The reform of company law strengthens Luxembourg’s status as an international investment platform, providing it with an additional tool to meet the needs of foreign investors. Interview with Laurent Schummer & Alexandre Gobert, company law specialists.
What is the purpose of the Société par Actions Simplifiée (SAS), a new form of company introduced by the reform?
The reform, introduced by the law of 10 August 2016, was intended by the legislator to make corporate structures more flexible and to facilitate access to financing. It is also based on a distinction made between the decision-making power within a company and ownership of the share capital. This distinction is particularly interesting with respect to real-estate joint ventures bearing in mind that the real-estate professional may not be the only financier. The SAS is a highly flexible structure which is an addition to the existing solutions offered by Luxembourg law. Using this corporate structure, nearly all decision-making powers can be conferred on the chairman as the law provides that the articles of association shall determine the way the company is managed and which decisions shall fall within the competence of the general meeting of shareholders (subject to a limited number of exceptions). In a nutshell, the articles of association of an SAS may almost freely determine the powers of the chairman, the term and method of his appointment, and may even provide that his appointment be irrevocable other than for certain clearly identified reasons. Furthermore, voting agreements, supplementing the articles of association of the SAS, may set out restrictions on partners’ voting rights as well as lock-up provisions. For an asset manager it is reassuring to know that, in the event of a dispute with the financing partners, it will hold the decision-making power without losing its financing. In addition, this structure can be used to attract foreign investors, particularly the French who are familiar with it as these provisions already exist in French law.
The mainstays of this reform are access to funding facilities and corporate flexibility – Alexandre Gobert
What is the impact of the reform on the Société à Responsabilité Limitée (SARL)?
The reform consolidates mechanisms that already existed in SARLs in practice but which did not have a clear legal basis and which were sometimes derived from legal practice. Firstly, it officially enables all kinds of companies (thus including the SARL) to issue bonds and makes them available to the general public. In effect, the reform enables a company to be financed by bonds, i.e. a financial instrument having, in principle, no voting rights, thus allowing the shareholders to retain control of the decision-making power while guaranteeing access to financing. It is also worth stressing that the absence of any requirement to draw up an auditor’s report when there is a contribution in kind has been retained, thereby maintaining an easy investment and contribution process in SARLs, especially when it comes to contributing real estate properties. The introduction of the system of redeemable shares also facilitates the structuring of the financing of an investment. Next, the ability to draw up voting agreements enables control of the decision-making power to be tailor-made. Lastly, the introduction of beneficial units gives the company the ability to self-finance without necessarily having to give up voting rights in exchange for doing so. In short, the reform reduces the risks associated with financing investments for SARLs.
Overall, what are seen as the major benefits of this reform?
The mainstays of this reform are access to funding facilities and corporate flexibility. For instance, article 11ter of the Law gives all types of companies the possibility to issue bonds. For investors, this means that they can easily invest in all types of corporate structures. The reform also officially opens a certain number of doors for SA, SAS, SCA and SARL companies, particularly through the introduction of voting agreements, the possibility for management to suspend voting rights in specific situations and lock-up clauses, which provide that the shareholders’ undertaking may not transfer their shares for a certain period. For long-term investors, this means that the shareholders cannot withdraw their financing and thereby undermine the investment. The introduction of redeemable shares also reflects this greater flexibility. This reform therefore offers two substantial benefits: easier and more flexible corporate financing and tailor-made governance solutions for investors. The aim of this reform is to create bespoke investment opportunities.