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Comp. by: K.VENKATESAN Stage: Proof Chapter No.: 18 Title Name: VanGervenDate:23/11/13 Time:21:19:04 Page Number: 541

18

Luxembourg

margaretha wilkenhuysen, alexander kochNautaDutilh

I Implementation and scopeII Application of Luxembourg lawIII Information to be included in the articles of association and related

documents1 General remarks2 Information to be included in the articles of association3 Information to be made public4 Effects of publication

IV Incorporation requiring prior authorisationV Incorporation by one or more personsVI Capital requirements

1 Minimum capital2 Composition of the capital3 Issue price of the shares4 Payment for shares5 Contributions in kind

A Auditor’s reportB Exceptions

6 Transfer of assets after incorporation – “quasi apport”7 Losses8 Prohibition an subscription for own shares

VII Acquisition of own shares1 Restriction and scope2 Rules for portfolio shares3 Sale of shares

VIII Cross-participationsIX Pledge of own sharesX Financial assistance for acquisition of shares by a third party

1 General rule2 Exceptions3 Conflicts of interest

XI Changes to capital1 General remarks2 Capital increase

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A Decisions and conditionsB Shareholders’ pre-emptive rightsC Payment for newly issued sharesD Sanctions

3 Capital reductionA Capital reduction and creditors’ protectionB Capital redemptionC Withdrawal of sharesD Redeemable shares

XII Distribution of profits1 Limitations on the distribution of profits2 Interim dividends3 Capital increase by the incorporation of reserves4 Sanctions

I Implementation and scope

1. The Second Company Law Directive was transposed into Luxembourglaw by the Luxembourg law of 24 April 1983. The amendments to theDirective introduced by Directive 92/101/EEC of 23 November 1992were implemented by the Luxembourg law of 12 March 1998. Thefurther amendments introduced by Directive 2006/68/EC of 6 September2006 were implemented by the Luxembourg law of 10 June 2009.

The scope of the Second Company Law Directive is limited to publiclimited liability companies. In the case of Luxembourg, the coordinationmeasures prescribed by this Directive shall apply to the société anonyme(“SA”). Under Luxembourg law, the rules set out under the Directiveapply as well to the société en commandite par actions (“SCA”), to theextent that the provisions of the Luxembourg law of 10 August 1915 oncommercial companies as amended from time to time (the “Law”) apply,but not as such to the société à responsabilité limitée (“SARL”).2. The Second Company Law Directive allows the Member States toexclude from its scope of application investment companies with variablecapital and cooperatives in the form of a public limited liability company.

Under the Law, however, cooperatives that do take the form of a publiclimited liability company (sociétés cooperatives organisées comme dessociétés anonymes) (“the Cooperative(s)”) are subject to the provisionsapplicable to the société anonyme, including those implementing theSecond Company Law Directive, unless stated otherwise in the Law.

An investment company with variable capital (sociétés d’investissementà capital variable – SICAV) under the Luxembourg law of 20 December

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2002 concerning collective investment schemes, as amended (“the UCITSLaw”), shall adopt the form of a société anonyme and is subject to therules applicable to a société anonyme, including those implementing theSecond Company Law Directive, unless stated otherwise in the said lawof 20 December 2002.

Pursuant to the Luxembourg law of 15 June 2004 (the “SICAR Law”)relating to the investment company in risk capital (sociétés d’investisse-ment en capital à risque (“SICAR”)), a SICAR may have a variable capitaland, if it takes the form of an SA (or respectively of an SCA or aCooperative), is subject to the provisions applicable to an SA (andrespectively the special provisions applicable to an SCA or a Coopera-tive), provided the aforementioned law of 15 June 2004 does not stateotherwise.

II Application of Luxembourg law

3. Luxembourg applies the “effective seat” theory (siège réel) to determinethe national law applicable to a company. Therefore, under Luxembourglaw, the head office (domicile) of the company determines the company’snationality and thus whether it is governed by Luxembourg law (Art. 159of the Law). In order to determine the head office (domicile), reference ismade to the place of the company’s principal establishment (adminis-tration centrale), which in turn is (refutably) presumed to be located atthe registered office of the company (Art. 2 of the Law).

If the company’s head office (domicile) is located in Luxembourg,Luxembourg law will, in principle, determine the rules applicable to theexistence of the company, its corporate name, the incorporation formal-ities, the dissolution and liquidation, the legal capacity, the composition,the powers and the functioning of the company’s corporate bodies, therelations amongst the company’s shareholders and between shareholdersand the company, the acquisition and loss of the shareholder status, therights and obligations attached to the company’s shares and the exerciseof these rights, the liability for violation of the Law and the company’sarticles of association, and the extent to which the company is bound byobligations entered into by its corporate bodies.4. If the head office of a company is located abroad but such company hasone or more locations where it conducts operations (sièges quelconquesd’opération) in the Grand Duchy Luxembourg, the place of its mostimportant establishment in the Grand Duchy of Luxembourg, which itshall indicate for that purpose in the company’s documents the publication

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of which is required by law, shall constitute the secondary domicile (domi-cile secondaire) of that company in the Grand Duchy of Luxembourg.

III Information to be included in the articles ofassociation and related documents

1 General remarks

5. An SA/SCA/SARL is incorporated by notarial deed (Art. 4 of the Law),whereas a Cooperative may also be incorporated by an instrument underprivate seal (Art. 137-3 of the Law). For an SA/SCA/SARL, the minimuminformation to be included in the instrument of incorporation is expresslyprovided for by Article 27 in conjunction with Articles 103 or 184 of theLaw. Subject to the provisions concerning the share capital and the role ofan independent auditor (réviseur d’entreprises) in the description of con-tributions other than in cash, the minimum information required for aSARL is identical to the information required for an SA/SCA.

For a Cooperative, the minimum information to be included in theinstrument of incorporation is expressly provided for by Articles 115, 116and 137–4(4) of the Law.

With respect to an SA/SCA/SARL/Cooperative (and as opposed to ageneral partnership (société en nom collectif ) and a limited partnership(société en commandite simple)), it is required that the respective instru-ment of incorporation is published in its entirety in the official legal gazette(Mémorial, Recueil des Sociétés et Associations) (the “Mémorial”), with theminimum information set out under no 6 and 8 of this chapter respectively.

2 Information to be included in the articles of association

6. The notarial deed of incorporation of an SA/SCA shall include at leastthe following information:

(i) the identity of the natural or legal persons by whom or on whosebehalf the instrument has been signed;

(ii) the form of the company and its denomination;(iii) the registered office (i.e., at least the municipality (commune)

where the registered office is located);(iv) the corporate purpose;(v) the amount of the subscribed capital and, where applicable, of the

authorised capital (capital autorisé);(vi) the amount of the subscribed capital initially paid-up;



(vii) where several classes exist, the classes of shares, the rights attaching toeach class, the number of shares subscribed to and, in the case of anauthorised capital, the shares to be issued in each such class and anyrights concerning each class, as well as the nominal value of theshares or the number of shares for which no nominal value isspecified; and any special conditions restricting the transfer of shares;

(viii) whether the shares are in registered or bearer form and any provi-sion in relation to the conversion of securities supplemental to, orderogating from, the law;

(ix) particulars of each contribution other than in cash, the conditionson which it is made, the name of the contributor and the conclu-sions of the report of the réviseur d’entreprises in connection withcontributions in kind (cf. no 21 of this chapter);

(x) the reason for, and the extent of, any special advantages conferredat the time of incorporation of the company upon any person whoparticipated in the incorporation of the company;

(xi) if applicable, the number of securities or units which do notrepresent the stated capital, as well as the rights attaching thereto,in particular the right to vote at general meetings;

(xii) insofar as they are not provided for by law, the rules determiningthe number and method of appointment of the members of thecorporate bodies responsible for representing the company withregard to third parties, for the administration, for the management,for the supervision or the control of the company and the alloca-tion of powers among such corporate bodies;

(xiii) the duration of the company;(xiv) at least the approximate amount of the costs, expenses and remu-

neration or charges of whatever form, which are payable by thecompany or chargeable to it by reason of its incorporation;

(xv) the municipality (commune), date and time of the annual generalmeeting of shareholders (Art. 70 of the Law);

(xvi) confirmation by the notary that the funds to pay-up the sharecapital (or part thereof) have been deposited in a bank accountopened for this purpose (Art. 26(2) of the Law).

