Types of Structures in Luxembourg
Types of Structures in LuxembourgUpdated on Tuesday 18th August 2020
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Starting a business in Luxembourg as a foreign investor is quite simple considering the same regulations apply to both local and foreign entrepreneurs. The first step in opening a successful company in Luxembourg is to choose the right type of structure for the business.
An important aspect which needs to be considered is that Luxembourg is one of the world’s most important financial centers and many of the business structures here are also designed for investment purposes. This is why choosing the right type of company is essential when deciding on the operations to be undertaken.
Below, our lawyers in Luxembourg explain the requirements related to starting a company in the Grand Duchy. You can rely on us for specialized services related to the registration of any business form or investment fund.
According to the Luxembourg Commercial Law, there are several types of legal entities which can be incorporated here:
- société anonyme (SA);
- the limited liability company (GmbH);
- the company en nom collectif (SNC);
- the limited partnership (SCS);
- the company limited by shares (SCA);
- the cooperative society (CS);
- the cooperative society functioning as a SA (COOPSA).
The main forms established by the investors are the GMBH and the SA, described below. Our Luxembourg lawyers can offer information about all types of companies available for registration in this country.
You can read about the main types of companies in Luxembourg in the infographic below:
The main types of companies in Luxembourg
Just like in other countries around the world like Singapore, the most common types of companies are the limited liability companies.
The private limited liability company is a type of structure in which the liability is limited to the participation of each shareholder. The number of members may vary from 1 to 40 or lower. Legal entities of this type can also be established by a single person and are called sole proprietorships. The share capital of the LLC is 12,500 EUR which must be fully paid when the company is registered. The share capital may be expressed in a currency other than the euro. The share capital is usually paid in cash, but it is also possible to make contributions in kind of real or personal property.
Unlike the shares of an SA, the shares of the LLC are not negotiable and cannot be publicly traded. The transfer of shares in the LLC is restrictive and any transfer of shares undergoes an approval procedure. These measures are taken in order to allow the company to exercise control over its future partners. The member wishing to sell their shares must notify the project to the company. Permission to transfer is expressly given by the majority of shareholders representing at least 75% of the share capital of the company. (The majority may be higher if decided so by the Articles of Association but in no case, less).
The public limited liability company may be incorporated by just one founder and does not have a limitation imposed on the number of members. The share capital is rounded to 31,000 EUR and may be expressed in various currencies. A minimum of 7,500 euros must be paid at incorporation and the rest in maximum 5 years. As part of a company formed by a contribution in kind, the capital must be paid within five years. The proof of cash payment is represented by a certificate blocking the funds by the bank. The certificate is handed to the notary at the time of registration. In case the shareholders fail to pay in time their contribution to the social capital, the founders who are jointly liable are obliged to pay for shares up to 25%.
The Law of 25 August 2006 has introduced the administrative structure of public limited companies. According to it, the governing body of the company is the Supervisory Board and the Management Board. The articles of incorporation can opt for one of the two formulas: the company is managed by the Board of Directors appointed by the General Assembly or the management is entrusted to the executive board, organ acting under the control of the supervisory board.
Unlike the corporations, the partnerships don’t require a minimum share capital and the liability of the members is unlimited. Only in case of a limited partnership, the limited partner has its personal assets covered in case of liquidation. His/her liability is limited by the contribution to the capital.
Holding Companies also called SOPARFI companies are not a form of separated society. Most often, it is the form of a limited company that is chosen and its main purpose is to control other legal entities by acquiring a majority of shares with voting rights in those entities.
A less employed business structure in Luxembourg is the sole proprietorship. Being used for small operations carried out by a single entrepreneur, the sole trader is not often met in this country. The creation of a sole proprietorship in the Grand Duchy implies filing an application form with the Companies Register. While there are no share capital requirements or high start-up costs for such structure, the owner will be entirely liable for the business’ debts and obligations which will include his or her personal assets.
Sole proprietorships in Luxembourg are usually used by professionals, such as accountants, doctors, and craftsmen.
