Luxembourg company law is changing:

In addition to the modernisation of the law of 10 August 1915 on commercial companies, the cornerstone of this field, the bill of law number 6777 creating a simplified limited liability company (“the SARL-S”) was enacted on 13 July 2016.

The creation and the implementation of the SARL-S in Luxembourg was inspired by Belgian and German legislation where companies with a simplified incorporation process were already existing.

With this new company, the Grand-Duchy of Luxembourg pursues ambitious objectives such as boosting the number of companies’ creation and, in fine, “contributing to stimulate the economic growth, increase job creations and improve all the innovation process in Luxembourg”.[1]

SARL-S mostly targets young entrepreneurs and/or entrepreneurs with only few financial resources. This new company form aims to enable entrepreneurs to start a new business with a small investment; i:e: there is no need to request the services of a notary and no minimal share capital

While a classical SARL requires at least EUR 12.000 share capital, its simplified version only needs around EUR 200 (with all costs covered); savings are therefore substantial.

To be so affordable, the SARL-S requires a symbolic minimum share capital of only one euro (versus EUR 12.000 for a classic SARL) and just a private deed to be created (instead of a notarial deed for a “regular” SARL).

The “one euro company’s” legal framework is very close to the framework of the classic SARL, with some specific features implemented by the lawmaker in order to balance the easiness of its incorporation.

Targeting young entrepreneurs, the SARL-S in only open for private persons: in other words, no legal person may be a member nor a manager of a SARL-S. This particularity aims to avoid any misuse that may occur in case of too many overlaps of SARL-S. In the same vein, the law forbids to any private person to be a member of more than one simplified SARL.

Regarding the corporate purpose of the SARL-S, it shall necessarily be among the activities for which a business permit from the Ministry of Economy is required in accordance with the law of 2 September 2011. With such a low share capital, the corporate activity shall de facto be inexpensive. Therefore, the SARL-S will be mainly adapted for services provisions activities, especially ones involving intellectual aspects.

From an accounting point of view, it must be noted that in order to balance the low share capital requested to set up the company, any SARL-S shall, each and every year, allocate to a reserve at least 5 percent of its net profits. This obligation will end as soon as the amount of the share capital of the company increased by such reserve has reached the amount of the minimum share capital of a regular SARL, i.e. the amount of EUR 12.000.

Even if the law does not set forth any time limit for the duration of the SARL-S, the said company is still regarded as a temporary entity. Indeed, when the SARL’s share capital will reach the minimum share capital of a classic SARL, the law provides that the SARL-S shall be wound up or transformed into a “regular” SARL.

In case of transformation of the simplified company into a SARL, the intervention of a notary will be compulsory.

The SARL-S is easy to incorporate and aims to be the perfect tool for young entrepreneurs who are willing to launch their business.

Nevertheless, this particular form of company has been subject to criticism.

First, the absence of any notary during the incorporation process of the SARL-S might imply a lack of control regarding the identity of the company’s members and, in fine, favor money laundering.

Other grievances against the SARL-S concerns its low share capital. Indeed, such low assets may compromise companies’ ability to pay their debts and might lead lots of them to bankruptcy proceedings. Another downside of the low share capital of the SARL-S is that it may create a substantial lack of confidence in these companies as well as a very negative image. These factors may prevent SARL-S to find business partners and/or lead to a situation where any engagement with a simplified SARL will need to be personally guaranteed by its manager or member(s).

Due to all these criticisms, new SARL-S will be carefully monitored: a summary including the number of SARL-S incorporated, difficulties encountered by their members as well as the number of bankruptcy proceedings open for such companies is already planned for the year 2020.

[1] Bill of law number 6777, Preamble, I. Introduction.