Luxembourg parliament adopted on 13 July Bill of Law 5730 modernising the law on commercial companies of 10 August 1915 and amending inter alia relevant articles of the Civil Code.
Although the new company law brings a lot of significant changes in our legislation, the contractual freedom for the shareholders remains the key feature of Luxembourg company law. The new company law mainly purports to integrate some innovations also existing in foreign countries, to offer new legal instruments to investors, to harmonise rules applicable to the different forms of companies and to formally recognise the validity of legal solutions previously developed by Luxembourg practice.
The new company law contains new opportunities but also additional constraints. As a result, the impact of such legislation should be carefully analysed not only for new entities but also for existing structures.
For any new entity incorporated after the entry into force, the new company law shall automatically apply in its entirety. For any existing entity, the shareholders have 24 months to adapt the articles of association. During this period (or at least until the articles are amended so as to comply with the new company law), the current legislation remains applicable to all provisions of the articles of association contrary to the new company law while the new company law applies to all matters not mentioned in the articles.
You will find below some of the key changes resulting from the new company law in summarised form. Some of them may require specific actions, including appropriate provisions to be inserted in the articles or shareholders’ agreement but this will need to be analysed on a case-by-case basis.
(a) Key changes applying to SA, SCA and Sàrl:
- All types of companies (including Sàrls) will be allowed to issue bonds to the public.
- Agreements governing voting rights are now formally recognised save in certain circumstances.
- The new company law lists cases where a decision of shareholders or bondholders may be declared void.
- A shareholder of a SA, a Sàrl or a SCA may voluntarily give up all or part of his voting rights either temporarily or permanently.
- Management may, if provided by the articles of association, suspend the voting rights of a shareholder who is in default of its obligations under the articles of association or under agreements among shareholders.
- The legal recognition of the practice of issuing tracking shares.
- The right of shareholders and/or holders of 10% of the capital or voting rights to request information on management decisions with respect to the company and group subsidiaries.
- The change of nationality will no longer require an unanimous decision by the shareholders (and bondholders).
(b) Key changes pertaining to Sàrl :
- Amendments of the articles of association will be subject to a vote by the shareholders holding 3/4 of the capital (i.e. abolition of the additional mandatory headcount majority).
- An Sàrl may issue non-convertible bonds to the public, beneficiary units (parts bénéficiaires) with or without voting rights and redeemable shares.
- The managers may decide distributions out of interim profit under the same conditions as for an SA.
- The majority requirement applicable to the transfer of shares in an Sàrl to a non-shareholder may be reduced to 50% of the share capital in the articles of association; if the proposed transfer of shares is not approved, the remaining shareholders may propose alternatives within 3 months of this refusal to the leaving shareholder allowing it to transfer its share and if no solution has been found, the leaving shareholder is authorised to transfer its shares to the third party initially identified.
- The possibility is introduced to provide for an ‘authorised share capital’ with the authorisation to the managers to issue new shares under certain conditions.
- The possibility to delegate day-to-day management to one of the managers.
- The maximum number of shareholders in an Sàrl is increased from 40 to 100.
(c) Key changes pertaining to SA and SCA :
- The validity of lock up clauses in the articles of association is formally recognised with the consequence that any transfer made in breach of such clause is expressly null and void.
- A prior consent clause or a pre-emption clause relating to a transfer of shares and provided for in the articles of association is formally declared as being valid as long as it does not prevent the leaving shareholder from transferring its shares for more than 12 months; any equivalent clause possibly contained in a shareholders agreement is not impacted by the new company law.
- Shareholders or holders of beneficiary units with voting rights representing at least 10% of all voting rights may, on behalf of the company, bring an action against the board of directors, management board or supervisory board for mismanagement, breach of law or articles.
- 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.
- The possibility to issue bonus shares (actions gratuites) and shares below par value under certain conditions.
- Convening notice to registered shareholders may be sent by means other than by registered letters (such as email or courier service) provided that such alternatives are mentioned in the articles and have been approved by the relevant shareholders.
- The legal recognition to provide for a comité de direction or, alternatively, a directeur général.
- The creation of committees at the level of the board of directors or the management board and the supervisory board, a practice already implemented for the board of directors in many companies, is now specifically provided.
- An auditor’s report is no longer required for contributions consisting in a receivable (under certain conditions).
The new company law also introduces a new form of company, the Société par actions simplifiées (“SAS”) which is subject to the same rules as the SA but is characterised by a greater contractual freedom (for instance the corporate governance rules can be freely determined by the shareholders).
Our teams are at your disposal to discuss the amendments in more detail and any specific impact that the new company law may have on your company.