 Company Act by introducing articles 204 and following ) with respect to companies' accounting obligations. This new law introduced a simplified regime of presentation and publication requirements for the accounts of small and medium-sized companies.
In order to qualify as a small or medium-sized company 2 out of 3 of the following criteria must be met for 2 consecutive accounting periods:
i) small company - balance sheet total not exceeding LUF 93 million - net turnover not exceeding LUF 186 million - average number of employees not exceeding 50 ii) medium-sized company: - balance sheet total not exceeding LUF 372 million - net turnover not exceeding LUF 745 million - average number of employees not exceeding 250Small companies may use an abridged balance sheet. Both small and medium-sized companies may use an abridged profit and loss account.
b) Consolidated accounts
A law dated July 11, 1988, implementing 7th EEC directive of 1983 modified the 1915 Company Act by introducing a section XVI relating to "consolidated accounts" (articles 309 and following).
According to this law the balance sheet and the profit and loss account of a group of companies must be consolidated if one of the following situations is met:
i. - if a company holds a majority of the voting rights of another company; ii. - if a company holding a minority participation controls that company by virtue of an agreement with the other shareholders of that company; iii. - if a company holding a minority participation in another company has the right to appoint or dismiss the majority of the board of directors or any other body entrusted with the management or supervision of that company.c) Publication of accounts
The balance sheet and the profit and loss account must be filed with the corporate register (Registre des Societes) at the District Court (Tribunal d'Arrondissement).
At the end of the balance sheet and the profit and loss account will figure the names of the directors and the auditor, the repartition of the net profits with respect to the shareholders' meeting's resolutions and a list of shareholders who have not yet entirely paid up their shares with indication of the amount which still has to be paid up.
These documents do not have to be entirely published in the Official Gazette (Memorial C), the publication of a notice of their filing with the Corporate Register will be sufficient.
The general shareholders' meeting
Under Luxembourg company law the holding of an annual shareholders' meeting is compulsory. The day and hour of the AGM's holding is foreseen in the articles of association.
The general shareholders' meeting has the greatest powers to decide or ratify all acts concerning the company, especially the appointment and dismissal of the members of the board of directors and the auditors, the approval of the balance sheet as well as the distribution of profits.
The articles of association will provide for the process of deliberation and the conditions to be admitted to the general meeting.
An extra-ordinary shareholders' meeting is necessary to amend the articles of association. Its decisions have to be taken by specified majority and need a special attendance-quorum. The law provides that half of the subscribed capital must be represented at the extra-ordinary shareholders' meeting ( art. 67. 1(2) ), and that the order of the day must indicate the intended amendment of the articles. If the first condition is not fulfilled, a second shareholders' meeting might be held. No attendance-quorum is prescribed for this second meeting.
At each (i.e. the first and the second) shareholders' meeting a majority of 2/3 at least of the present or represented voting shares is necessary to adopt the amendments.
As regards Luxembourg companies' change of nationality or the rise of the shareholders' liability the law (art. 67.1 (1) ), provides that an unanimous decision of the shareholders and the bond creditors is compulsory.
An extra-ordinary shareholders' meeting can be held on request of the board of directors, the statutory auditors or shareholders representing at least 20% of the capital of the company. Shareholders may be represented by proxies.
B) The "Societe a responsabilite limitee" (S.A R.L.) ( Limited liability company)
The minimum share capital required for the incorporation of a "Societe a responsabilite limitee" is LUF 500.000.- . The capital must be fully paid-in upon incorporation.
The shares are not freely transferable and can be transferred only within the limits foreseen by articles 189 and 190 of the 1915 Company Act (agreement of shareholders representing at least 3/4 of the capital; report of the share transfer by notary deed or deed under private seal).
Article 181 of the 1915 Company Act, as amended, provides that the number of shareholders has to be at least 2 and must not exceed 40.
The company must be formed by notarial deed and the articles must be entirely published in the Official Gazette (Memorial C).
The management of a S.A R.L. is entrusted to one or several managers who need not to be shareholders.
For S.A R.L. with no more than 25 shareholders, the holding of an annual general meeting is not compulsory and there are no audit requirements. Companies of more than 25 shareholders must hold an annual general meeting and have one or more auditors (articles 193 and 200 of the 1915 Company Act). The company cannot raise loan by public issue of bonds or make public issue of shares.
Insurance, funding and savings institutions cannot take the form of a S.A.R.L.
C) "Societe en nom collectif " (S.E.N.C.) (General Partnership)
In this form of company, members are personally, jointly , severally and indefinitely liable for the company's debts.
To form the company, a private deed will be sufficient. The articles of the company will only be published in extracts in the Official Gazette.
Normally, share transfer is not free, unless articles of incorporation provide for departures of this rule.
The daily management is entrusted to a manager. The law does not provide for any governing body.
Unlike S.A. and S.A.R.L. the S.E.N.C.. is not as such subject to tax. Thus, personal income tax is levied on the partners to the extent of their income from their company shares.
D) "Societe en commandite simple" ( S.E.C.S..) ( Limited partnership)
This type of company is formed under a business name by one or more "general partners" ("commandites") who are jointly, severally and indefinitely liable, and one or more "limited partners" ("commanditaires") who merely constitute capital and are liable to the extend of their contribution.
The "S.E.C.S.." is formed by private deed and published in extracts in the Official Gazette (Memorial C).
Shares are normally not freely transferable. However, the articles of association may depart from this general rule.
The daily management is entrusted to a manager who must not be a limited partner (commanditaire). No governing body is prescribed by law.
E) "Societe en commandite par actions", (S.E.C.A..) ( Partnership limited by shares)
The partnership limited by shares is subject to a similar regime as the above mentioned "S.E.C.S..", the only difference being that the holdings of the limited partners are freely transferable shares.
Supervision has to be entrusted to one or several auditors.
However, the "Societe en commandite par actions", unlike "S.E.N.C.." and "S.E.C.S.." , is subject to corporation tax.
F) "Societe co-operative" (Co-operative society)
The minimum number of partners in this type of company is 7, no maximum number being prescribed.
In practice, co-operative societies are composed of members whose number and holdings vary. This type of company has no prescribed name and can be formed by private deed. However, the articles of association have to be entirely published in the Official Gazette.
The articles of the society must provide for the manner in which the capital is made up and the minimum amount to be initially paid up. The shares are freely transferable to third parties.
The society is managed by one or several managers who need not to be members. The supervision is entrusted to one or several auditors.
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.
