LUXEMBOURG Trends and Developments Contributed by: Anna Gassner, Philipp Mössner, Andrea Carraretto and Etienne Weryha, GSK Stockmann SA
Luxembourg law has several implications. First and foremost, such a choice does not change the fact that the JV vehicle is a Luxembourg-established entity and therefore subject to the applicable rules and regula - tions of the Grand Duchy of Luxembourg. As a result, it is essential that the JV agreement, if submitted to another law, is carefully reviewed from a Luxembourg perspective as well, in order to ensure that its provisions fully comply with Luxembourg law. By way of example, Luxembourg corporate law pro - vides that the shares of an SARL may be transferred inter vivos to non-shareholders only with the favour- able vote of shareholders representing at least 75% of the share capital. In practice, a JV agreement submit - ted to another law may provide for the shares in the JV company to be transferrable in line with the permitted transfer provisions and usual tag-along, drag-along and right-of-first-refusal provisions, potentially omit - ting this formal requirement. The relationship between the JV agreement and the articles of incorporation When assisting with Luxembourg JV transactions, a common point of discussion is to what extent the pro - visions of the JV agreement should be implemented into the articles of association of the JV vehicle. The JV agreement is a contract and, in general, is confidential and binding only on the parties that have signed it. However, the notarial deed incorporating an SARL is published in the Luxembourg Trade and Companies Register ( Registre de Commerce et des Sociétés ) and is therefore publicly accessible. Unlike the JV agreement, the articles of association of the company are enforceable against all third parties (the so-called erga omnes effect). The JV parties therefore need to find a balance between confidentiality and the erga omnes effect, by deciding to what extent the provisions of the JV agreement should be transposed into the articles of association of the JV vehicle. Usually, the articles of association do not reproduce the provisions of the JV agreement in full but are limited to the most important provisions regarding restricted share transferability
(eg, drag-along rights, tag-along rights), the manage - ment of the company and distribution rules. The potential qualification of the JV vehicle as an alternative investment fund A JV vehicle, if certain requirements are met, may be classified as an alternative investment fund. Con - sequently, such JV vehicles would need to comply with the provisions of Luxembourg law on alternative investments funds. In order to clarify the status of the JV vehicle, the parties should carefully assess, with the help of their advisers, whether the JV vehicle is a pure corporate structure or whether it qualifies as an alternative investment fund. This can be the case, for example, where a JV vehicle raises capital from a number of investors with the aim of investing that capital for their benefit in accordance with an investment policy. The foreign investment control mechanism applicable in Luxembourg In September 2023, a screening mechanism for for - eign direct investments was introduced in the Grand Duchy. If an investment in a company established in Luxembourg meets the relevant criteria, the investor will be required to notify the transaction to the Ministry of Economy ( Ministère de l’Économie ) in Luxembourg, which will evaluate it and grant or deny approval on a case-by-case basis. An investment is subject to this mandatory notification if it is made by a foreign inves - tor – ie, a physical person who is not a national of, or an entity that is not incorporated or established under the laws of, an EU member state or a country which is part of the EEA – when it meets the following conditions: • the investment is made in a company established under Luxembourg law which operates in certain critical sectors – eg, energy, transportation, health, communication; and • the investment enables the investor to exercise control over the Luxembourg company, eg, to have more than 25% of the voting rights of such com - pany, to have the majority of the voting rights (also by means of an agreement between sharehold - ers) of such company, to have the right to appoint or remove the majority of the board of managers
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