Unlocking the Path to Creating a Limited Liability Company in Luxembourg
Introduction
In the realm of business entities, the Société à Responsabilité Limitée (SARL) occupies a distinctive position, embodying characteristics of both capital companies (with limited liability for shareholders based on their contributions) and partnership companies (with non-negotiable social shares). In Luxembourg, the SARL reigns supreme as the most prevalent form of business structure, with approximately two-thirds of all existing companies adopting this legal framework.
This comprehensive guide seeks to illuminate the intricacies of establishing a SARL in Luxembourg, offering valuable insights into the legal prerequisites, financial considerations, practical procedures, and more.
I. The SARL: A Fusion of Capital and Partnership
1.1 Defining the SARL
The Société à Responsabilité Limitée (SARL), or Limited Liability Company, represents a unique blend of characteristics from different business entities. It combines features of capital companies, limiting the liability of shareholders to the extent of their contributions, and partnership companies, where social shares remain non-negotiable.
1.2 Prevalence in Luxembourg
In Luxembourg, the SARL takes center stage, serving as the most common business structure. Approximately two-thirds of all companies in the country are SARLs.
1.3 Associating within Bounds
A SARL may have a minimum of 2 and a maximum of 100 associates.
Additionally, there exists a variation known as the “unipersonal SARL,” which deviates from the traditional concept of partnership companies by permitting a single associate to establish a SARL.
II. The People involved in a Luxembourg sarl
2.1 Diverse Associates
A SARL may comprise a group of associates ranging from 2 to 100 individuals, encompassing both natural persons and legal entities.
Remarkably, a SARL can initially be formed with a single associate, as it is possible to consolidate all shares into one hand.
III. Prerequisites to setup a Luxembourg liability company
3.1 Broad Scope of Activity
A SARL can be established for any legal purpose.
However, businesses in the fields of insurance, savings, or investment cannot take the form of SARLs.
Anyone aspiring to establish a company in Luxembourg must obtain the necessary authorizations – Luxembourg business permits – and approvals to engage in their chosen business activity.
IV. Financial Considerations
4.1 Cost Implications
The creation of a SARL incurs various costs, including:
- A minimum share capital of €12,000
- Notary fees
- Registration fees with the Trade and Companies Register (RCS)
- Compensation for an auditor if required
- Potential expenses related to administrative authorizations
V. Practical Procedures
5.1 Act of Establishment
The establishment of a SARL must be carried out before a notary.
The act of establishment must include mandatory provisions prescribed by law, such as:
- The identity of the natural or legal persons who have signed the act or on whose behalf it was signed
- The legal form and name of the company
- The registered office
- The corporate purpose
- The subscribed share capital
- Categories of shares
- Specifics of contributions in kind
- Special advantages granted during the company’s formation
- Where not governed by law, the rules governing the company’s operation, administration, and supervision
- The company’s duration
- An approximate estimate of costs
The articles of association are published in their entirety in the Trade and Companies Register (RCS).
5.2 Company Name
The SARL must have a name determined in its act of establishment.
The company name must be distinct from any existing entity.
The request for name availability should be made to the RCS.
5.3 Duration
A SARL can be established for a limited or unlimited duration.
5.4 Transformation
A SARL can change its legal form during its existence with the consent of the associates.
If the number of associates exceeds 100, the SARL has one year to change its legal form.
The rules governing mergers and divisions, which can alter its legal form, are applicable to SARLs.
5.5 Dissolution
The dissolution of a SARL can occur under various circumstances, including:
- Expiry of a specified term
- Accomplishment of the corporate purpose or its extinction
- Judicial dissolution for justifiable reasons
- Voluntary dissolution by the general assembly or the sole associate
Importantly, a SARL is not dissolved due to an associate’s prohibition, bankruptcy, insolvency, or death.
Any act of voluntary dissolution must be accompanied by administrative certificates from:
- The Computer Center for Affiliation and Collection of the Common Social Security Center
- The Administration of Direct Taxes
- The Administration of Registration, Domains, and VAT
5.6 Capital
The formation of a SARL requires a minimum share capital of €12,000.
This capital must be fully subscribed and paid up at the time of the SARL’s establishment.
Social shares can have unequal values, with or without a nominal value.
Contributions can be made in cash or in kind.
Contributions in kind must be valued in the articles of association.
Contributions of industry do not contribute to the capital and do not require independent valuation by an auditor. Contributions of industry:
- Grant the right to receive non-transferable and non-negotiable shares
- Entitle the holder to share in profits and net assets while bearing the burden of losses
5.7 Form of Social Shares
The social shares of a SARL can be nominative with or without a stated value.
The creation of beneficiary shares is permitted, and these shares do not represent the capital. The rights associated with beneficiary shares must be determined in the articles of association.
Public issuance of social shares or bonds is not authorized.
Private issuance of bonds is permissible with the consent of the associates, especially in cases of convertible bonds into shares.
5.8 Transfer of Social Shares
Social shares are not freely transferable.
They can only be transferred to non-associates with the approval of the general assembly representing at least three-quarters of the share capital. However, the articles of association can lower this majority requirement to as low as half of the social shares.
Social shares can be freely transferred among associates unless the articles of association stipulate otherwise.
The transfer of shares must be documented through a notarial deed or a private agreement.
VI. Organizational Structure
6.1 Management Structure
The management of a SARL is entrusted to one or more managers, who can be associates or non-associates. They are appointed by the associates, either in the articles of association or through a subsequent agreement, for a specified or indefinite duration.
6.2 The Manager
A legal entity can assume the managerial role in a SARL.
Each manager is authorized to carry out all acts necessary or beneficial to the achievement of the corporate purpose, except those reserved for the decision of the associates by law or in the articles of association.
Managers represent the company in dealings with third parties and in legal matters.
