The Role of the SA in Luxembourg Business Landscape
In Luxembourg, the Société Anonyme (SA) or public limited company stands as one of the most common legal forms of business entities, alongside the Société à Responsabilité Limitée (SARL). This legal structure offers numerous advantages, primarily centered around limiting liability (up to the extent of contributions) and regulating access to capital.
The following guide provides an in-depth understanding of the SA or public limited company in Luxembourg, covering essential aspects such as its formation, governance, responsibilities, and fiscal obligations.
I. The Luxembourg Société Anonyme (SA) – An Overview
The SA is frequently chosen as the preferred corporate structure by large corporations in Luxembourg. However, it also presents a viable option for Small and Medium-sized Enterprises (SMEs) due to the flexibility it offers, particularly in terms of bearer shares, which can be easily transferred.
II. Stakeholders in the Luxembourg SA
1. Parties Involved
An SA can be formed by one or more natural or legal persons.
2. Prerequisites
At least one shareholder is required to establish an SA. Any individual or entity looking to establish a company in Luxembourg must possess the necessary authorizations and approvals for their intended business activities.
III. Costs Associated with Establishing an SA
Creating an SA incurs various costs, including:
- Notary fees
- Publication fees in the Registre de Commerce et des Sociétés (RCS)
- Remuneration for an appointed company auditor, if required
- Minimum share capital of €30,000
- Potential administrative authorization costs
IV. Practical Procedures
1. Act of Incorporation for the SA
The formation of an SA must be executed before a notary. In cases involving non-monetary contributions, the involvement of an auditor is mandatory. The company’s statutes are fully published in the RCS, and certain essential elements must be included, such as:
- Identification of the signatories
- Company form
- Company name
- Company purpose
- Registered office
- Subscribed capital and, if applicable, authorized capital
- Initial payment of subscribed capital
- Types of shares and their characteristics
- Nominative, bearer, or dematerialized share forms
- Specification of each non-monetary contribution
- Details of special benefits granted during incorporation
- If applicable, the number of non-representative shares or units of capital and their associated rights
- Rules determining the number and method of appointing members of governing bodies, their powers, and distribution of responsibilities, if divergent from legal requirements
- Company duration
- Approximate constitution expenses.
2. Company Name (Dénomination)
The SA’s name is determined during the incorporation process and must be distinct from existing company names. An availability check for the name is conducted through the RCS.
3. Duration of the SA
The SA’s existence is determined by its statutes and can be for a fixed or indefinite term.
4. Transformation
The SA has the flexibility to change its legal form during its existence, subject to shareholder decisions. It can transform into a European company if it has had at least one subsidiary for at least two years in another EU member state. The rules governing mergers and divisions that can alter its legal form also apply to the SA.
5. Dissolution
The SA is automatically dissolved upon reaching the specified term in its statutes. It can also be dissolved by the shareholders, for example, if the share capital is lost. Judicial dissolution may occur due to valid reasons or illicit activities. Any voluntary dissolution must be accompanied by administrative certificates from various authorities.
During dissolution, the SA retains its legal personality for the purpose of liquidation.
V. Share Capital
1. Minimum Capital Requirement
The minimum share capital for an SA is €30,000.
2. Capital Structure
The SA’s capital can be formed through subscriptions, and it must be fully subscribed and paid up to at least one-quarter of the total amount. Both cash and non-cash contributions are acceptable. Non-cash contributions require an evaluation report by an auditor.
In case of capital increase, shareholders are entitled to a preferential subscription right unless a justifiable restriction is approved in an extraordinary general meeting.
3. Forms of Shares
Shares in an SA can have designated nominal values or be without a nominal value. They start as nominative and may become:
- Nominative
- Bearer
- Dematerialized
Upon full payment, nominative shares may remain as such or be converted into bearer or dematerialized shares, subject to statutory provisions.
Additionally, the SA can issue non-voting shares:
- During the company’s incorporation, if specified in the statutes
- During capital increases
- Through conversion of ordinary shares
The SA maintains a register of nominative shares to establish ownership, and shareholders may request certificates for their holdings. Bearer shares must be deposited with an authorized custodian, while dematerialized shares are recorded in a securities account with an authorized entity.
