LUXEMBOURG Trends and Developments Contributed by: Anna Gassner, Philipp Mössner, Andrea Carraretto and Etienne Weryha, GSK Stockmann SA
of power between the shareholders. Luxembourg law offers various possibilities for structuring sharehold - ing arrangements effectively. The focus of this section will be on key potential scenarios concerning (i) the type of financial instruments used; (ii) the nature of contributions made by the parties; and (iii) how these contributions may be allocated. Type of instruments The share capital of an SARL is generally divided into shares ( parts sociales ), which may or may not have a nominal value. Holding shares in an SARL entitles the shareholders to economic rights (such as preferred distributions, dividends and liquidation proceeds) as well as non-economic rights (such as voting rights, and observer and board member appointment rights). As a general rule, these rights are proportional to the number of shares held. However, the balance between shareholders is not always straightforward and more complex structures are often requested to achieve the desired result. A notable example is the additional pro - tections that a minority shareholder may request in order to better safeguard their interests. Luxembourg law offers several options to create tai - lored shareholding structures. One option is the use of shares with different share classes (eg, class A and class B shares), with different rights granted to each class. This structure offers flexibility in several aspects, such as distributions and voting rights. In terms of distributions, this specific shareholding structure offers the possibility of preferential rights in the case of distributions, which may be structured as a waterfall or on a case-by-case basis, for exam - ple linked to specific internal rates of return (IRRs) achieved. In terms of voting rights, this structure may be used together with a list of important matters for the man - agement of the JV vehicle ‒ so-called reserved mat - ters ‒ in order to submit the approval of such matters to specific majorities or the approval of one class of shares, regardless of the total number of shares held. For example, the JV agreement may provide that the majority necessary for the approval of a merger requires the inclusion of the favourable vote of share -
holders representing the majority, or even totality, of the class shares held by the minority shareholder(s). Beyond shares, Luxembourg law further offers the possibility of issuing beneficiary or profit units ( parts bénéficiaires ). Beneficiary units are instruments that can be issued by the company but do not form part of its share capital. The features of this instrument are therefore highly flexible and can be freely defined in the articles of association of the JV company. The allocation: share capital, share premium, Account 115 Once the JV partners have decided the types of instru - ments to use in forming the shareholding of the JV vehicle, the parties will need to decide how to allocate their values. If the shares are subscribed at their nomi - nal value, the contributed value will be fully recorded as the share capital of the JV vehicle. If one or more shareholders subscribe to shares at a price above their nominal value, the share premium must be recorded in one of the JV vehicle’s accounts. If new shares are issued, such additional value will be booked to the company’s share premium account. In Luxembourg, however, shareholders have the flex - ibility to allocate such additional contributions to the capital reserve of the company, known as Account Number 115 of the Luxembourg standard chart of accounts ( apport en capitaux propres non rémunérés par des titres ). Contributions to Account 115 can be made quickly as they do not require the involvement of a notary. The contributions Once the structure of the share capital of the JV vehi - cle is determined, the parties need to consider the form of the contributions to the JV vehicle. Gener - ally, contributions to an SARL are made in cash or in kind (eg, by contributing receivables or shares in other companies). Cash contributions are the easiest way to contribute value, but some practical implications need to be considered. When incorporating an SARL in Luxembourg by means of a cash contribution, the minimum corporate share capital of EUR12,000 must be deposited into a bank account of the company before it is incorporated and can legally exist. This requires opening a bank account for the future com -
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