Modernisation of Luxembourg company law

The most recent amendments to the draft law (Projet de Loi) No 5730 regarding, notably, the updating of the Law of August 10th 1915 (as amended) on commercial companies were proposed by the parliamentary sub-commission on the modernisation of Luxembourg corporate law in April 2015 (Document 5730/05) and are now subject to further discussions before, hopefully, being adopted by the end of 2015.

"The draft law aims to modernise and re-inforce the competitive edge of Luxembourg corporate law."

The bill as it presently stands will provide legal certainty for certain practises that are already well established under Luxembourg law. At the same time the draft law seeks to modernise and introduce new provisions to re-inforce the competitive edge of Luxembourg corporate law.

The most important provisions that are proposed to be introduced are the following:

In relation to private limited companies (S.à r.l.s):

  • maximum number of shareholders is raised from 40 to 100;
  • possibility to issue redeemable shares;
  • possibility to issue debt securities to the public (but not shares or beneficial parts);
  • legal rules introduced re the delegation of daily management and use of telecommunication devices in board and shareholder meetings;
  • possibility to have an authorised capital extended to S.à r.l.s (subject to approval of new shareholders);
  • the payment of interim dividends is subject to the same rules currently applicable to S.A.s.

In relation to public limited companies (S.A.s):

  • possibility to issue shares at below par value (subject to reports by the board of directors and an independent auditor);
  • introduction of regime for the allocation of free shares to employees;
  • recognition of clauses providing for restrictions on the transferability of shares, beneficial parts or debt securities provided these are limited in time;
  • greater flexibility to regime of non-voting shares (abolition of limitation to 50% of capital and need to attach preferential financial rights to such shares);
  • recognition of the creation of committees and delegation to a general director and a management committee (with greater powers than a daily manager);
  • introduction of the possibility for shareholders/holders of beneficial parts holding at least 10% of votes to take legal action against management.

In relation to both types of company:

  • possibility to have “tracking” shares;
  • possibility to issue shares of unequal value;
  • express rules introduced in relation to beneficial parts (with or without voting rights);
  • possibility to suspend voting rights of shareholders where such shareholders do not comply with their obligations and express recognition that shareholders may waive exercise of their voting rights;
  • unanimity of votes no longer required for change of nationality of a company;
  • new regime regarding issue of bonds and convertible securities;
  • possibility for shareholders to take legal action to declare void the decisions taken at general meetings;
  • authorisation can be set out in articles to allow the board to decide on a change of registered office within the Grand Duchy of Luxembourg and the related change of articles.

The draft law also introduces a new form of company into Luxembourg law, the “société par action simplifiée”. While based on the rules governing the SA, the articles can freely determine how the corporate governance is to be organised.

If the draft law is passed in the present form, then existing companies will need to amend their articles of incorporation (in accordance with the legal procedures required for a change of articles) to comply with the new provisions within two years from the date on which the law takes legal effect. Past this deadline the provisions of the articles conflicting with the new law are deemed to be invalid and the new legal rules become directly applicable.