4. Transfer of Shares
The transfer of nominative shares is only valid regarding the company if one of these two formalities is observed:
- A transfer declaration in the register of nominative shares, dated and signed by both the transferor and transferee.
- Notification of the transfer to the company or its acceptance in an authentic deed.
Bearer shares are transferred privately through agreement, and third parties recognize the transfer when the physical share certificate is passed on. The custodian accepts any document confirming the transfer.
Transfers of dematerialized shares are typically conducted through bank transfers.
The SA may only acquire its own shares in exceptional circumstances, limited and regulated by law.
VI. Organizational Structure
The SA has the flexibility to adopt either a one-head or a two-head governance structure, depending on its statutes.
1. One-head organization: Board of Directors
A. Board of Directors
The board of directors manages the company, with certain restrictions on delegations that cannot affect overall policy. Board members are appointed by the general assembly of shareholders and must include at least three directors, except when the company has only one shareholder, in which case one director suffices. Directors can be individuals or legal entities. When a legal entity serves as a director, it must designate a permanent representative responsible for its duties. Director terms are limited to six years, with the possibility of reappointment and early removal by the general assembly.
The board of directors can establish committees with designated compositions and responsibilities.
2. Two-head organization: (Management Board and Supervisory Board)
A. Supervisory Board
The supervisory board continuously monitors the management of the company by the management board but cannot interfere in its day-to-day operations. It approves decisions stipulated in the statutes and reports to the general assembly.
Supervisory board members are appointed by the general assembly of shareholders and must include at least three members, unless the company has only one shareholder, in which case one member is required. Members can be individuals or legal entities. When a legal entity is named as a member of the supervisory board, it must appoint a permanent representative to carry out its duties on behalf of the entity. Member terms are limited to six years, with the possibility of reappointment or removal by the general assembly. A member of the supervisory board cannot simultaneously be a member of the management board.
B. Management Board
The management board is responsible for directing the company and has the authority to perform all acts necessary or useful for achieving the corporate purpose, except those reserved by law or the statutes to the supervisory board or the general assembly.
Members of the management board are appointed by the general assembly of shareholders or the supervisory board. The number of directors is determined by the company’s statutes or, if not specified, by the supervisory board. Companies with a share capital of less than €500,000 or those with only one shareholder may have a single director. Directors can be individuals or legal entities, and if the latter, they must appoint a permanent representative to act on their behalf. A management board member cannot also be a member of the supervisory board.
The supervisory board or the general assembly may remove management board members, and the term of a management board member is limited to six years with the possibility of reappointment.
The management board can establish committees with defined compositions and responsibilities, operating under its oversight. The supervisory board may confer specific mandates to one or more of its members for specific, determined purposes.
VII. General Assembly of Shareholders
The general assembly of shareholders holds the highest authority in the SA and is vested with extensive powers to ratify the company’s actions. It decides on matters such as capital increases and capital-related operations. Both ordinary and extraordinary general meetings are convened by the board of directors, management board, or auditors. If the statutes do not define the procedure for convening general meetings, the legal process must be followed, which includes:
- The initiative for convening general meetings rests with the board of directors, management board, or supervisory board. Auditors also have the right to convene general meetings.
- Notices of the meetings, including the agenda, are published at least 15 days before the meeting in the Recueil électronique des sociétés et associations (RESA), a Luxembourg newspaper, and filed with the RCS.
- Shareholders must be notified at least 8 days before the meeting via mail or another accepted method.
VIII. Day-to-Day Management of the SA
The SA’s daily management and its representation concerning this management can be delegated to one or more administrators, directors, managers, and other individuals, whether shareholders or not. These modalities are established in the company’s statutes.
IX. Liability
1. Shareholder Liability
Shareholders in an SA are liable only up to the extent of their contributions to the share capital.
2. Founder Liability
Founders are jointly and severally liable to third parties for:
- The portion of capital not validly subscribed
- The difference between the minimum capital and the amount of subscriptions
- Effective payment of up to 25% of the shares subscribed at incorporation, as well as the payment within 5 years for shares issued in exchange for non-cash contributions
- Compensation for damages resulting from either the company’s nullity or incorrect statements in the articles of association or the company’s draft
3. Liability of the SA
The SA is bound by actions performed by its competent bodies, even if these actions exceed the corporate purpose. An exception exists if the company can prove that the third party was aware that the action exceeded the corporate purpose or could not have been unaware of it, given the circumstances. Publication of the articles of association alone is insufficient to constitute this proof.