7. In addition, the deed of incorporation of an SA/SCA includes inpractice the following information:

(i) the opening and closing date of the company’s fiscal year;(ii) the conditions for admission to general meetings of shareholders

and for the exercise of voting rights thereat;

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(iii) the exact address of the registered office;(iv) the name, profession, date/place of birth, address, registration

number, as applicable, of each person to be entrusted with themanagement of the company as well as the duration of their man-date (maximum of six years for an SA/SCA); in the case of an entitybeing appointed director, information on its permanent representa-tive who must be a physical person is required;

(v) in the case of a two-tier management structure, the names, profes-sion, date/place of birth and address of the members of the super-visory board as well as the duration of their mandate (maximum ofsix years for an SA/SCA);

(vi) the name, date/place of birth, address, registration number, asapplicable, of the company’s statutory auditor (commissaire auxcomptes) or, as the case may be, approved independent auditor(réviseur d’entreprises agréé) as well as the duration of their mandate(maximum of six years for an SA/SCA).

The information mentioned in items (iii) through (vi) above should beincluded in the deed of incorporation rather than in the articles ofincorporation to avoid having to amend the articles for example, everytime a new director is appointed.

The instrument of incorporation of an SCA must identify theunlimited partners who are jointly liable for the company’s obligations.The general partners of this type of company have unlimited liability,while the limited partners can be held liable up to the amount of theirsubscriptions or contributions to the capital. Only unlimited partnersmay be entrusted with the management of the company.8. In addition to the information mentioned under items (i) through (iv),(xi) through (xiii) and (xv) of no 6 of this chapter, the instrument ofincorporation of a Cooperative shall include at least the followinginformation:

(i) instead of the information mentioned under items (vi) and (vii) ofno 6 above:

• the manner in which the corporate fund is or will subsequentlybe made up, and the minimum amount to be subscribed forimmediately; and

• the number of shares subscribed to, the category of shares ifmore than one category exists and the rights of each of suchcategories;



(ii) the conditions for admission to, and resignation from, membershipand for exclusion of the members and withdrawal of contributions;

(iii) how and by whom the business of the company is to be managedand controlled and, if appropriate, the method of appointment andremoval of the managers, directors and statutory auditors, theextent of their powers and their term of office;

(iv) the powers of the general meeting, the rights conferred uponmembers thereat, the procedure for convening meetings, the majorityrequired for the validity of resolutions and the procedures for voting;

(v) the sharing in profits and losses;(vi) the extent of the liability of the members, whether they are liable for

the commitments of the company jointly and severally or onlyseverally, against their entire assets or only up to a specified amount.

An SA/SCA/Cooperative may, inter alia, be declared null and void if itsarticles of association do not include information on its corporate formand name, corporate object, the capital contributions or the amount of itssubscribed share capital (Arts. 12ter, 115 of the Law).

The nullity of an SA/SCA based on these grounds takes effect as fromthe date of the relevant court decision. It is however not enforceableagainst third parties prior to the due publication of the said courtdecision (Art. 12quater of the Law).

With respect to a Cooperative, no such nullity may be relied upon bythe members of a Cooperative towards third parties. Between themembers of a Cooperative themselves, any such nullity shall produceits effects only as from the date of the application for a court order todeclare such nullity (Art. 115 of the Law).

3 Information to be made public

9. Pursuant to the Second Company Law Directive, certain informationmust be made public, upon incorporation and afterwards, so as to enablethird parties to understand the characteristics of the company in ques-tion. This information is listed at no 6 of this chapter (for an SA/SCA) tono 8 of this chapter (for a Cooperative).

In a first step, this information must be filed with the LuxembourgTrade and Companies Register (“the RCS”) in accordance with the Lawand the Luxembourg law of 19 December 2002 concerning the tradeand companies register and the accounting and annual accounts ofcompanies, as amended (the 2002 Law) within one month from the

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company’s incorporation or respectively the amendment of the relevantinformation (cf. Art 15 of the 2002 Law, Art 9 §1 of the Law), by filing a(n) (electronic) standard form with the RCS. At incorporation (or uponany further amendment of the articles of association), the notary beforewhom the company is incorporated (or the articles of association areamended), is responsible for filing the form, together with the deed ofincorporation (or the deed relating to the amendment of the articlesof association) and any additional relevant documents such as powers ofattorney and the independent auditor’s report on any contributions inkind, as the case may be.

In a second step, within two months from its filing, the relevant infor-mation must be published in theMémorial. The information is publishedin at least one of the official languages of the Grand Duchy of Luxem-bourg, i.e., Luxembourgish, French and/or German. For this reason, thedeeds of incorporation/the articles of association of limited liability com-panies regularly include an English version followed by a French orGerman version, whereby the English version generally prevails.

Certain information, such as restated articles of association (statutscoordonnés), which need to be filed with the RCS after each amendmentof the company’s articles of association (cf. Art. 11bis §3 of the Law), and(also consolidated) annual accounts (cf. Art. 9 § 3 of the Law), does notneed to be published in its entirety; instead, the publication in theMémor-ial of a mention of the filing of such information with the RCS is sufficient.

4 Effects of publication

10. Documents and extracts of documents that by law are subject topublication will only be valid towards third parties from the day of theirpublication in the Mémorial unless the company proves that the relevantthird parties had prior knowledge thereof. Third parties may howeverrely upon documents or extracts thereof that have not yet been published(Art. 9 §4 of the Law).

However, with regard to transactions taking place before the sixteenthday following the day of publication, these documents or extracts ofdocuments will not be valid towards third parties who prove that it wasimpossible for them to have had knowledge thereof.

11. In the event of any discrepancy between the document filed and thedocument published in theMémorial, the latter is not valid towards thirdparties. Third parties may however rely upon the same unless the com-pany proves that they had knowledge of the text of the document filed.



IV Incorporation requiring prior authorisation

12. Luxembourg law does not require a prior authorisation to commencebusiness, except for specific types of trade, commercial, regulated orlicensed activities, such as banking or insurance activities.

An SA/SCA/SARL/Cooperative acquires legal personality upon execu-tion of its instrument of incorporation, a société européenne (SE) howevernot until its filing with the RCS.

V Incorporation by one or more persons

13. An SA/SARL may be incorporated by a single founder. If oneshareholder holds or acquires all the shares of the company, the share-holder will be called the sole shareholder (l’associé unique). As aprinciple, the liability of the sole shareholder is limited to the amountof its contribution (Art. 23 of the Law).

The death or the dissolution of the sole shareholder does not result inthe dissolution of the company (Art. 23 of the Law).

For as long as all shares are held by a single shareholder, that share-holder will act as the general meeting. The resolutions of the singleshareholder shall be documented in minutes.

An SE may have a single shareholder if it is formed by conversion ofan SA governed by Luxembourg law the shares of which are held by asole shareholder and which has for at least two years a subsidiarygoverned by the laws of another Member State of the European Eco-nomic Area (Art. 3 of the Law).

14. An SCA can be established by one or more shareholders who areindefinitely and jointly and severally liable for the obligations of thecompany and shareholders who only contribute a specific share ofcapital. Given that the unlimited shareholder may in practice be at thesame time a limited shareholder of the SCA, at least two foundingshareholders are thus required.

