In the ever-evolving world of investments, the Luxembourg Special Limited Partnership (ScSp) has emerged as a valuable and versatile entity. Similar to a traditional limited partnership, the ScSp (Société en commandite spéciale S.c.Sp in French, Special Limited Partnership (SLP) in English) offers unique advantages that make it an attractive choice for investment funds. In this comprehensive guide, we will explore the intricacies of the ScSp, its formation, management, and various aspects crucial for investors and businesses.
The ScSp: A New Frontier in Investment Structures
The Special Limited Partnership, abbreviated as SCSp, represents a relatively new addition to the financial landscape. While it shares similarities with a traditional limited partnership, the SCSp offers distinct advantages that cater specifically to investment funds. It’s essential to understand that the SCSp is a commercial entity, but its defining feature is its lack of legal personality, setting it apart from other corporate structures.
Who Should Consider the ScSp?
Before venturing into the world of Special limited partnership or SCSp, it’s important to identify who stands to benefit from this investment vehicle. To establish a Luxembourg SLP/SCSp, a minimum of two partners is required, with at least one serving as a general partner and one as a limited partner. Notably, a legal entity can also become a partner within an SLP/SCSp, offering flexibility in structuring partnerships. It’s crucial to emphasize that the SCSp itself does not possess legal personality, and its identity is intertwined with that of its partners.
Prerequisites for Establishing an ScSp
Any investor considering forming a Luxembourg SLP or SCSp to conduct business in Luxembourg must first secure the necessary authorizations and approvals for their intended activities. An essential consideration is ensuring that the general partners possess the required authorizations to engage in commercial activities. This requirement, however, does not apply to limited partners.
The Costs of Setting up an ScSp
Establishing an ScSp involves various costs, including:
- The cost of publication in the Trade and Companies Register (Registre de Commerce et des Sociétés – RCS).
- Any expenses related to administrative authorizations.
- Notary fees (not legally mandated but often incurred).
Navigating the Formation Process
The process of creating an ScSp begins with the drafting of a deed of incorporation, also known as the partnership agreement. It’s important to note that this agreement can be executed privately, and there is no legal requirement for notarial involvement.
Key Elements in the Deed of Incorporation
The partnership agreement must encompass essential details, including:
- The company name and its registered office address.
- A clear definition of the company’s purpose.
- A comprehensive description of each partner’s contributions.
This deed of incorporation should then be submitted to the RCS in the form of an extract for official registration.
Company Name and Address
The ScSp must have a designated company name as specified in its deed of incorporation. This name can either be distinct or aligned with the business’s purpose. It is imperative that the chosen name is unique and not identical to that of any other existing company. Prospective applicants can verify name availability by contacting the RCS.
Duration and Flexibility
An ScSp can be established for a limited or unlimited duration, offering flexibility in structuring investments. Furthermore, it has the capacity to change its corporate form during its existence through decisions made by the partners, leading to the creation of a new legal personality.
Dissolving an SCSp can occur through various means, including:
- Automatic dissolution at the end of the specified duration in the deed of incorporation.
- Voluntary dissolution by a majority vote of three-quarters of ownership interests, unless stipulated otherwise in the partnership agreement.
- Replacement of the sole general partner under specific circumstances, as defined in the partnership agreement.
- Legal dissolution due to unlawful activities.
In the event of voluntary dissolution, specific administrative certificates are required, including those from the Data-Processing, Membership, and Contributions Centre of the Joint Social Security Centre, the Luxembourg Inland Revenue, and the Registration Duties, Estates, and VAT Authority.
Understanding Capital Structure
In an ScSp, the capital is represented by ownership shares, with no minimum required capital amount. The partnership agreement must explicitly state the share capital amount or the value of contributions made by each general and limited partner. Contributions can take various forms, including cash, in-kind, or “in industry” (such as services or know-how), and may be made over time. The partnership agreement dictates the terms and conditions for these contributions, which need not undergo valuation by an auditor or be made at the time of formation. Additionally, an ScSp has the option to issue debt securities.
The distribution of dividends within an ScSp is subject to the partnership agreement. If the agreement remains silent on this matter, dividends will be distributed proportionally among the partners’ ownership shares.
Ownership Share Structure
Ownership shares within an SCSp must be in the form of registered shares. The conditions and procedures for transferring ownership shares are defined in the partnership agreement. It is crucial to note that, under penalty of nullity, transfers, subdivisions, or pledges of ownership shares must adhere to the terms specified in the partnership agreement.
Organizational Structure: Management Bodies
The decision-making process and organizational structure of an SCSp revolve around the general meeting of partners, which is central to the functioning of the entity.
General Meeting of Partners
The general meeting is the platform where partners make crucial decisions. While the partnership agreement can include specific provisions for the operation of the SCSp, default rules apply in the absence of such provisions.