Limitations on the powers of the board of directors are not enforceable against third parties, even if published. However, the statutes may grant authority to one or more directors to represent the company in legal matters, either individually or jointly, and this clause is then binding on third parties upon RCS publication.
The provision delegating day-to-day management to one or more individuals, acting alone or together, is enforceable against third parties after RCS publication. This provision should not be confused with a restriction on management powers, which remains unenforceable against third parties.
Administrators, members of the management board, and the general manager do not incur personal obligations regarding the company’s commitments.
Administrators, members of the executive committee, and the general manager are liable to the company for mismanagement during their respective mandates. Administrators and members of the executive committee are jointly and severally liable to the company and third parties for damages arising from breaches of company law or the articles of association, unless they can secure discharge if there was no personal fault on the part of the responsible body.
X. Oversight and Reporting
1. Company Oversight
Companies that, as of their balance sheet date, exceed two of the three following criteria are required to have their accounts audited by one or more approved company auditors:
- Total balance sheet of €4.4 million
- Net turnover of €8.8 million
- Average number of full-time employees: 50
Companies not meeting these criteria are still obliged to have their accounts supervised by one or more auditors, whether shareholders or not.
2. Legal Publications
The statutes of the SA must be fully published in the RCS. The registration process requires specific information about the company. Additionally, the SA must publish in the RCS:
- The full act of incorporation
- Appointments and terminations of positions for various management bodies, as well as liquidators if applicable
- Custodians of bearer shares
- Certain judicial decisions
- Notice of company dissolution
- Annual status of share capital following the balance sheet
- Annual accounts
- Management report
- Auditor’s report or company auditor’s report
Subsequent changes must also be published in the RCS. Social accounts should be submitted to the Registre de Commerce et des Sociétés within one month of approval, and no later than seven months after the end of the fiscal year.
XI. Accounting Considerations
The SA is obligated to produce a balance sheet, profit and loss account, annexes, and management report, all of which must be approved by the general assembly of shareholders. The SA can prepare an abbreviated balance sheet if, as of the balance sheet date, it does not exceed two of the three following criteria:
- Total balance sheet of €4.4 million
- Net turnover of €8.8 million
- Average number of full-time employees: 50
Similarly, an abbreviated profit and loss account can be prepared if, as of the balance sheet date, the SA does not exceed two of the three following criteria:
- Total balance sheet of €20 million
- Net turnover of €40 million
- Average number of full-time employees: 250
Accounts must be prepared in accordance with the Luxembourg Generally Accepted Accounting Principles (Lux GAAP).
XII. Taxation
The SA is subject to various taxes in Luxembourg, including:
- Fixed registration tax
- Property tax
- Business tax
- Wealth tax
- Corporate income tax
- VAT declarations based on the following criteria:
- Annual turnover (exclusive of tax) below €112,000: Annual VAT declaration
- Annual turnover (exclusive of tax) between €112,000 and €620,000: Quarterly VAT declaration
- Annual turnover (exclusive of tax) above €620,000: Monthly VAT declaration
In conclusion, the Société Anonyme (SA) in Luxembourg represents a versatile and advantageous corporate structure.
It offers limited liability, flexibility in share capital and types, and a range of governance options. Understanding the legal, financial, and operational aspects of an SA is crucial for entrepreneurs, investors, and businesses looking to establish themselves in Luxembourg.
Whether you are a large corporation or a small-to-medium-sized enterprise, the SA provides a solid legal framework for conducting business in the Grand Duchy. Its appeal extends not only to its features but also to its adaptability, making it a preferred choice for a wide spectrum of activities and entities.
However, it is imperative to adhere to the legal prerequisites, financial obligations, and reporting requirements to ensure compliance with Luxembourg’s corporate laws and regulations.
By doing so, businesses can reap the benefits of operating in a stable, business-friendly jurisdiction like Luxembourg, while also harnessing the opportunities available for growth, investment, and access to the financial markets.
To setup your Luxembourg Public limited company, please contact your Damalion expert now.
