New Bill Introducing Deferred Capital Payment for SARL Incorporation

Article by LPEA Legal Committee – Corporate Law.

New Bill Introducing Deferred Capital Payment for SARL Incorporation

A new bill (No. 8669) aims to enhance flexibility in the incorporation of Luxembourg private limited liability companies (SARL) by allowing founders to defer the cash payment of the minimum share capital for up to 12 months after incorporation.

Opening a bank account will no longer be a prerequisite for an incorporation by way of cash contribution and can instead be handled afterwards, allowing parties without an existing banking relationship to enter the Luxembourg market and make their deals faster. By facilitating swifter SARL incorporations, the bill addresses practical market needs, enabling greater responsiveness and reinforcing Luxembourg’s position as a leading jurisdiction for fund and investment structuring, as well as capital raising where a vehicle needs to be available on short notice.

On the investment fund side, the existing legal requirement applying to SARL contrasts with the timeframe granted to investment funds to reach their regulatory minimum capital. This creates practical constraints each time an investment fund needs to establish a SARL as a subsidiary and must make capital calls to its investors to meet the minimum capital requirement of EUR 12,000 for the SARL. When the bill is voted into law, this will no longer be the case.

On the investment side, the need to establish a company quickly is particularly relevant in bidding processes which are often very competitive exercises for the economic actors. This is especially true for investments in so-called “alternative” assets (private equity, real estate assets, unlisted debt instruments, etc.). In these situations, signing the transactional documents for an acquisition or sale often requires the prior establishment of a SARL to be completed very quickly after reaching an agreement in principle on the terms of the operation. However, the closing of the transaction and the need for actual cash flows generally do not occur until several weeks or months later. Again, when the new law enters into force, the establishment of companies at very short notice will be possible.

The LPEA welcomes this development, which brings the SARL framework closer to the flexibility offered by other Luxembourg company forms and foreign jurisdictions. This initiative, further strengthens the SARL’s already significant advantages which are key for the competitiveness of the Luxembourg market, especially as neighboring European countries already offer flexibility in term of paying the initial share capital during  company incorporation.

I.          New intended SARL deferred capital payment option

Key Features

• Application limited to the statutory minimum share capital (EUR 12,000) and share premium.
• Option to defer full or partial payment of the minimum share capital for up to 12 months after incorporation.
• Deferred payment applicable exclusively to cash contributions (i.e., not to contributions in kind).
• Deferred payment of share premium linked to the deferred minimum share capital.
• Full subscription of the entire share capital is still required at incorporation, even where cash payment is deferred.
• Deferred payment unavailable for share capital increases carried out post-incorporation.

Modalities

• Terms and conditions of any deferred payment must be specified in the articles of association (e.g., per the bill’s commentary, manager(s) may be granted authority and flexibility to call capital contributions based on the company’s actual needs at any given).
• Anti‑money laundering and counter‑terrorism financing related checks continue to be fully applicable at incorporation, regardless of any deferred payment.
• Publication requirements similar to those applicable to SAs (i.e., a list of shareholders who have not yet fully paid up their shares must be published with the annual accounts;  any unpaid capital must be disclosed whenever the SARL’s share capital is referenced in one of its documents).
• No liability borne by the outgoing shareholder for subsequent debts of the SARL.
• Suspension of voting rights attached to shares with unpaid called contributions until payment.
• Founders’ liability applicable for the unpaid portion after expiry of the deferred period.

II.         A Refresher on the SARL’s Existing Strengths

This proposed change offers an opportunity to highlight the already broad range of strengths and flexibility of the SARL, making it one of the most widely used legal forms of company in deal structuring.

• No requirement for an independent auditor’s report (réviseur d’entreprises) in the case of contributions in kind.
• Shares not required to have the same nominal value.
• Possibility to issue shares with or without nominal value.
• No statutory preferential subscription right attached to shares.
• Possibility to create different classes of shares, as well as redeemable shares.
• Possibility to establish an authorised share capital (subject to applicable legal requirements).
• Clauses limiting the transferability of shares (such as time-limited lock-up clauses) appear permissible in practice and can be used alongside the mandatory statutory exit mechanism that applies if a transfer of shares to a third party is not approved.
• Possibility for management to suspend voting rights of defaulting shareholders (i.e., shareholders in breach of their obligations under the articles of association or any deed of subscription).
• Possibility for shareholders to contractually waive all or part of their voting rights, on a temporary or permanent basis.
• Possibility to adopt shareholders’ resolutions in written form, except when the articles of association are amended or where the SARL has more than 60 shareholders.
• Possibility to set up a board of managers, able to take decisions either through meetings or by unanimous written resolutions.
• No specific statutory rules or process regarding financial assistance.
• No statutory auditor (commissaire aux comptes) is required where the SARL has no more than 60 shareholders, (without prejudice to the voluntary appointment of an approved independent auditor (réviseur d’entreprises agréé) or where legal thresholds requiring such appointment are met).
• Action ut singuli (i.e., an action in liability against the management on behalf of the company) is not available to minority shareholders; however, there is the possibility for the latter to submit written questions to the management on certain operations and, where relevant, obtain an independent expert report (subject to applicable legal requirements).

• Possibility of voluntarily dissolution without liquidation, the so-called “simplified liquidation” (subject to applicable legal requirements).

III.        Next steps

The recent submission of Bill 8669 to the Chamber of Deputies marks the first step in the legislative process. We hope this process will proceed swiftly, without prejudice to the opinions to be issued by the consulted bodies (such as the Council of State) and to any further amendments that the competent legislative commission may introduce. We trust that, should any amendments be introduced, they will remain aligned with the objective of further strengthening the flexibility and attractiveness of the Luxembourg SARL.