15. A Cooperative may be incorporated by one founder (Arts. 137-5(1),137-4(2), 26(1) 1) of the Law).

VI Capital requirements

1 Minimum capital

16. An SA must have a share capital of at least EUR 30,986.69 (Art. 26(1)of the Law). The capital must be fully subscribed and at least 25 per cent

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must be paid-in. In the case of a contribution in kind, the remaindermust be paid in within five years from incorporation (Art. 26-1(1) of theLaw). The same applies to the SCA.

An SE must have a fully subscribed capital of at least EUR 120,000(Art. 26(1) of the Law).

A SARL must have capital of at least EUR 12,394.68 (Art. 182 of theLaw). The capital must be fully subscribed and paid in atincorporation.

No minimum corporate funds (fond social) are required forCooperatives. Its articles of association yet need to provide for aminimum amount below which the corporate funds shall neverdrop. The corporate deed (acte de société) shall specify the minimumcorporate funds that shall be immediately subscribed; however, noimmediate payment thereof is required by law (Art. 137-4(2) ofthe Law).

A société cooperative européenne (SCE) must have a subscribed capitalof at least EUR 30,000 (Art. 3(2) SCE Regulation).

2 Composition of the capital

17. In the event of contributions in kind, the assets contributed must becapable of economic assessment; an undertaking to perform work orsupply services is yet expressly excluded (Art. 26-3 of the Law). Know-how can be contributed if it is reflected in a tangible asset, such as recipes,trade secrets, manufacturing knowledge and information about computersoftware, or if its forms part of a business or branch of activity. The rightto obtain know-how cannot be contributed as this constitutes an under-taking to perform a service.

Goodwill may be contributed when linked to a particular business andthus being capable of economic assessment so long as it is not consideredto represent an undertaking to supply a service (i.e., to make customersavailable to the buyer in exchange for shares).

3 Issue price of the shares

18. The shares can be issued with or without a nominal value. In the firstcase, the nominal value must be mentioned in the articles of association.A Cooperative only may issue shares with different nominal values (Art.137-4(6) of the Law). In principle, the nominal value determines the rights



of the shareholders. In a SARL, shareholders1 are entitled to a number ofvotes corresponding to that portion of the capital represented by theirshares. The same holds true for an SA/SE/SCA/Cooperative unless shareswithout voting rights are issued, which may, in the case of an SA/SE/SCA,not represent more than 50 per cent of the share capital. In an SCA, thegeneral partner has de facto a veto right with respect to measures to beadopted or ratified by the general meeting that affect the interests of thecompany towards third parties or that amend the articles of association,subject however to any contrary provision of the articles (Art. 111 of theLaw). The capital represented by the shares held also determines the pre-emptive rights of a specific shareholder in the event of a capital increase ofan SA/SE/SCA by means of contributions in cash (cf. no 56 et seq. of thischapter). The articles of association cannot provide otherwise. However,the articles may freely determine dividend rights, although a shareholdermay not be excluded altogether from the profits or from sharing thecompany’s risk. The articles of association of a Cooperative may as wellfreely determine shareholder rights provided a shareholder is not excludedfrom the profits or from sharing the Cooperative’s losses.

Shares may not be issued for an amount lower than their nominalvalue or, in the absence of a nominal value, their accounting par value.However, those persons who undertake to place shares in the exercise oftheir profession, may, with the consent of the company, pay less than thetotal amount of the shares for which they subscribe in the course of sucha transaction (Art. 26-5(2) of the Law).

4 Payment for shares

19. At least 25 per cent of the issue price of each share of an SA/SE/SCAmust be paid-in. A contribution in kind must be paid-in entirely withinfive years (Art. 26-1(1) of the Law). So long as the shares have not beenpaid in their entirety, they will be in nominative form (Art. 43 of theLaw). The exercise of voting rights attached to shares in respect of whichcalls have not been paid shall be suspended until such time as those callswhich have been dulymade and are payable shall have been paid (Art. 67(7)of the Law).

1 For ease of reading, this report uses the same terminology for a SARL as for an SA, i.e.,“shareholder” and “shares”, it being understood that the Law by times uses terms withrespect to a SARL that are distinct from those used with respect to an SA (e.g., “associé”,“part sociale”).

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In an SARL, all of the capital must be fully paid-in upon subscription,irrespective of whether all shares are held by a single or more personsand irrespective of whether the payments are made by contribution incash or in kind (Art. 183 of the Law).

There is no minimum capital requirement with respect to aCooperative. No immediate payment of the corporate funds provided forby the relevant Cooperative’s corporate deed is required (Art. 137-4(2) ofthe Law).

In a SCE, at least 25 per cent of the nominal value of the shares issuedin return for cash must be paid-up on the subscription date; the balancemust be paid within five years unless the articles provide for a shorterperiod (Art. 4(4) SCE Regulation). Shares issued in return for a contri-bution in kind must be fully paid-up on the date of issuance (Art. 4(5)SCE Regulation).20. Payments in cash must be made to an account opened in the name ofthe company in formation with, in principle, the Luxembourg branchof a bank. The funds shall be blocked on the account and a certificate(certificat de blocage) of payment be provided to the notary no later thanthe time of incorporation. The funds are released after the company’sincorporation and the issue by the notary of a certificate to this end(certificat de déblocage).

In general and unless the articles provide otherwise, the board ofdirectors/management board/manager(s) shall determine the exact dateon which the remaining contributions shall be paid-in, based on thecorporate interest and the financial needs of the company. As long as theboard or directors/management board/manager(s) have not yet called forpayment, the shareholders are not entitled to pay in the balance of theircontributions.

5 Contributions in kind

A Auditor’s report

21. In the event of a contribution in kind, a registered independentauditor (réviseur d’entreprises agrée) must prepare a report prior toincorporation (or respectively prior to any increase of share capital).The auditor must be a member of the Luxembourg Institute of registeredauditors (Institut des Réviseurs d’entreprises) and is appointed by thefounders (Art. 26-1(1) of the Law). These rules apply to the SA, the SE,the SCA and the SCE. In contrast, these rules do not apply to the SARLnor to the Cooperative (Art. 137-4(3) of the Law).



The independent auditor’s report must include a description of eachasset contributed to the capital and the valuation methods used. Inaddition, it must specify whether the values arrived at by application ofthese methods correspond at least to the number and the nominal valueor, if there is no nominal value, the accountable par of the shares and, ifapplicable, the share premium (Art. 26-1(3) of the Law).

The auditor’s conclusions and identity must be mentioned in theinstrument of incorporation or in the instrument of capital increase(Art. 26-1(3) of the Law).22. The independent auditor’s report shall be annexed to the instrumentof incorporation or of capital increase and be filed together with thisinstrument with the RCS and published in the Mémorial.

B Exceptions

23. An independent auditor’s report is not required for certain assetswhose value has been established otherwise. Luxembourg law providesfor such an exception if 90 per cent of the nominal value or, in theabsence thereof, the accountable par of all shares is issued to one or morecompanies in return for a contribution in kind and if the followingrequirements are met:

(i) the founders of the issuing company have agreed to dispense withthe independent auditor’s report and their agreement;

(ii) such dispensation remains attached to the instrument ofincorporation;

(iii) the contributing companies have reserves which by law or pursuantto their articles of association may not be distributed and which areat least equal to the nominal value or, if there is no nominal value,the accountable par of the shares issued in return for the contribu-tion in kind;

(iv) the contributing companies guarantee, up to an amount equal tothe nominal value or accountable par value of the issued shares,payment of the debts of the issuing company arising between thetime the shares are issued and one year after publication of thecompany’s annual accounts for the financial year during whichthe contribution was made;

(v) any transfer of the shares issued in return for the contribution inkind is prohibited within the period mentioned in (iv);

(vi) the guarantee referred to in (v) is made in an annex to theinstrument of incorporation;

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(vii) the contributing companies incorporate a reserve at least equal tothe amount indicated in (iii), which may not be distributed untilthree years after the publication of the annual accounts of theissuing company for the financial year during which the contribu-tion was made or, if necessary, until such later date on which allclaims relating to the guarantee referred to in (iii) submitted duringthis period have been settled (Art. 26-1(4) of the Law).

