A look at how the modernizations boost corporate security without forfeiting the SARL’s flexibility
Luxembourg has long been known for its ability to adapt in the face of change.
The innovativeness that allowed for seamless, speedy transitions throughout history – from mining, to finance, to IT, and recently, to fintech – also resulted in a legal framework that was struggling to keep up.
While regulators and legislators were quick to react to evolving corporate needs, the law itself, particularly in terms of the SARL (limited liability company), was slow to change. That is until July 13, 2016, when Parliament adopted the much-anticipated bill 5730.
These necessary modernizations to the commercial company law of August 10, 1915, address the gray areas and gaps left by the original, outdated version.
For many, the specifications regarding the SARL were the reform’s most anticipated aspects and the public has now breathed a sigh of relief. As promised, the modernizations managed to add protections without sacrificing the flexibility and responsiveness central to the SARL’s appeal.
An Overview of the SARL in Luxembourg
The SARL is a highly accessible, go-to structure renowned for its simplicity that was initially created with the needs of small, family businesses in mind.
Before long, however, it began catching the eyes of more complex companies looking for any easy alternative to the SA.
Today, the SARL is Luxembourg’s most popular corporate structure. Two thirds of businesses fall under this category, with insurance, investment and savings companies being the only ineligible entities.
Modernizations to the SARL via Luxembourg Company Law Reform
The recent renovations to the SARL, a longtime favorite in Luxembourg, have only helped to make it more attractive. Namely, they put common practices into print and prioritize flexibility.
SARL Shareholders
- Maximum number of allowed SARL shareholders increased from 40 to 100, opening it up to companies that previously did not qualify
- Shareholder meetings no longer mandatory with under 60 members
- Ability to suspend shareholder voting rights if obligations are shirked
- Framework in the event that shares are transferred to a non-shareholder with approval at the general shareholders’ meeting
- Voting rules that determine when shareholder votes are deemed valid
- Extension of the SA’s interim dividend distribution structure to the SARL
- Permission for shareholders to wave voting rights
- Termination of double majority and adjustment of majority requirement needed to amend articles to three fourths of corporate capital
Equity & Debt Issuance
- Right to issue founder shares, beneficiary shares and redeemable shares
- Option to issue shares with different values from existing shares
- Right to issue bonds to the public, which was previously prohibited to the Sàrl
- Application of the authorized debt capital mechanism to the SARL, allowing it to operate without holding a shareholders’ meeting as long as it remains under the capital threshold
SARL Modernizations
- SA board of directors’ conflict of interest rules extended to the SARL
- Framework for the conversion of a SARL into an SA
- Outlines for right to operate as single-member company
- Decreased capital requirement of €12,000 minimum
- Right to delegate day-to-day management
- Simplified process for company dissolution
Benefits of the New SARL
When whispers first began spreading that changes were being made to Luxembourg’s beloved SARL, people grew weary, fearing that change was a synonym for restrictions, which would undermine what had initially attracted them in the first place.
Now that the law is out in the world, adopted and published, it is clear that the new SARL is an improved SARL. Nearly 10 years in the making – a joint effort by the University of Luxembourg, lawyers, business and legislators – the reform protects the structure’s token flexibility, while adding the security that it was lacking.
Lawmakers meticulously took into account the SARL’s barriers and blurred lines, solving them with detailed corporate governance updates, defined board and shareholder rights, and solidified operational freedoms.
The genius of these modifications also lies with its outward-thinking recognitions. Luxembourg’s SARL, or limited liability company, is a favorite corporate structure among Americans. Therefore, it provides legal familiarity for US businesses looking to extend operations to Europe.
In today’s dynamic world, legal certainty and corporate security is a particularly hot commodity. The move to outline processes and confirm practices in print aims to entice foreign business and reassure those already knocking on Luxembourg’s door.
With the creation of the Simplified SARL, an ever-expanding startup scene, the development of the innovative RAIF and the adoption of these modernizations, it seems that Luxembourg’s pioneering spirit is still going strong.
About Fiduciary Tucci & Partners
Fiduciary Tucci & Partners provides comprehensive and agile fiduciary services to individuals and small to mid-sized companies. Based on the understanding that no two clients’ needs are the same, we develop individualized solutions in a range of areas:
- Corporate services
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As a fiduciary, our clients’ best interests are at the heart of every decision. We support businesses, individuals and families in achieving the strategies and services that are right for their specific situations. More about who we are here.
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Vincent Tucci
CEO, Fiduciary Tucci & Partners
E: info@fiduciarytp.lu
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