Luxembourg Modernises the S.à r.l. incorporation regime with positive impact for general partners and holding structures

This long-awaited reform aims to modernise Luxembourg company law and enhance the country’s competitiveness as a business and funds hub.

Background

Under current law, the minimum share capital for a Luxembourg S.à r.l. is set at €12,000 and must be fully paid at the time of incorporation. This requirement, in place since 1933, has been widely viewed as a barrier to setting-up new companies as well as funds structured as partnerships and using a general partner, given certain complexities around opening a bank account.

Key features of the draft bill

Deferred payment option

The Draft Bill amends the Law of 10 August 1915 to permit the deferred payment of the minimum share capital for up to twelve months after incorporation. The capital must still be fully subscribed at the time of incorporation, but payment may be staggered according to the company’s cash flow needs, as set out in the articles of association. This approach offers founders greater flexibility, allowing them to choose whether to pay the full amount upfront or to spread payments over time, depending on the company’s financial situation and strategic preferences

The deferred payment regime applies exclusively to cash contributions. Contributions in kind and any amount exceeding the statutory minimum must be fully paid at incorporation.

Transparency, safeguards, and compliance

Shareholders who have not fully paid for their shares, along with the outstanding amounts, will be disclosed in the company’s annual accounts. Voting rights attached to unpaid shares are suspended until payment is made following a valid call for funds. Founders remain liable for ensuring the minimum share capital is paid within the twelve-month period. In the event of a transfer of shares, the outgoing shareholder is released from liability for debts arising after the transfer is published, but retains recourse against the new holder for unpaid amounts.

Persistent non-payment may expose the company and its founders to legal action and, ultimately, judicial dissolution for non-compliance.

Importantly, the draft bill does not alter existing anti-money laundering or counter-terrorism financing controls. These checks remain mandatory at the time of incorporation, ensuring that the new flexibility in capital payment does not compromise the integrity of Luxembourg’s financial system.

Next steps

The Draft Bill will be submitted for review and opinion to the relevant professional chambers and stakeholders, including the Chamber of Commerce, Chamber of Trades, Chamber of Notaries, and the Bar Association.

Following stakeholder consultation, the bill will be examined by the Chamber of Deputies and the Council of State.

The new regime will apply to the S.à r.l and the S.à r.l.-S incorporated after the law’s entry into force.

Conclusion

The introduction of a deferred payment mechanism for the share capital of an S.à r.l. represents a significant step towards a more flexible and competitive business environment in Luxembourg. The Draft Bill is expected to stimulate entrepreneurship and investment funds formation, while maintaining robust safeguards for creditors and the financial system.

Holger Holle,  Partner in M&A, notes that “this draft bill represents a positive development from a transactional practice perspective, as it will significantly streamline the process of incorporating Luxembourg companies, reduce administrative hurdles for dealmakers, and ultimately enhance the country’s attractiveness for cross-border transactions and investments.”

Codrina Constantinescu, Partner in the Investment Funds and Financial Services, considers that “the new regime is very welcomed by the funds industry as it will facilitate the set-up of funds with a general partner that is structured as a S.à r.l. The fund initiators will be able to expedite the incorporation (or formation) and launch of their funds."

This briefing includes Codrina Constantinescu and Sara Gerling as contacts.