Business

LLC, Ltd and their equivalents in Luxembourg

One common point of confusion for those unfamiliar with Luxembourgish business law is understanding what constitutes the local equivalent of a Limited Liability Company (LLC) and Private Limited Company (Ltd.). Here we will make it clear.

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Companies in Luxembourg are broadly categorised according to whether they offer limited or unlimited liability to their owners. Limited liability companies include types such as Société Anonyme (SA), Société à Responsabilité Limitée (SARL) and other forms such as Société Européenne (SE) and Société en Commandite par Actions (SECA). These structures may be public, as in the case of the SA, or private, as in the case of the SARL.

What is an equivalent for LLC company in Luxembourg

The determination of liability—whether limited or unlimited—depends heavily on how the company is structured and the legal form it takes. In situations where liability is limited, the founders’ risk is contained to their original contributions. If we look at companies specifically, they are divided into structures:

with limited liability — SA, SARL, SE, SECA — public, e.g. SA, and private, SARL.
with unlimited liability — cooperative and civil societies, partnerships such as SENC and SECS.

The liability of the entrepreneur is determined on the basis of losses in case of payment of the company's debts:

Liability is limited if the founders suffer losses only to the extent of their contributions.
Liability is unlimited if the founders are liable for the company's debts with all their assets.

Thus, in Luxembourg, all companies, with the exception of cooperatives, partnerships and civil companies, are limited liability companies.

SARL in Luxembourg

Société à responsabilité limitée — is an LLC of the private type. It is a company formed by one or more persons who pursue business purposes and bear losses to the extent of their contributions.

The SARL is the most common form of company registration in Luxembourg. Approximately two-thirds of the Grand Duchy's companies are SARLs, as they can be opened for any business purpose.

A SARL is allowed from 2 to 100 shareholders, but if there is only one founder, it is possible to open a simplified form of SARL-S, which is essentially closer to a sole proprietorship than an LLC. If the number of shareholders exceeds 100, the SARL has one year to change its legal form.

Features of the form

Founders: 2 partners are required unless it is a simplified form. They can be natural or legal persons.
The articles of association must be drawn up by a notary.
A registration fee of at least 12,000 euros is required to register this type of company. Contributions can be made in cash or in kind, but they must be valued and this valuation must be recorded in the articles of association.
Decisions are made in an organized manner: at a general meeting with the manager or the board of directors.
A legal audit of the annual accounts is obligatory for this form.
Annual accounts must be filed with the Register of Commerce (RCS) within 7 months of the end of the financial year.
Mandatory documents to be prepared are: balance sheet, income statement with its annexes, management report. All documents are approved by the general meeting of shareholders.
Business income is taxed directly at the corporate level. Partners are taxed only on the distribution of profits in the form of dividends. In addition, other taxes must be paid.

Typically, SARLs are registered by small and medium sized companies.

SA in Luxembourg

Société Anonyme — an equivalent of a corporation, is a public company with limited liability. It is suitable for large projects, which have a shred capital, shareholders and growth plans. Together with the SARL, it is one of the most common types of company in Luxembourg.

Features of the form

Founders: it can be one or more natural or legal persons.
The articles of association must be drawn up by a notary.
Contribution to the authorized capital — at least 30,000 euros. Contributions can be made in cash or in kind.
Decisions are made by the general meeting together with management structures. These can be either the board of directors, which manages the company, or the management board, which manages the company, and the supervisory board, which supervises the management. In addition, a member of the board of directors may not be a member of the supervisory board.
The statutory audit of the annual accounts must be entrusted to one or more approved internal auditors (commissaires aux comptes) or external auditors (réviseur d'entreprises agréé).
The annual accounts must be filed with the Registry of Commerce (RCS) within 7 months of the end of the financial year.
Mandatory documents prepared by the SA: balance sheet, profit and loss statement, notes to the financial statements, and management report, which are approved by the general meeting of shareholders.
In addition to income tax, property tax, business tax, corporate tax, and others are paid.
Shares are issued with or without voting rights, with or without par value.

How to choose a form for a company?

The first thing to think about is how much personal liability you're willing to take on. If you want to protect your personal assets from business debts and obligations, a limited liability structure is probably your best bet. Businesses like the Société à Responsabilité Limitée (SARL) or Société Anonyme (SA) offer limited liability, which means you're only on the hook for the capital you invest in the company. These are similar to the U.S. LLC or U.K. Ltd. company structures, where the founders are protected from having to cover business debts with personal assets.

The number of shareholders or partners involved in the business is another thing you can think about when making your decision. The SARL is great for small to medium-sized businesses with a limited number of shareholders (up to 100). It's a private company, which makes it easier to manage and gives businesses that don't want to go public more flexibility.

In any case, before making a final decision, research the official sources, and consul a professional. Help of notary is necessary for each new entrepreneur.