In addition, no independent auditor’s report is necessary with respect tothe following types of assets: (i) transferable securities or money-marketinstruments traded on a regulated market; (ii) other assets for whicha fair value opinion by a recognised independent auditor that is not olderthan six months is available; and (iii) other assets the value of which canbe determined with reference to audited statutory accounts of the pre-ceding financial year (Art 26-1 (3bis), (3ter) and (3quater) of the Law).

(i) The first type of assets includes transferable securities and money-market instruments.2 Transferable securities are defined as securitiesthat are negotiable on a capital market (with the exception of paymentinstruments), including shares in companies and other securitiesequivalent to shares in companies, partnerships or other entities, anddepositary receipts in respect of shares; bonds or other forms ofsecuritised debt, including depositary receipts in respect of such secur-ities; and any other securities giving the right to acquire or sell anysuch transferable securities or giving rise to a cash settlement deter-mined with reference to transferable securities, currencies, interestrates or yields, commodities or other indices or measures. Money-market instruments are defined as instruments that are normallytraded on the money market, such as treasury bills, certificates ofdeposit and commercial papers but excluding payment instruments.

Such transferable securities and money-market instruments can be con-tributed without an independent auditor’s report if they are valued at theweighted average price at which they have been traded on one or moreregulated markets over a period of six months preceding their effectivecontribution date. The EU Regulated Market (or “Bourse de Luxem-bourg”market) and the exchange-regulated market (Euro MTF Market,implemented in 2005) are the regulated markets in Luxembourg.

In the event the market price has been affected by exceptional circum-stances liable to significantly influence the value of the securities or themoney-market instruments at the date of their contribution, a

2 In the sense of Article 4(1)(18) and (19) of Directive 2004/39/EC of 21 April 2004 onmarkets in financial instruments.



revaluation must be carried out at the initiative and under the respon-sibility of the board of directors of the company issuing the shares.This will notably be the case when the market for the securities ormoney-market instruments has become illiquid. In the event of arevaluation, an independent auditor’s report will be required as setout above under no 21 and 22 of this chapter.

(ii) Assets other than securities or money-market instruments admittedto trading on a regulated market can be contributed without anindependent auditor’s report being required if, upon decision of theboard of directors of the issuing company, (a) the fair market value ofeach asset can be determined from the statutory accounts, providedthese have been audited in accordance with Directive 2006/43/EC of17 May 2006 on statutory audits of annual accounts and consolidatedaccounts; or (b) the assets have been subject to a fair value opinion byan independent auditor and the following conditions are met: (i) thefair value is determined as of a date no more than six months beforethe effective contribution date; and (ii) the valuation has beenperformed in accordance with valuation standards and principlesgenerally accepted in Luxembourg with respect to the type of assetscontributed.

If new circumstances arise which are liable to significantly change thefair value of the assets as at the effective date of contribution, arevaluation must be carried out by an independent auditor as set outabove under no 21 and 22 of this chapter at the initiative and underthe responsibility of the board of directors.

In the event of a capital increase, if the board of directors fails to have arevaluation performed, one or more shareholders collectively holdingat least 5% of the subscribed capital on the date the decision toincrease the capital is taken may request a revaluation by an independ-ent auditor in accordance with no 21 and 22 of this chapter. Therequest for revaluation must be submitted no later than the effectivecontribution date, provided that the requesting shareholders still hold5 per cent of the shares at that time. The company shall bear theexpense of the revaluation.

24. If no independent auditor’s report is required (cf. no 23 of thischapter), the company shall publish a declaration with additionalinformation on the contribution.

This declaration must include the following information: (i) a descrip-tion of the contributed assets; (ii) the name of the contributor, (iii) thevalue of the contribution in kind, the source of the valuation and, whereappropriate, the valuation method; (iv) the nominal value of the sharesissued in exchange for the contribution in kind or, in the absence thereof,the accountable par; (v) a statement as to whether the value of the

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received value corresponds at least to the number, the nominal value or,in the absence thereof, the accountable par value of and, if any, the sharepremium on the shares to be issued in exchange for the contribution inkind; and (vi) a statement that no new qualifying circumstances liable toaffect the original valuation have occurred (Art.26-1(3quinquies) of theLaw). At incorporation, this declaration is prepared by the founders; ifthe contribution is made further to a capital increase, it is prepared by theboard of directors.

The said declaration must be published within one month after theeffective contribution date in accordance with Article 9 of the Law (cf. no9 of this chapter).25. If a contribution in kind is made further to a capital increase withinthe limits of the authorised capital (capital autorisé), an announcementincluding the date of the decision on the capital increase and the sameinformation as the declaration (cf. no 24 of this chapter) must bepublished before the contribution becomes effective. The purpose of thisannouncement is to inform all interested parties before the transaction.However, no specified time period between the date of the announce-ment and the effective date of the capital increase is provided for. In thiscase, if the declaration is published at the time of or after the capitalincrease, it may be limited to a statement that no new qualifying circum-stances have occurred since the announcement.

The announcement shall be filed with the RCS and be published in theMémorial.

It is not clear whether the shareholders, upon being informed by theannouncement of the contribution in kind without an independentauditor’s report, are entitled to request that a report be prepared if thecontributed assets are not securities or instruments admitted to tradingon a regulated market (cf. no 24 in fine of this chapter). It may be arguedthat an announcement would be pointless if shareholders, who besideshave concurrent competence to increase the company’s share capital, arenot entitled to request an auditor’s report. Therefore, it should bepossible for shareholders collectively holding at least 5 per cent of thesubscribed capital to request valuation by an independent auditor, nolater than the effective contribution date. The company shall bear thevaluation costs.26. Non-compliance with the rules on the preparation and filing of theindependent auditor’s report can result in the imposition of criminalsanctions. In addition, the directors can be held liable if they violate theabove rules.



6 Transfer of assets after incorporation – “quasi apport”

27. The acquisition by a company, within two years following its incorp-oration, of any asset belonging to a natural or legal person by whom oron whose behalf the instrument of incorporation was signed, for aconsideration of not less than 10 per cent of the subscribed capital, shallbe subject to a verification and publication as provided in Article 26-1 ofthe Law (cf. no 21 et seq. above) and subject to the approval by thegeneral meeting of shareholders. The approved independent auditor isappointed by the board of directors or by the management board, as thecase may be (Art. 26-2 of the Law). These rules apply to a SA/SE/SCA,but not to a Cooperative/SARL/SCE.

However, no independent auditor’s report and no approval by thegeneral meeting of shareholders are required for acquisitions made in thenormal course of a company’s business or for acquisitions on a stockexchange or at the initiative of or under the control of an administrativeor judicial authority. For the avoidance of doubt, an auditor’s report isnot required either in the cases discussed at no 24 of this chapter.

The directors shall be liable to the company, in accordance withgeneral law, for the execution of the mandate given to them and forany misconduct in the management of the company’s affairs. They shallbe jointly and severally liable both towards the company and any thirdparties for damages resulting from the violation of the Law or the articlesof association of the company. They shall be discharged from suchliability in the case of a violation to which they were not a party providedno misconduct is attributable to them and they have reported suchviolation to the first general meeting after they had acquired knowledgethereof (Art. 59 of the Law). Based on this, the board of directors or themanagement board may be held liable for any damage which immedi-ately and directly results from a valuation that is clearly too high.

7 Losses

28. If, as a result of losses, the net asset value falls to less than half thesubscribed share capital, without prejudice to stricter provisions in thecompany’s articles of association, the board of directors or the manage-ment board shall convene a general meeting of shareholders so that it isheld within a period not exceeding two months from the time at whichthe loss was or should have been ascertained by them in order todeliberate and vote on the liquidation of the company or other

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restructuring measures on the agenda, with the quorum and majorityrequired for the amendment of the articles of association.