Investment funds structures in Luxembourg
Investment funds may simply take the form of joint ownership but they are often made in the form of a limited company with fixed capital (SICAF) or variable capital (SICAV). There is also the possibility of investment companies in risk capital (SICAR).
The following types of investments funds can be set up in Luxembourg:
- Societe d’ Investissement a Capital Variable(SICAV) is an open investment plan, organized as a company limited by shares, whose principal objective of investing in financial assets.
- Societe D'investissement A Capital Fixe(SICAF) is a type of closed investment scheme that also operates as a company limited by shares but it’s mostly used for investments in private placements.
- Société d’investissement en capital à risqué(SICAR) is established with the objective of facilitating the raising of funds and investing it in risk-bearing capital. It can be established in any form of legal entity.
- Specialized Investment Fund (“SIF”) is a type of fund based on a share capital which amounts to at least 1,250,000 EUR payable within the year (12 months) and may be established as a company or a partnership. These funds are extremely advantageous as are exempt from capital tax, income tax on qualifying income and dividend withholding tax.
- Société de Gestion de Patrimoine Familial (SPF) is specially designed for private wealth management and unlike the rest of the funds, it allows individuals to manage their financial assets. It can be set up in any other form of legal entity and cannot have a social object covering business activities. It is exempt from paying income tax, net wealth tax, and municipal business tax.
The Commission de Surveillance du Secteur Financier is the competent authority for the supervision of financial companies, other professionals in the financial sector, mutual funds, asset management companies, pension funds, SICAR. It also supervises the markets in financial instruments, including their operators and corporate auditors (auditors).
Our law firm in Luxembourg can offer more information on setting up investment funds in the Grand Duchy.
Requirements for opening a company in Luxembourg
Foreign entrepreneurs interested in starting a business in Luxembourg must comply with a few requirements in order to have a quick and correct start on the market. These steps include:
- choosing and reserving a trade name for the company with the Trade Register;
- preparing specific documents which need to be filed with the Companies Registrar for incorporation;
- opening the corporate bank account in which the share capital will be deposited;
- obtaining a tax identification number and a VAT number from the tax office;
- applying for the necessary license and permits in industries where such requirement must be respected.
The most important document which needs to be prepared when opening a company in Luxembourg is represented by the Articles of Association. It will contain all the relevant information about the business to be.
The Articles of Association must contain the following information:
- the full names of the shareholders and their personal information, including their nationalities and place of residence;
- the personal details of the company directors, as well as information about their appointment and dismissal;
- the company’s address which must be a Luxembourg address for the company to be considered a resident business;
- information about the company’s main object of activity and other secondary objectives, where applicable;
- details about the share capital, the division of the shares among the stockholders and their participation in the company.
It should be noted that when registering a company with the purpose of creating an investment fund, the company will also need a prospectus which will be filed with the CSSF for approval together with the Articles of Association. Companies in Luxembourg can also apply for EORI numbers.
How to register a company in Luxembourg
No matter the type of company chosen, a foreign investor must register it with the Trade Register in Luxembourg. In the case of investment funds, approval from the CSSF is required after the company is incorporated. The main documents to be prepared in order to register any type of company in Luxembourg are the memorandum and articles of association. These documents can be prepared by attorneys in Luxembourg.
FAQ on company types in Luxembourg
Choosing the right type of structure is quite easy, however, the variety of business forms an investor can choose from can create certain difficulties. This is why our attorneys in Luxembourg have prepared a list with questions and answers related to these most common types of structures employed in the Grand Duchy.
1. What is the most common business form used in Luxembourg and why?
The private limited liability company (SARL) is the most common business form in this country, as it is very versatile and can be used for a wide variety of activities.
2. What is the best structure for creating a trading business?
A trading business can be easily set up through a limited liability company which will enable the business person to complete any type of commercial activity.
3. What type of company takes the shortest to be set up?
Once again, the SARL is the easiest and quickest to be registered in Luxembourg. It takes about 1 week to register such business form.
4. Do I need a resident director if I want to open a company in Luxembourg?
No, you will not need a resident director for any type of structure in Luxembourg.