Decisions at the general meeting encompass:
- Amendments to the partnership agreement.
- Changes in the ScSp’s nationality.
- The conversion or liquidation of the ScSp.
These decisions require a majority vote representing three-quarters of ownership shares, with voting rights determined by the proportion of ownership shares held. Annual financial statements are approved at general meetings, which can be convened by the manager or initiated by partners holding more than half of the ownership shares. In cases where partners cannot physically gather, a written consultation can replace the general meeting, allowing partners to cast votes in writing.
Daily Management of the ScSp
The ScSp is managed by one or more managers, who may or may not be general partners. The appointment of managers follows the rules outlined in the partnership agreement. In situations where the agreement remains silent on managerial appointments, all general partners have the authority to act on behalf of the company. It is important to note that managers cannot engage in trading activities.
Managers serve as the company’s representatives in interactions with third parties and legal proceedings, whether as plaintiffs or defendants.
Liability of Partners and Managers
Understanding the extent of liability within an ScSp is critical for all partners and managers involved.
General Partners’ Liability
General partners bear joint and several liability for the company’s obligations. This means they can be held personally responsible for the entity’s debts and liabilities.
Limited Partners’ Liability
Limited partners, on the other hand, have limited liability, which is determined by their ownership interests. This liability may or may not be represented by instruments as specified in the partnership agreement. However, limited partners are prohibited from engaging in any management activities on behalf of the company or participating regularly in management activities with third parties. Violating these restrictions would result in the loss of their limited liability status.
Managers who are not general partners are representatives of the company and are liable for any misconduct only in the course of carrying out their mandated duties. They have the authority to legally bind the SLP/ScSp. Importantly, any restrictions placed on a manager’s powers are not binding on third parties, even if published. However, through the partnership agreement, responsibility for representing the company in various capacities can be assigned to one or more managers, making it binding on third parties upon publication in the RCS.
The ScSp is bound by actions taken by a manager, even if these actions exceed the company’s stated purpose, unless the ScSp can prove that the third party involved was aware of or should have been aware that these actions went beyond the company’s scope, given the circumstances.
Compliance and Reporting Obligations
To maintain transparency and regulatory compliance, an SCSp must fulfill certain obligations.
Maintenance of a Register
The ScSp is required to maintain a register that includes:
- A complete, certified, and up-to-date copy of the company’s partnership agreement.
- A comprehensive list of all partners, clearly identifying each of them.
- Detailed information on the ownership shares held by each partner.
- Records of any transfers of ownership shares.
In principle, any partner can request access to this register.
Oversight and Auditing
Unlike some corporate entities, an ScSp is not subject to internal audits as mandated by law. The requirement for an audit of financial statements by an approved statutory auditor applies mainly to ScSp entities with limited partners classified as public limited companies (SAs), private limited liability companies (SARLs), partnership limited by shares (SCAs), or similar legal forms. Additionally, this requirement is triggered if, after two consecutive financial years of operation, two of the following three criteria are exceeded:
- Balance sheet total: EUR 4.4 million.
- Net turnover: EUR 8.8 million.
- Average number of full-time employees: 50.
To formalize its existence, an ScSp must register with the RCS through the Luxembourg Business Registers. This registration involves disclosing various details about the company, including:
- The precise names of the joint partners.
- The company’s name or corporate name.
- The corporate purpose.
- The registered office.
- The names of the managers and their signing authority.
- The duration of the company.
Notably, it is not necessary to list limited partners by name. Additionally, the SCSp must periodically update the RCS with subsequent amendments to the deed of incorporation, managerial appointments, and other relevant changes.
Accounting and Tax Considerations
An SCSp must maintain appropriate accounting records that align with the nature and scale of its business. However, unlike many other corporate structures, it is not mandatory for an ScSp to produce and file annual financial statements, including a balance sheet, profit and loss account, and the annex.
Taxation of an ScSp
From a tax perspective, an ScSp is subject to various taxes and fees, including:
- Fixed registration fees.
- Property tax.
- Business tax.
- Net wealth tax (applicable when the shareholder is an opaque entity).
- Personal income tax.
Notably, as a fiscally “transparent” entity, the ScSp itself is not taxed. The frequency of VAT return filings depends on the company’s annual turnover, with quarterly or monthly filings required for larger turnovers.
The Luxembourg Special Limited Partnership (ScSp) offers a compelling investment structure for those looking to navigate the intricate landscape of finance and business. Its unique blend of flexibility, limited liability, and transparency make it an appealing choice for investment funds and partnerships. By adhering to the regulatory requirements, maintaining proper records, and understanding the tax implications, investors and businesses can leverage the ScSp to structure their investments effectively in Luxembourg’s dynamic financial environment. As this entity continues to gain prominence, a comprehensive understanding of its intricacies is essential for success in the world of finance and investment.
To set up your Luxembourg special limited company, please contact your Damalion expert now.