The same rules shall be observed where the net asset value falls to lessthan 25 per cent of the subscribed share capital provided that in suchcase, dissolution shall take place if approved by 25 per cent of the votescast at the general meeting of shareholders.

In the event of any infringement of these provisions, the directorsmay be declared personally and jointly and severally liable towards thecompany for all or part of the increase of the loss (Art. 100 of the Law).Given that the directors do not have control over the company’sshareholders, they may not be held liable if the shareholders refuse toinject additional funds into the company; they may only be held liablefor any prejudicial consequences of not having duly convened thegeneral meeting.

If the company’s losses are subsequently reduced and its net asset valuerises above the 25 per cent or 50 per cent threshold, the abovementionedprocedure will have to be reapplied if the net asset value again falls belowone of these thresholds. However, there is no need to apply this proced-ure at the end of each fiscal year if no thresholds have been crossed in themeantime.

These rules apply to the SA/SE/SCA/Cooperative and SCE, but notexpressly to the SARL. The managers of a SARL should neverthelessapply these rules in order to limit their own potential liability.

The district court (tribunal d’arrondissement) dealing with commercialmatters, may, at the application of the public prosecutor (Procureurd’Etat), inter alia order the dissolution and the liquidation of any com-pany governed by Luxembourg law which seriously contravenes theprovisions of the commercial code or the laws governing commercialcompanies including those laws governing authorisations to do business.

8 Prohibition on subscription for own shares

29. A company cannot subscribe to its own shares (Art. 49-1(1) of theLaw). The subscription of shares of a company by a subsidiary of thatcompany may on certain conditions be deemed a subscription of ownshares by that company (cf. no 36 et seq. of this chapter on cross-participations). If the shares of a company have been subscribed for bya person acting in his own name but on behalf of the company (or thesubsidiary), the subscriber shall be deemed to have subscribed for themfor his own account.



The above prohibition does not apply to any subsidiary acting in itscapacity and in the context of its activities as a professional dealer insecurities, provided that it is a member of a stock exchange situated oroperating within a Member State of the European Community, or isauthorised or supervised by an authority of a Member State of theEuropean Community competent to supervise professional dealers insecurities which may include credit institutions (Art. 49bis(4) of theLaw). The prohibition does not apply either in the event that the sub-scription is effected on behalf of a person other than the subsidiary andwho is neither the issuing company nor another company in which theissuing company directly or indirectly holds a majority of the voting rightsor on which it can directly or indirectly exercise a dominant influence.

The natural or legal persons as well as the founding shareholders (Art.29(2) of the Law) or, in the case of an increase of the subscribed capital,the members of the board of directors shall be obliged to pay-up anyshares subscribed for in contravention of this Article 49 of the Law.However, the above-mentioned persons may be released from that obli-gation on proving that no misconduct is attributable to them personally.

The prohibition applies expressly to the SA, the SE, the SCA and theSCE, but not to the Cooperative or the SARL.

The Law does not expressis verbis rule out the possibility for a SARL tosubscribe to its own shares. Yet given the requirement under Article 183of the Law of full payment of the shares issued by a SARL, it is generallyconsidered that the prohibition under Article 49-1 of the Law may beapplied mutatis mutandis to a SARL. As a result thereof, and in applica-tion of Article 184(2) of the Law, the founders of a SARL and, in theevent of a capital increase, also its managers shall be jointly and severallyliable towards all interested parties for the portion of the capital sub-scribed to by the company itself. They will by operation of law consideredto be subscribers thereof.

VII Acquisition of own shares

1 Restriction and scope

30. In general, a Luxembourg company is entitled to buy its own shares.Further to the Second Company Law Directive, a limited liability com-pany was only allowed to purchase up to 10 per cent of its outstandingshares. This cap was abolished pursuant to the Luxembourg law of10 June 2009 implementing Directive 2006/68/EC of 6 September 2006.

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These rules apply to the société anonyme (SA), the European company(SE) and the société en commandite par actions (SCA). The transfer ofshares in a Cooperative is not allowed; however, its shareholders have theright to exit the Cooperative and receive reimbursement for their shares(Arts. 113, 120, first sentence, of the Law).

In this respect, there is still a debate about the société à responsabilitélimitée (SARL). It may be argued that, since the acquisition of own sharesis not expressly prohibited by the Law, it may be foreseen in the com-pany’s articles of association as long as it does not restrain the right ofveto of the shareholders and there are sufficient funds enabling thecompany to acquire its shares. In addition, Article 189(5) of the Lawprovides that, if no transferee for the shares of a deceased shareholder ofa SARL can be found or approved, the SARL may acquire these ownshares provided it fulfils the conditions required for the acquisition by acompany of its own shares. If an acquisition by a SARL of its own sharesis considered possible, the SARL may yet not hold its own shares andmust cancel or transfer them.31. An acquisition of own shares is subject to certain conditions andlimitations. These apply both to an acquisition by the company itself andto acquisitions by a person acting in his own name but on the company’sbehalf. These conditions and limitations apply to the acquisition ofshares representing capital.

Violation of these rules by directors / managers is subject to criminalsanctions (Art. 168 of the Law).

The acquisition of own shares by a subsidiary of an SA/SE/SCA is aswell subject to conditions and limitations further described in no 36et seq. of this chapter on cross-participations.

Without prejudice to the principle of equal treatment of all sharehold-ers who are in the same position and the law of market abuse, thefollowing conditions must be satisfied in order for a company to beentitled to acquire its own shares (Art. 49-2(1) of the Law):

(i) In principle, the authorisation to acquire the shares must be grantedby a general meeting of shareholders. The general meeting shalldetermine the terms and conditions of the acquisition and, inparticular, the maximum number of shares to be acquired, theperiod of validity of the authorisation, which may not exceed fiveyears, and, in case of acquisition of shares for consideration, themaximum and minimum consideration to be paid. The board ofdirectors will in general carry out the acquisitions and it will see to it



that, at the time of any authorised acquisition, the conditions (ii)and (iii) below are complied with.No general meeting is required to acquire shares which are intendedto be offered to the employees of the company or an associatedcompany. These shares must be distributed to the employees withintwelve months from their acquisition.In addition, no shareholders’meeting is required if the acquisition isnecessary to prevent serious and imminent harm to the company.Following an acquisition to prevent serious, imminent harm, thenext general meeting of shareholders must be informed by the boardof directors or, as the case may be, the management board of thereasons and purpose of the acquisition made, the number of sharesacquired and their nominal value or, as the case may be, theiraccountable par value, the portion of the subscribed capital theyrepresent and the consideration paid for the shares.

(ii) The acquisitions, including shares previously acquired by the com-pany and held by it, and the shares acquired by a person acting inhis own name but on behalf of the company, may not have the effectof reducing the net assets below the amount mentioned in no 67 ofthis chapter.

(iii) The shares to be acquired must be fully paid-up.

Any shares acquired in violation hereof must be disposed of within oneyear from their acquisition. Otherwise, they shall be cancelled (Art. 49-4and Art. 49-3 of the Law). The subscribed capital may be reduced by acorresponding amount. Such a reduction shall yet be compulsory if theacquisition of shares to be cancelled results in the net assets having fallenbelow the amount referred to in no 67 of this chapter (Art. 49-4 and 49-3(3)of the Law).

