Major reform of Luxembourg company law - Law of 10 August 2016

Entering into force on 23 August 2016, the Law of 10 August 2016 (the “New Company Law”), which modernizes the Law of 10 August 1915 on commercial companies (as amended), the Civil Code and the Law of 19 December 2002 on the trade and companies’ register and the accounting and annual accounts of undertakings (as amended), purports to introduce measures that will make Luxembourg company law even more attractive to investors, while preserving the contractual flexibility for shareholders and formally recognizing a number of corporate practices developed in recent years.

The New Company Law will automatically and fully apply to any new entity incorporated as from 23 August 2016. Entities established before this date benefit from a two-year transition period to amend their articles of association so as to comply with the New Company Law. It is worth noting that, during this period, current legislation applies to all provisions of the articles of association that conflict with the New Company Law, while this latter law is applicable to all matters not mentioned in the articles. Therefore, this requires a careful review of the articles to ensure their compliance with the mandatory provisions of the New Company Law.

Changes arising from the New Company Law relate to the most commonly used types of company in Luxembourg, i.e. public limited liability companies (“sociétés anonymes” or “SA”) and private limited liability companies (“sociétés à responsabilité limité” or “S.à r.l.”). Nevertheless, some provisions also concern all types of company. The main amendments are summarized below.

Changes applying to the SA:

• The minimum share capital of the SA is EUR 30,000.-.
• There is the option of issuing bonus shares, shares with different nominal values and shares without nominal value, with a subscription price below their accounting par value;.
• The issuance of non-voting shares is no longer limited to 50% of the share capital and to the granting of a preferred dividend.
• The general meeting of shareholders may decide to change the nationality of a company without the unanimous consent of the shareholders.
• The procedure for convening a general meeting is simplified by the use of modern communication technologies such as email.
• An actio mandati is introduced allowing minority shareholders representing at least 10% of the share capital to act on behalf of the company against members of the board of directors who have breached their duties.

Changes applying to the S.à r.l.

• The minimum share capital of the S.à r.l. is reduced to EUR 12,000.- and the maximum number of shareholders is increased from 40 to 100.
• Contributions in the form of services (“apports en industrie”), which are not part of the share capital but give rights to profit sharing and net assets, are now allowed.
• There is the option of issuing to the public beneficiary shares (“parts bénéficiaires”) with or without voting rights, redeemable shares and convertible bonds.
• As already provided in the SA, there may now be authorized share capital, with the managers authorized to issue new shares under certain conditions.
• The board of managers may delegate a part of its powers to a day-to-day manager.

Changes applying to all types of company

• The practice of issuing tracking shares (“actions traçantes”) is legally recognized.
• All commercial companies (including the newly introduced simplified S.à r.l.) are now allowed to issue bonds to the public.
• The practice of the “simplified dissolution” (one-step dissolution without liquidation) is legalized for companies having a sole shareholder, subject to certain conditions.
• One or more shareholders representing 10% of the share capital or 10% of the voting rights attached to all existing securities may request information from the management body on management operations of the company and group subsidiaries.
• Cases where resolutions of shareholders or bondholders may be declared null and void are clarified.
• Nominee agreements are legally recognized and excluded from the scope of the prohibition of exclusive profit or loss allocation clauses (“clauses léonines”).
• A new section on the conversion of companies is introduced and provides clarification on the rules applicable to any company.

Introduction of a new type of company: the SAS

• Based on the French system, a new form of company, the “société par actions simplifiée” or “SAS”, has been introduced into Luxembourg law. Because of the extensive contractual freedom embodied in the SAS, a wide variety of clauses (such as those relating to the limitations or free transferability of shares or the rules determining corporate governance) can be included in the company’s articles of association. Unless otherwise provided for, some provisions governing SAs also apply to the SAS. This new vehicle may therefore inter alia be of particular interest in private equity transactions.