SMP

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Luxembourg

Typical legal form for start-ups

société à responsabilité limitée (s.à.r.l.)

Brief information

The luxembourgian s.á.r.l. is the most popular legal form for start-ups especially in seed- and early-stage due to the limited shareholder liability, the relatively low formation costs and a minimum share capital of EUR 12,500. Often the legal form of the simplified s.á.r.l. (s.á.r.l. simplifée) is also chosen. It offers further advantages: The articles of association can be concluded privately and in writing without a notary and the initial share capital amounts to only EUR 1. However, only natural persons can be shareholders of the simplified s.á.r.l. The s.á.r.l. corresponds to the German GmbH.

If the s.á.r.l. has a Supervisory Board, an investor may in principle participate in it. PE/VC Funds may not participate in the Board of Directors. Otherwise, the investment may be monitored by an observer seat under certain conditions.

One or more managing directors, forming the Board of Directors, manage the s.á.r.l.
As a supervising body, the articles of association may provide for a Supervisory Board. The establishment of a supervisory body is in principle voluntary and not common in practice. Instead, a contractual observer seat is possible and common in the seed and early stage phase. The observer may attend meetings of the general managers but shall not have the right to vote.

If the s.á.r.l. has a Supervisory Board, an investor can participate in it. He/She can also in principle accept an observer seat, whereby the contractual structure is decisive in the individual case. The observer may not exercise any influence on the management decisions.
PE/VC Funds may not participate in the Board of Directors.

Other legal form

société anonyme (S.A.)

Brief information

The conversion into a Luxembourgian Stock Corporation (S.A.) usually takes place as of the Series A or B financing round. The reason for this is the need for flexible investment alternatives such as convertibles or authorized capital. S.A. shares are also more easily transferable than s.á.r.l. shares.

Since 2016 there has also been a simplified S.A. form. (S.A. simplifée). However, it is not yet widespread.

If the S.A. has a Supervisory Board, an investor may in principle participate in it. PE/VC Funds may not participate in the Board of Directors. Otherwise, the investment may be monitored by an observer seat under certain conditions.

The S.A. can be organized monistically or dualistically. Monistic organisation is common. The Board of Directors (conseil d'administration) manages the S.A. As with s.á.r.l., observer seat status may be granted by contract.
The dualistic organisation in which the Supervisory Board (conseil de surveillance) monitors the Management Board (directoire) is less common. There is an obligation to set up a Supervisory Board only if the number of employees exceeds 1000.

If the S.A. has a Supervisory Board, an investor can participate in it. He/She can also in principle accept an observer seat, whereby the contractual structure is decisive in the individual case. The observer may not exercise any influence on the management decisions.
PE/VC Funds may not participate in the Board of Directors.

The information in our toolbox provides managers of private equity or venture capital funds with an initial overview of certain framework conditions in the respective country. It does not provide advice on the law of any country, neither does it substitute such advice. Before taking over a board seat in a portfolio company, it is at all times necessary to seek expert advice. Our team is happy to assist you with all questions at any time.

In collaboration with: Arendt & Medernach

Sources: Wegen/Spahlinger/Barth, Gesellschaftsrecht des Auslands 2. EL Januar 2018