_ What types of business entities to incorporate in Luxembourg?
The company law reform voted on 10 August 2016—almost a century after the promulgation of the first edition of the 1915 company law (the “Law 1915”)—and enforced starting 23 August 2016, had the primary objective of addressing the needs of an economy that is increasingly globalised and centred on finance. Thus, the reform maintains and strengthens the position of the Grand Duchy as a proactive financial and investment hub in Europe. For this purpose, the legislator ‘modernised’ the main types of Luxembourg business entities, using a highly pragmatic approach in line with the precept underlying this area of law since its beginnings: contractual freedom between shareholders, legal certainty for third parties.
All of the business entities have key characteristics and differences that make them more or less suitable depending on a wide range of factors: the types of activities to be carried out, the nature of the shareholding, the geographical origin of the shareholders, the type of financing sought, etc. For instance, public limited companies (sociétés anonymes) or partnerships limited by shares (sociétés en commandite par actions), both of which are highly regulated types of companies, should be considered in cases involving public offerings or the listing of shares or where control over the management is of prime importance. However, these company types are not always convenient for structuring acquisitions or for group reorganisation projects, where flexibility is essential. For these kinds of transactions, private limited companies (société à responsabilité limitée) are generally preferred1. To complete this toolbox, a new type of company, the simplified public company (société par actions simplifiée), has been introduced in the Luxembourg market as a tailor-made vehicle for investors. While some practitioners seem skeptical of the utility of this simplified type of company, the possibility for the shareholders to freely organise—around the chairperson—the company’s governance structure, together with the possibility of freely determining the political and economic rights that can be attached to its shares, potentially makes this business form an attractive vehicle for supporting private equity or joint venture transactions.
In parallel to the above, the legislator has also attempted to promote local entrepreneurship by passing, on 23 July 2016, the law establishing simplified private limited companies (sociétés à responsabilité limitée simplifiées). This variant of the classic private limited form—characterised by a very low degree of sophistication—was designed only so that natural persons who wish to develop and test innovative business ideas can create an ad hoc company in a timely and cost-efficient way, with a symbolic financial contribution (i.e., EUR 1 as the minimum starting capital), while benefiting from limited liability.
_ Complete comparative table of the main Luxembourg business entities.
The table can be downloaded below.
1. Limited partnerships (sociétés en commandite) and special limited partnerships (sociétés en commandite spéciale) are also commonly used in private equity and funds industries.
This article has been previously published in Legicorp, the Legitech corporate law database.