There are no restrictions on the nationality of managers; they can be Luxembourgish or nationals of other EU or non-EU countries.
Commercial capacity is not a requirement for a manager.
Managers can only be dismissed for legitimate reasons, including obvious incapacity, unfair competition against the company, or embezzlement, unless the articles of association state otherwise.
6.3 The General Assembly
Associates’ decisions are made in the general assembly.
The general assembly has authority over various matters, including:
- Modifying the articles of association
- Changing the company’s name
- Modifying the share capital
- Changing the company’s legal form
- Appointing or revoking statutory managers
- Liquidating the company or changing its nationality
Associates are entitled to a share of profits.
Associates have the right to access the inventory, balance sheet, and report of the supervisory board, if applicable.
For SARLs with more than 60 associates, the general assembly must be convened annually, with the meeting period determined by the company’s articles of association.
Other assemblies are convened by the manager(s).
For SARLs with fewer than 60 associates, unless the articles of association stipulate otherwise, holding a general assembly is not mandatory. In such cases, associates are invited to cast their votes in writing after receiving the text of the resolutions or decisions to be made.
All associates have the right to participate in decisions.
The exercise of voting rights can be subject to agreements among associates.
Each associate has a number of votes equal to the number of social shares they own. Decisions are validly taken with a majority representing 50% of the share capital.
The sole associate exercises the powers of the general assembly.
VII. Responsibilities
7.1 Liability Framework
Founders of the company, and in the case of increased share capital, the managers, are jointly liable to third parties for:
- The portion of the capital that was not validly subscribed
- The difference between the minimum capital and the subscribed amount
- The effective release of social shares and the part of the capital to which they have subscribed
- Damage resulting from:
- The nullity of the company
- Absence or falsification of statements in the company’s act
However, the articles of incorporation can limit the qualification of founders to subscribers collectively holding at least one-third of the share capital. In such cases, other parties to the incorporation document are considered mere subscribers.
Associates are liable up to the amount of their capital contribution.
The company is bound by actions carried out by managers, even if these actions exceed the corporate purpose, unless the company can prove that the third party knew the action exceeded the corporate purpose or could not have been unaware of it.
Collective or individual attributions of managers can be defined, and these must be published in the RESA (Business Register) and are binding on third parties.
Managers are liable to the company for the performance of their duties and for any faults they commit.
VIII. Oversight and Reporting for Luxembourg liability companies
8.1 Oversight by Auditors
SARLs with more than 60 associates are subject to mandatory oversight by one or more auditors, who can be associates or non-associates. Auditors are appointed in the company’s articles of association.
Legal auditing of accounts by an approved auditor is compulsory for any company that, as of the balance sheet date and after two consecutive financial years, exceeds the following thresholds:
- A total balance sheet of €4.4 million
- A net turnover of €8.8 million
- An average of 50 full-time employees
8.2 Legal Publications
The articles of incorporation of the SARL are fully published in the RCS.
Registering the company with the RCS requires the inclusion of the following information:
- The corporate name or business name, as well as any abbreviations and commercial names used
- The legal form and any additional designation as required by law
- The precise registered office address
- The corporate purpose
- The amount of share capital
- The identity of associates, including their precise residential or professional addresses and the number of social shares held by each
- In the case of natural persons, their names, first names, dates, and places of birth
- In the case of legal entities not registered with the Luxembourg Trade and Companies Register:
- Their corporate name or business name
- Their legal form
- The registration number with the relevant trade and companies register if the laws of their home country require it, along with the name of the register, if applicable
- In the case of legal entities registered with the Luxembourg Trade and Companies Register, only the registration number is required
The deed of incorporation and any subsequent amendments must be published in the RCS.
Company acts must mandatorily include:
- The corporate name
- The mention “société à responsabilité limitée” (limited liability company)
- The indication of the registered office
- The registration number with the Trade and Companies Register
- The signatory’s capacity
The mention of the share capital is no longer obligatory.
Financial statements must be deposited with the Luxembourg Trade and Companies Register within seven months after the end of the fiscal year (six months for holding the general assembly plus one month from the assembly).
IX. Accounting Aspects
9.1 Financial Obligations
A SARL is obligated to produce:
- A balance sheet
- An income statement, along with any appendices
- Typically, a management report
These documents must be approved by the general assembly.
A SARL can prepare an abbreviated balance sheet if, at the balance sheet date, it does not exceed the following thresholds:
- A total balance sheet of €4.4 million
- A net turnover of €8.8 million
- An average of 50 full-time employees
A SARL can consolidate certain items in the income statement if, at the balance sheet date, it does not exceed the following thresholds:
- A total balance sheet of €20 million
- A net turnover of €40 million
- An average of 250 full-time employees
X. Taxation matter about the Luxembourg limited liability companies
10.1 Tax Liabilities
A Société à Responsabilité Limitée is subject to various taxes and levies, including:
- Fixed-rate registration duty
- Property tax
- Business tax
- Wealth tax
- Corporate income tax
- VAT declaration, based on the following criteria:
- If annual turnover (excluding VAT) is less than €112,000, VAT declaration is annual
- If annual turnover (excluding VAT) is between €112,000 and €620,000, VAT declaration is quarterly
- If annual turnover (excluding VAT) exceeds €620,000, VAT declaration is monthly
In the dynamic landscape of Luxembourg’s business environment, establishing a SARL offers a robust legal framework with benefits that encompass limited liability and flexibility. This comprehensive guide has illuminated the path to creating a SARL in Luxembourg, emphasizing the importance of adhering to legal requirements, understanding financial obligations, and fostering responsible governance.
To create your limited liability company (SàRL) and register it properly in Luxembourg, please contact your Damalion expert now. We also help you to open a business bank account in Luxembourg