The wording of the Law on the cancellation of own shares (“les actionsdoivent être annulées”) if not disposed of within the prescribed period isnot entirely clear. Notably, it needs to be determined if the cancellationoccurs ipso iure at the lapse of the period or if it requires specific action.Pursuant to Article 20(3) of the Second Company Law Directive, the lawsof a Member State may make the cancellation of own shares that are notdisposed of within the period laid down subject to a correspondingreduction in the subscribed capital. On this basis, the cancellation isnot automatic and may depend on a capital reduction in accordancewith Luxembourg law. This further implies that the company may resellthe shares after the lapse of the cancellation period without such share

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transfer being null and void. In the absence of any specific provision, thedecision on the cancellation of shares shall be taken by the generalmeeting of shareholders of the SA/SE/SCA at which, in principle, aquorum of at least 50 per cent of the capital is met. The decision mustbe approved by a majority of 66 2/3 per cent of the votes present orrepresented (and in the case of an SCA, also by its general partners unlessthe articles of association provide otherwise), after deduction of the votesattached to the shares being acquired.32. The above conditions do not apply to the following types of acquisi-tions of own shares (Art. 49-3(1) of the Law):

(i) shares acquired pursuant to a decision to reduce the capital (cf. no60 et seq. of this chapter) or in the case of a redemption ofredeemable shares (cf. no 65 of this chapter);

(ii) shares acquired as the result of a transfer of a universal transfer ofassets and liabilities;

(iii) fully paid-up shares acquired free of charge or acquired by banksand other financial institutions pursuant to a purchase commissioncontract;

(iv) shares acquired by reason of a legal obligation or a court order forthe protection of minority shareholders, particularly in the event ofa merger, a demerger, a change in the object or form of thecompany, the transfer abroad of the registered office or the intro-duction of restrictions on the transfer of shares;

(v) shares acquired from a shareholder in the event of failure to paythem;

(vi) fully paid shares acquired pursuant to an allotment by court orderfor the payment of a debt owed to the company by the owner of theshares;

(vii) fully paid shares issued by an investment company with fixedcapital as defined in Article 72-3 of the Law (cf. also no 67 of thischapter) and acquired at the investor’s request by that companyor by a person acting in his own name but on behalf of thecompany.

Shares acquired by the company under the circumstances mentioned in(ii) to (vi) above must be disposed of within three years from theiracquisition, unless the nominal value or, in the absence thereof, theaccountable par value of the acquired shares, including those that thecompany may have acquired through a person acting on the company’s



behalf, does not exceed 10 per cent of the subscribed capital (Art. 49-3(2)of the Law). Shares acquired by the company under the circumstancesmentioned under (i) above must be disposed of within one year fromtheir acquisition (Art. 49-4 of the Law).

If the shares are not disposed of within the abovementioned three-yearor respectively one-year period, they will be cancelled. The subscribedcapital may be reduced by a corresponding amount and shall be compul-sory where the acquisition of shares to be cancelled results in the netassets having fallen below the amount referred to below in no 67 of thischapter (Art. 49-3(3) of the Law).

2 Rules for portfolio shares

33. As long as the own shares acquired by the company have not beencancelled or resold, they will remain in the company’s portfolio.

If the acquisition by the company of its own shares is permitted inaccordance with Article 49-2 and 49-3 of the Law (cf. no 31 et seq.above), the holding of these shares is subject to the suspension of thevoting rights attached thereto. The company cannot vote these shares atgeneral meetings of shareholders. Nor can a person holding shares onbehalf of the company or a subsidiary of an SA/SE/SCA (direct orindirect) vote the shares; in the latter case, the rules on cross-participations will apply (cf. no 36 et seq. of this chapter). Consequently,these shares will be ignored when determining any quorum or majorityat a general meetings of shareholders.

Whether dividends are payable to the company or the person holdingthe shares on behalf of the company will depend on the decision of theboard of directors or the management board, as applicable, of the SA/SE/SCA. It may arguably annul or suspend the dividend rights attached toshares which have been so acquired by the company or a person actingon the company’s behalf. This rule does yet not apply to shares held by asubsidiary that is entitled to dividends, without the board being author-ised to annul or suspend payment.

As long as the shares are included amongst the assets shown in thecompany’s balance sheet, a non-distributable reserve of the same amountshall be created on the liabilities side (Art. 49-5(1) of the Law). Theobligation to establish a reserve does not apply to shares held by a (notonly indirect) subsidiary of the company.

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34. Where the company has acquired its own shares in accordance withArticle 49-2 and 49-3 of the Law (cf. no 31 et seq. of this chapter), themanagement report must include at least the following information:

(i) the reasons for the acquisitions made during the financial year.;(ii) the number and the nominal value or, in the absence thereof, the

accountable par value of the shares acquired and disposed of duringthe financial year and the proportion of the subscribed capital theyrepresent;

(iii) in the case of acquisition or disposal for value, the considerationpaid for the shares;

(iv) the number and nominal value or, in the absence thereof, theaccountable par value of all the shares acquired and held in thecompany’s portfolio and the proportion of the subscribed capitalthey represent (Art. 49-5(2) of the Law).

3 Sale of shares

35. Shares acquired in accordance with the rules set out under no 31et seq. of this chapter may be resold by a decision taken by the company’sboard of directors or the management board, as the case may be. In theabsence of any specific provision, in the event of an acquisition by asubsidiary, the decision is arguably taken by the board of directors ormanagers, as the case may be, of that company.

If the possibility of an acquisition by a SARL of its own shares isadmitted (cf. no 30 above), such company must transfer (or cancel) thoseshares immediately upon acquisition.

VIII Cross-participations

36. Cross-participations exist where companies reciprocally hold moreor less significant portions of shares in their respective share capital.Traditionally, Luxembourg law did not prohibit the acquisition and theholding of cross-participations. However, cross-participations of subsid-iaries within the meaning of Article 1 of Directive 68/151/EEC (i.e., inLuxembourg, an SA, SCA or SARL) or subsidiaries that have a legal formcomparable to those listed in Article 1 of Directive 68/151/EEC in casesuch companies are governed by the law of a third country in which anSA, SE or SCA holds directly or indirectly a majority of the voting rightsor on which it can directly or indirectly exercise a dominant influence(collectively, “the Subsidiaries”, each being “a Subsidiary”) shall beregarded as having been effected by the SA/SE/SCA itself (Art. 49bis(1)



of the Law). Cross-participations are not yet prohibited between com-panies the parent of which is a SARL.37. However, there are some scenarios where the above mentioned ruledoes not apply:

(i) if a subscription, acquisition or holding is effected on behalf of aperson other than the person subscribing, acquiring or holding theshares and who is neither the SA/SE/SCA referred to above noranother company in which the SA/SE/SCA directly or indirectlyholds a majority of the voting rights or on which it can directly orindirectly exercise a dominant influence (Art. 49bis(4) a) of the Law);

(ii) if the subscription, acquisition or holding is effected by the othercompany referred to above in its capacity and in the context of itsactivities as a professional dealer in securities, provided that it is amember of a stock exchange situated or operating within a MemberState of the European Community, or is authorised or supervisedby an authority of a Member State of the European Communitycompetent to supervise professional dealers in securities which mayinclude credit institutions (Art. 49bis(4) b) of the Law);

(iii) if the holding of shares in the SA/SE/SCA by the other companyresults from an acquisition made before the relationship between thetwo companies corresponded to the criteria set out above. In thiscase, the voting rights attached to those shares shall be suspendedand those shares be taken into account in order to determinewhether the condition set forth in no 31(ii) of this chapter is fulfilled.

38. If the SA/SE/SCA holds a majority of the voting rights in Subsidiariesonly indirectly or can exercise a dominant influence only indirectly, therule mentioned no 39 above is not applicable either. In this case, how-ever, the voting rights attached to the shares in the SA/SE/SCA held bythe Subsidiaries are suspended (Art. 49bis(2) of the Law).

For the purpose hereof, an SA/SE/SCA is deemed to hold voting rightswhere, in application of the articles of association, the law or an agreement,it is entitled to exercise the voting rights attached to the shares of thecompany and can in fact exercise them. An SA/SE/SCA is deemed toindirectly hold voting rights where such voting rights are held by a Subsid-iary in which the SA/SE/SCA directly holds a majority of the voting rights.