5. How long does it take to open a company bank account in Luxembourg?
It takes about one week to set up a corporate bank account in this country, however, the procedure can be lengthier based on the type of activity to be undertaken.
Can I set up a branch or a subsidiary in Luxembourg?
Yes, both structures are available for foreign companies interested in establishing the activities in Luxembourg. A subsidiary is an independent structure from the parent company which runs under the rules of joint stock companies or limited liability companies. An important thing is to apply for the necessary licenses in order to legally develop the operations. On the other hand, a branch can be established with fewer formalities and with the condition of respecting the rules and regulations of the parent company. Just like in the case of a subsidiary, the branch in Luxembourg can operate as a SARL or as a joint stock company.
What is a special limited partnership in Luxembourg?
SLP or the special limited partnership is an important business structure available in Luxembourg that provides flexibility, transparency and has no legal personality. At least two business partners can establish this form of partnership in Luxembourg, one with unlimited liability in the firm and the other with responsibilities only for the contributions in the company. Just like in the case of any kind of partnership, an agreement needs to be drafted, comprising information about the business rules, partnership interests, voting rights, dividend payments, liabilities, company closure procedures. The same thing in terms of mandatory steps in completing the incorporation process, a SLP in Luxembourg needs to be registered for tax purposes and comply with the entitled authorities. The tax regime can be explained by our team of advisors in Luxembourg who can also deal with the authorities in matters of tax registration and many more.
Short facts about the Articles of Association of a company
The statutory documents of a company in Luxembourg are the Articles of Association and the Memorandum of Association which need to be drawn at a public notary in the city where the business is formed. Such documents comprise information about the legal form of the company, the activities, the owners, the share capital, the board of directors, the representatives, the company’s purposes among other things. Because French, German and Luxembourgish are the country’s official languages, the documents must be drafted in one of these languages. The documents of the company you wish to form in Luxembourg can be prepared with the help of our company formation specialists in Luxembourg. Feel free to address your inquiries to our team and tell us what kind of company you want to open in Luxembourg.
What are the rules for creating a joint venture in Luxembourg?
Joint ventures are the type of companies that address to investors or entrepreneurs wanting to work on the same project or business. The private or public limited companies or the partnerships are the main entities under which you can run a joint venture in Luxembourg. Joint ventures will work under the regulations established in a specific agreement which must comprise the name of the business, the activities, the company address, the activities, the duration of the project and also information about the owners. The responsibilities of the founders and the directors implied in the joint venture are also stated by the company’s documents. Some might create a joint venture in Luxembourg for investment purposes or can establish non-investment joint ventures, depending on the purposes of the business. If you are interested in such a structure, we invite you to get in touch with one of our company formation representatives in Luxembourg and ask for support in terms of incorporation, mentioning that our consultants can offer in-depth assistance and information in this sense.
Why make investments in Luxembourg?
Even if it’s a small country, Luxembourg is considered an important financial destination and it is placed among powerful economies that are recognized at an international level. The business potential is huge and the opportunities are diverse, allowing investors to establish their operations in any sector of interest, considering the main advantages for doing business in this country. The experienced workforce, the encouraging legal framework for both local and foreign entrepreneurs, the stable economy, the excellent infrastructure, and the appealing tax structure are among the characteristics of the business climate in Luxembourg which attract the attention of international investors in this country. The financial sector is definitely a top choice for overseas investors looking for a business in Luxembourg, but they can also thrive in sectors like automotive, tourism, ICT, logistics, manufacturing, construction, research and development. Below we have gathered information, data, statistics and facts about the business and the investment direction in Luxembourg that you might find it useful when deciding on starting a company in the Grand Duchy:
- USD 164 billion was the FDI stock for 2018 in Luxembourg;
- According to the “2019 Doing Business Report”, Luxembourg ranks 66th out of 190 worldwide economies;
- There are more than 155 banks established in Luxembourg;
- Luxembourg has one of the lowest debts among European countries;
- Most of the investments directed to Luxembourg comes from European countries.
For assistance in opening a company, do not hesitate to contact our Luxembourg law firm. We will provide you with tailored business registration solutions, according to your demands.