Brief overview of the legal regime for share premium in Luxembourg

The legal regime for share premium is characterized by its flexibility and contractual freedom.

1. Definition
There is no express legal definition of share premium. However, Luxembourg doctrine unanimously considers that share premium constitutes the surplus of the issue price over the nominal value of the shares allocated to the contributor.

2. Function
Share premium is traditionally meant to restore equal treatment between former and new shareholders within the context of a capital increase.

3. Legal nature
According to case law and doctrinal consensus, share premium would represent an "additional contribution", not incorporated into the capital, charged to the subscriber in order to ensure equal financial rights between former and new shareholders.

4. Reimbursement
Reimbursement of share premium is subject to doctrinal debates.

It is therefore recommended that the articles of association provide that the share premium be freely available and repayable at any time, subject to the principle of non-derogability of the share capital and of non-distribution of the legal reserve.

The appropriate intermediary position would be that a distribution of share premium should not be compared to a distribution of dividends, although it should, in any case, fulfil the conditions of article 72-1 of the company law dated 10 August 1915, including the fact that no distribution can be made to the shareholders (except in the event of a subscribed capital decrease) when, on the closing date of the previous financial year, the amount of the net assets resulting from the annual accounts is or would become lower than the amount of the subscribed share capital following such a distribution, increased by the reserves which may not be distributed pursuant to the law or the articles.

In line with this position, and unlike the distribution of dividends regime, there can be a reimbursement of share premium, even when there are prior outstanding losses.

Finally, and in practical terms, the board of directors (or the executive board) notes that the amount of share premium to be distributed is available, and proposes its reimbursement to the shareholders. The resolutions of the board of directors (or the executive board) are based on an interim balance sheet, dated less than two months prior to the date of the resolutions, evidencing that the funds to be distributed are sufficient. Such reimbursement is then approved by the general meeting of the shareholders.