An SA/SE/SCA is deemed to be able to (indirectly) exercise a dominantinfluence if it (or respectively a Subsidiary in which the SA/SE/SCA directlyholds the majority of the voting rights) (i) has the right to appoint ordismiss a majority of the members of the administrative body, the manage-ment body or the supervisory body and is at the same time a shareholder or

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member of the other company, or (ii) is a shareholder or member of theother company and has sole control of the majority of the voting rightsof the other company’s shareholders or members under an agreementconcluded with other shareholders or members of that company.39. Article 49-3(2) and (3) and 49-4 of the Law (on the disposal/cancel-lation of shares within certain time limits; cf. no 31 et seq. of this chapter)shall not apply where shares in an SA/SE/SCA are acquired by a Subsid-iary, provided (i) the voting rights attached to the shares in the SA/SE/SCA held by such company are suspended and (ii) the members of themanagement body of the SA/SE/SCA are obliged to buy back from theother company these shares at the price at which the Subsidiary acquiredthem, unless these members prove that the SA played no role whatsoeverin the subscription for or acquisition of the shares in question (Art.49bis(6) of the Law).

IX Pledge of own shares

40. A pledge to an SA/SE/SCA of its own shares is subject to the rulesapplicable to the acquisition of own shares (Art. 49-7(1) of the Law).These rules also apply to the pledge of shares to a direct subsidiary or aperson acting on behalf of such a company (or its direct or indirectsubsidiary). The votes attached to such shares cannot be exercised by thecompany, its direct or indirect subsidiary or a person acting on theirbehalf to which the shares are pledged. Directors who act in violation ofthese rules can be subject to criminal sanctions.

A pledge which is acquired as the result of a type of acquisitionmentioned in no 32 above (such as a universal transfer of assets andliabilities) is not subject to the conditions with respect to the acquisitionof own shares.41. The above rules do not apply to pledges to an SA/SE/SCA (or theirdirect or indirect subsidiaries) that is a bank or another financial insti-tution, provided the pledge is concluded in the ordinary course ofbusiness under conditions and for security required in similar transac-tions (opérations courantes) (Art. 49-7(2) of the Law).

X Financial assistance for acquisition of shares by a third party

1 General rule

42. Directive 2006/68/EC of 6 September 2006 has considerably changedthe rules on financial assistance, replacing a complete ban with an



authorisation with safeguards (see no 45 of chapter 1). The rules apply toany acquisition, including a subscription to the shares of a company.

An SA/SE/SCA may not directly or indirectly advance funds or makeloans or provide security with a view to the acquisition of its shares bya third party unless the following conditions are met (Art. 49-6(1) ofthe Law):

(i) These transactions take place under the responsibility of the boardof directors, the management board or, as the case may be, themanagers at fair market conditions, in particular with respect tointerest received by the company and with regards to securityprovided to the company for the loans and advances referred toabove. The credit standing of the third party or, in the case of multi-party transactions, of each counterparty thereto shall have been dulyinvestigated.

(ii) The transactions must be submitted by the board of directors, themanagement board or, as the case may be, the managers for priorapproval to the general meeting of shareholders. The meeting shalltake a decision with the quorum and by the majority required toamend the articles of association. For an SA/SE/SCA, a quorum of50 per cent of the capital is required at the first meeting, and thedecision must be approved by 66 2/3 per cent of the votes present orrepresented but the articles may provide for more stringent quorumand majority requirements. A notarial instrument is not requiredand the decision need not be taken before a notary. The board ofdirectors, the management board or, as the case may be, the man-agers shall present a written report to the general meeting, indicat-ing the reasons for the transaction, the interest of the company inentering into the transaction, the conditions on which the transac-tion is entered into, the risks involved in the transaction for theliquidity and solvency of the company and the price at which thethird party is to acquire the shares. This report must be deposited atthe RCS within one month and will be published in theMémorial bymeans of a reference to the deposit of such document at the RCS.

(iii) The aggregate financial assistance granted to third parties shall at notime result in the reduction of the net assets below the amount ofthe subscribed capital (reduced by the amount of subscribed capitalremaining uncalled if the latter amount is not included as an asset inthe balance sheet) plus the reserves which may not be distributedunder law or by virtue of the articles of association (see no 66 of this

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chapter), taking into account also any reduction of the net assetsthat may have occurred through the acquisition, by the company oron behalf of the company, of its own shares in accordance withArticle 49-2(1) of the Law (cf. no 31 of this chapter). The companyshall include, among the liabilities in the balance sheet, a reserve,unavailable for distribution, of the amount of the aggregate financialassistance.

(iv) Where a third party, by means of financial assistance from a com-pany, acquires that company’s own shares within the meaning ofArticle 49-2(1) of the Law (cf. no 31 of this chapter) or subscribesfor shares issued in the course of an increase in the subscribedcapital, such acquisition or subscription shall be made at a fair price.

43. In the event that members of the board of directors, the board ofmanagement or, as the case may be, the managers of the company beingparty to a transaction mentioned above under no 42 above or of a parentcompany, or such parent company itself, or third parties acting in theirown name but on behalf of the members of the board of directors, theboard of management or, as the case may be, the managers of thatcompany, are counterparties to such a transaction, the statutoryauditor(s) or, as the case may be, the approved independent auditor(s)shall provide a special report on the transaction to the general meeting,which shall decide on that report (Art. 49-6bis of the Law).44. The Law does not expressly provide for the application of these rulesto an SARL. Non-compliance with the provisions on financial assistancehaving penal consequences (Art. 168 of the Law), it may be argued thatthese rules must be strictly interpreted and therefore do not apply to anSARL. However, the rationale underlying Article 49-6 of the Law (cf. no42 of this chapter) to preserve the integrity of the share capital in theinterest of both the company’s shareholders and creditors may just aswell apply to an SARL. It is therefore not obvious why the said rules shallnot mutatis mutandis apply to an SARL.

2 Exceptions

45. The above conditions and restrictions on financial assistance by anSA/SE/SCA do not apply to transactions concluded by banks and otherfinancial institutions in the normal course of business nor to transactionseffected with a view to the acquisition of shares by or for the staff of thecompany. However, such transactions may not have the effect of



reducing the net assets of the company below the aggregate of the capitaland the reserves which may not be distributed under law or the articles ofassociation.

Nor do the above conditions and restrictions on financial assistanceapply to transactions carried out with a view to acquiring fully paidshares issued by an investment company with fixed capital as definedin Article 72-3 of the Law (cf. also no 67 of this chapter), at the investor’srequest and by or on behalf of the company.

3 Conflicts of interest

46. No special rules on conflicts of interest have been introduced forfinancial assistance transactions, except for the requirement that add-itional information must be mentioned in the auditor’s report if adirector benefits from the financial assistance (cf. no 43 of this chapter).47. Any member of the board of directors or, as the case may be, themanagement board or supervisory board having an interest in a transac-tion submitted for approval to the board of directors or, as the case may be,the management board or supervisory board conflicting with that of thecompany, shall be obliged to advise the board thereof and to cause a recordof his statement to be included in the minutes of the meeting. He may nottake part in these deliberations (Arts. 57(1), 60bis-18(1) of the Law).

If a director or manager of the SA/SE/SCA/Cooperative or its parentcompany benefits from the transaction, the report prepared by the board(see no 42(2) above) should justify the decision in light of the director’sor manager’s capacity and the financial implications of the decision forthe company.

At the next following general meeting, before any other resolution isput to vote, a special report shall be made on any transactions in whichany of the members of the board of directors or, as the case may be, themanagement board or supervisory board may have had an interestconflicting with that of the company.

Where the company comprises a single director or, as the case may be,a single member of the management board or supervisory board, thetransactions made between the company and its director/member of themanagement board or supervisory board having an interest conflictingwith that of the company is only mentioned in the resolutions relating tothese transactions.

