On 2 February 2015, the Luxembourg government (hereinafter the “Government”) has introduced the draft bill n°6777 (hereinafter the “Draft Bill”) on the simplified private limited company (société à responsabilité limitée simplifiée, hereinafter “S.à r.l.-S”) to the Luxembourg Deputies’ Chamber.

In a nutshell, its intent is to add further flexibility to the current Luxembourg corporate legislation by introducing a vehicle tailored to the needs of young entrepreneurs and which aims at allowing Luxembourg to rise to the same level of competitiveness as its neighboring countries in this field. The idea is to spur greater entrepreneurship in order to generate employment and, consequently, to increase economic growth. More precisely, the Draft Bill principally targets young entrepreneurs who are often halted by the legal requirements in relation to the “classic” private limited company S.à r.l. (société à responsabilité limitée, hereinafter “S.à r.l.”). The main target of the S.à r.l.-S is reduced formation costs compared to the costs linked to the incorporation of an ordinary S.à r.l. This decrease of costs is however counterbalanced by the Draft Bill via imposing specific requirements that are more restrictive than the requirements applicable to the S.à r.l.

In that regard, it is not surprising that one of the main innovations of the S.à r.l.-S, also known as the “EUR 1 S.à r.l.”, is a minimum share capital of the amount of EUR 1, which must be fully subscribed and fully paid up. As mentioned above, this corporate form is aimed at facilitating young people’s and newcomers’ access to entrepreneurship and there is no denying that one of the first hurdles to be overcome by young entrepreneurs, is the financing of their business. In comparison, the minimum amount of share capital for the S.à r.l. required by the law of 10 August 1915 on commercial companies is currently set at EUR 12,394.68.

On the same note and in order to accelerate the process of incorporation and avoid the costs inherent to a notarial deed, the Draft Bill includes the possibility for the S.à r.l.-S to be incorporated by a deed under private seal or via notarial deed. While this additional flexibility is welcome, some commentators, in particular the notaries’ chamber, were quick to point out that the incorporation by a deed under private seal does not allow for an effective control of the identity of the S.à r.l.-S’ founder(s) by a public authority, excluding an effective fight against money laundering.
In terms of cost-effectiveness, it is also noteworthy that the registration with the Luxembourg Register of Commerce and Companies (Registre de commerce et des companies, RCSL) will bear less costs than for the S.à r.l., whereas the cost of the mandatory publication of the deed of incorporation in the Luxembourg Official Gazette (Mémorial C) should remain the same as it is in respect of an S. à r.l, which will also be the case for the mandatory contribution to the Chamber of Commerce.

To further facilitate the incorporation of an S.à r.l.-S, it is contemplated that a template of articles of incorporation shall be available for free at professional chambers (chambres professionnelles), which will reduce the costs related to the drafting of such statutes.

Regarding the future shareholders of the S.à r.l.-S, the Draft Bill does not authorize legal persons to incorporate a S.à r.l.-S. and a trade permit (autorisation de commerce, as defined in the law of 2 September 2011 as amended) will in any case be required. Such requirement has been qualified as discriminatory by some commentators with regard to activities that do not require a trade permit. Another restriction is that a natural person will not be authorized to become a shareholder of several S.à r.l.-S.

Also, a legal non-distributable reserve of 5% of the annual net income of the company will be required until such legal reserve has reached the amount of EUR 12,394.68. The Luxembourg Employees’ chamber (Chambre des Salariés) would however welcome a higher rate as the proposed proportion is equal to the one required with respect to a S.à r.l and does not effectively counterbalance the lower minimum amount of share capital required for an S.à r.l.-S.

Finally, once the share capital of an S.à r.l.-S reaches EUR 12,394.68 or above, a change of the corporate form into an S.à r.l. will be required. Regrettably, such transformation is not subject to any timing constraint.

Ultimately, the S.à r.l.-S. may provide an attractive tool for young entrepreneurs who contemplate to launch an activity for which a business permit is required. However, as of today and in light of the limitations, the S.à r.l.-S will not be able to market itself as an attractive tool for actors of the financial sector.

 

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