On 13 July 2016, the Luxembourg Parliament adopted a bill which aims at modernising the amended Luxembourg law dated 10 August 1915 on commercial companies (and certain provisions of the Luxembourg Civil Code) with significant changes confirming current practice, increasing the flexibility for the shareholders to organise their relations, harmonising the rules applying to the different legal forms of companies with also the creation of a new legal form: the société par actions simplifiée.
The law will become effective three days after its publication in the Luxembourg official gazette (Mémorial A) and existing companies will have 24 months to adapt their articles of association to the new rules (if needed)
1. Key changes applying to all types of companies
- Tracking shares : article 1853 of Luxembourg Civil Code recognises the practice of the issuance of tracking shares which can now be issued by all types of companies, as far as articles of association lay them down. There is no legal segregation or compartmentalisation in itself but rather a confirmation of the current practice.
- Issuance of bonds to the public : all types of companies can now issue bonds to the public, with separate procedures regarding bonds in general and convertible bonds.
- Simplified liquidation : the sole shareholder of a company may resolve upon its dissolution, hence assuming all its assets and liabilities. Various certificates from public institutions are however requested.
- Suspension of voting rights : the board of directors or board of managers (as appropriate) has the possibility to suspend the voting rights of shareholders in the event of a breach of their obligations under the articles of association. This sanction can be applied on a permanent or temporary basis.
- Waiver of voting rights : shareholders may waive all or part of their voting rights, temporarily or permanently.
- Voting agreements : agreements between shareholders regarding the exercise of their voting rights are expressly allowed insofar as they do not infringe the law or the corporate interest of the company. Specific conditions apply depending on the type of company concerned.
- Minority shareholders’ information rights : one or more shareholders representing 10% of the share capital or 10% of the voting rights attached to all existing securities (individually or together) may request information on management decisions regarding the company or its subsidiaries.
- Shares with different nominal values and voting rights : the law introduces the possibility to issue shares with a different nominal value or below the par value of the existing shares with different voting rights attached thereto.
2. Key changes applying to private limited liability companies (S.à r.l.)
- Incorporation : the maximum number of shareholders is increased from 40 to 100. If this maximum is exceeded, the company has a year to conform to the law.
- Redeemable shares and beneficiary shares : the articles of association of S.à r.l. may provide for the issuance of redeemable shares and the amended law further authorises S.à r.l. to issue beneficiary shares.
- Authorised share capital : the board of managers or sole manager of a S.à r.l. can be authorized by the articles of association to issue shares provided that the new shares are issued to existing shareholders or to approved third parties.
- Transfer of shares : the transfer of share in S.à r.l. is subject to the approval of shareholders representing 75% majority of the share capital. However, the articles of association can now lower this majority requirement to 50%. In addition, the amended law now provides for a framework organising an orderly exit (either through a share repurchase or a sale to another shareholder / bona fide third party) which must not take longer than six months.
- Voting majority for the amendment to the articles of association : article 199 now provides for a majority of 75% of the share capital and no longer requires the vote of a majority in number of shareholders.
- Conflict of interests : the procedure applicable to directors of an S.A. (slightly amended with the new law) is now also applicable to managers of S.à r.l.
- Interim dividend : the possibility for the board of managers to distribute interim dividends is now confirmed (subject to the availability of distributable profits or reserves).
3. Key changes applying to public limited liability companies (S.A.) and corporate partnerships limited by shares (S.C.A.)
- Bonus shares: S.A. can now issue bonus shares (actions gratuites) to employees of the company or employees of affiliate entities under certain conditions, amongst which a decision of the shareholders, a due information of the latter and an attribution of those shares by the board of directors.
- Lock-up clauses: the validity of lock-up clauses is now confirmed, provided that they are limited in time (for instance, prior consent clauses cannot result in a non-transferability exceeding 12 months).
- Non-voting shares: the issuance of non-voting shares in the capital will no longer be limited to 50% of the corporate capital and non-voting shares do not necessarily need to receive a preferred dividend. Financial rights must be determined in the articles of association. Non-voting shares are allowed to vote when the general meeting of shareholders change their rights and in case of capital decrease. A specific control regarding their repurchase is set up.
- Creation of committees: an S.A. can now set up a “comité de direction” or, alternatively, one or more “directeur général”. The management may delegate any of its powers to these committees save for those powers which concern the general politics and duties reserved by law to the management. In case of delegation, the committee would exercise its powers in an exclusive manner, leaving the management with supervisory powers only. The conditions regarding its functioning have to be set up in the articles of association.
- Minority shareholders’ procedural rights: the amended law offers the possibility for minority shareholders to act in court, on behalf of the company, against the management if they hold at least 10% of the voting rights of the company.
- Conversion of convertible debt instruments into share capital: the conversion of convertible debt instrument into equity no longer requires an independent statutory auditor’s report.
- Warrants: the amended law confirms the possibility for S.A. to issue detachable subscription rights (so called “warrants”).
- Permanent representative: the amended law clarifies the situation for the general partner of an S.C.A.: where a legal entity is appointed as general partner, it is not bound to designate a physical person as permanent representative.
4. New legal form: the Société par Actions Simplifée (S.A.S.)
This new form of company is based on the French model. All provisions applying to S.A. will apply to the S.A.S., except for the corporate governance structure and the rights and obligations attaching to the shares which can be freely determined by the shareholders.