The issuance of bonds to the public by a private limited liability company (société à responsabilité limitée)

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The legislator through the adoption of the law of 10 August 2016 which modernized the law of 10 August 1915 on commercial companies (the “Law”) has expressed its willingness to extend the sources of financing for the private limited liability companies (“SARL”).

If the Luxembourg practice, on the basis of an a contrario interpretation of the former Article 188, admitted the validity of the private issuance of debt securities or bonds by a SARL (in particular under the form of preferred equity certificates), the inclusion in the Law of a new Article 11ter now allows any company of any form to issue bonds. The rewording of the Article 188 of the Law also confirms this intention by abolishing the prohibition for an SARL to take out loans by way of public bonds issuance but the public issue of shares or profits units remains however prohibited for a SARL.

Consequently a SARL may issue bonds to be listed and traded on the Luxembourg stock exchange. However in case of an issuance of convertible bonds by a SARL, the subscribers that are not already shareholders of the company must obtain the approval of its current shareholders given in accordance with the article 189 of the Law. The approval may thus be given in advance to non-shareholders who are identified in the approval decision or upon issuance of the bonds or instruments or subsequently. Such approval will also be required prior to any transfer of convertible bonds to a third party, whether inter vivos or by cause of death. The public limited liability companies (sociétés anonymes) are not subject to such a constraint.