Where the said transaction gives rise to a conflict of interest betweenthe company and a member of the management board, it shall in addition

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require the authorisation of the supervisory board (Art. 60bis-18(2) ofthe Law).

The aforesaid rules shall not apply where the decisions under consider-ation relate to current operations entered into under normal conditions.48. The Law does not provide for any rules relating to a conflict ofinterest of a manager with a SARL, except for the requirement to recordcontracts entered into between a SARL and its sole manager in minutesor to draw them up in writing if it does not concern current operationsentered into under normal conditions (Art. 200-2 of the Law). Accordingto Luxembourg legal doctrine, there is no reason to prohibit the signingof contracts between a SARL and any of its managers. It may yet beadvisable, in particular in connection with acts of disposal, that thecompany’s shareholders are involved in order to avoid possiblesubsequent actions by them.

XI Changes to capital

1 General remarks

49. In general, any change to the capital of a public limited liabilitycompany, i.e., an SA, SE or SCA, requires a decision of the generalmeeting of shareholders as it is considered an amendment to the articlesof association. However, the articles may authorise the board of directorsto increase the capital within the limits defined therein.

The above requirement has been extended to all companies withlimited liability, such as the SARL and Cooperatives. However, in aCooperative, new shareholders may be admitted without the amendmentof the articles of association and thus a decision by the general meeting,provided they subscribe to one or more shares issued within the limits ofthe variable capital as set forth in the articles of association.50. A decision to increase or decrease the capital and, in the event of acapital increase by way of a contribution in cash, to cancel or limit thepre-emptive rights of existing shareholders of an SA/SE/SCA, must beapproved by a qualified majority of 66 2/3 per cent of the votes present orrepresented. A quorum of at least 50 per cent of the capital is required atthe first meeting; a second meeting can be called at which no quorum isrequired for those items which were on the agenda of the first meeting(Arts. 32-3(5) and 67-1 of the Law). If specific rights attached to classes ofshares are to be changed, the abovementioned majority and quorumrequirements will apply to each class (Art. 68 of the Law). The articles



of association may provide for stricter majority and quorum require-ments. These majority rules also apply to a Cooperative in case of anamendment of its articles of association (see no 51 of this chapter).Pre-emptive rights of existing shareholders of a Cooperative in case ofa capital increase by contribution in cash however do not exist unless thearticles of association so provide (Art. 137-4(5) of the Law).

A decision to increase or decrease the capital of a SARL must beapproved by a majority of the shareholders representing at least 75 percent of the company’s share capital (Art. 199 of the Law). The Law doesnot provide for pre-emptive rights of existing shareholders of a SARL inconnection with a capital increase by way of contribution in cash; anypre-emptive rights may therefore only arise from a provision of thearticles of association of the SARL.

Amendments to the articles of association of an SCE must be approvedby 66 2/3 per cent of the votes cast at a general meeting where at least 50 percent the company’s subscribed capital is present or represented. If themeeting is convened a second time on the same agenda, the amendmentscan be approved by 66 2/3 per cent of the votes cast regardless of thenumber of shares present or represented, i.e. no quorum shall be necessary(Art. 61(4) SCE Reg.). The articles of association of an SCEmay yet providefor a higher majority. An SCE’s capital may be increased by successivesubscriptions by members or on the admission of new members. Sharescannot be issued at a price below the nominal value defined in the articles(Art. 4(3) SCE Reg.). The capital may be reduced by the total or partialrepayment of subscriptions, provided it does not fall below the minimumset forth in the articles. Such variations in an SCE’s capital shall not requireamendment to the articles or disclosure (Art. 3(5) SCE Reg.).51. Decisions on the amendment of the articles of association, includingthe amendment of the capital, must be filed with the RCS and publishedin the Mémorial (Arts. 9 §1, 11bis 2) of the Law). The published docu-ments may be examined by any person free of charge at the RCS (Art. 9§3 of the Law).

The decision is only enforceable against third parties after publication,as described at no 10 et seq. of this chapter.

2 Capital increase

A Decisions and conditions

52. In principle, a capital increase of an SA/SE/SCA/SARL requires adecision of the general meeting of shareholders or, as the case may be, the

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sole shareholder. The same holds true for the issue of convertible bonds(or other debt instruments) or bonds carrying subscription rights, itbeing understood that a SARL may issue such convertible instrumentsonly if (i) they are in registered form, (ii) they are not offered to thepublic and (iii) transfer restrictions apply and that conversion into sharesof a SARL may not occur automatically (i.e., it is subject to prior approvalof the shareholders). No decision of the general meeting is necessary for aCooperative so long as the capital increase does not require an amend-ment of the articles of association (i.e., the capital increase remainswithin the limits of the variable capital as set forth in the articles ofassociation). The decision on the capital increase must be taken before anotary and enacted in a notarial instrument (Arts. 4, 11 of the Law). Thedecision and the capital increase must be rendered public (see no 51 ofthis chapter).

The capital increase can be financed by contributions in cash or inkind. Contributions in kind must be capable of economic assessment (seeno 17 of this chapter). In the case of a contribution in kind, an independ-ent auditor’s report is required in accordance with no 21 and 22 of thischapter. No report is required in the cases mentioned at no 23 et seq.53. The articles of association of an SA/SE (or respectively of an SCA)may authorise the board of directors or, as the case may be, the manage-ment body (or respectively the general manager(s)) to increase the capitalthrough the issuance of shares (capital autorisé). Such an authorisation isalso possible for the issue of convertible bonds and bonds carryingsubscription, but not for the conversion of such securities or the exerciseof the right to subscribe (Art. 32-4 of the Law). Any such authorisation isvalid for the maximum term specified in the articles of association, whichmay not exceed five years.

The Law does not expressly provide for the possibility to authorise theboard of managers of a SARL to increase the company’s share capital.However, it is current general practice to accept an authorised capital fora SARL provided that the SARL has a sole shareholder (or alternativelythat any capital increase within the limits of the authorised capital isrestricted to the already existing shareholders) and that the authorisationis strictly limited in the articles of association.

The corporate body so authorised can increase the capital by theissuance of new shares (or by the incorporation of available reserves)within the limits set forth in the articles of association. The decision onsuch authorised capital increase may be taken under private seal; thecapital increase shall yet be recorded in a notarial instrument, at the



request of the authorised corporate body and upon presentation of thedocuments proving the subscriptions and payments. This notarial instru-ment must be drawn-up within one month from the end of the subscrip-tion or within three months from the day on which the subscriptioncommenced (Art. 32-1(4) of the Law) and be rendered public as men-tioned in no 51 of this chapter.

Any such authorisation does not limit the powers of the generalmeeting to increase the company’s capital. Such an increase by thegeneral meeting does not affect the authorised capital.

The authorisation can be renewed one or more times by the generalmeeting, each time for a limited period which may not exceed five years.The authorisation and any renewal thereof shall be rendered public asmentioned in no 51 of this chapter.

If there are different classes of shares, the authorisation may be limitedto a specific class of shares or cover all classes of shares, in which case theamount of the authorised capital for each class of shares must be indicatedin the articles of association (Art. 27(7) of the Law). However, theauthorised board of directors/management board/general manager/boardof managers, as the case may be, cannot limit or cancel any existing rightsof the different classes of shares or issue shares of a new class if their rightshave not been defined in the articles of association (Art. 32(4) of the Law).

In the context of takeover bids specific restrictions may apply if thegeneral meeting so decides (Art. 9 of the Law of 19 May 2006 imple-menting the Directive 2004/25/EC of 21 April 2004 concerning takeoverbids (“the Law on Takeover Bids”). Any such decision of the generalmeeting shall be notified to the Commission de Surveillance du SecteurFinancier. In this case, as from the time the board of directors or, as thecase may be, the management/supervisory board of a company receivesinformation about a takeover bid for that company’s shares, and so longas the result of the bid has not been made public or the bid has notbecome obsolete, the board of directors or, as the case may be, themanagement board must obtain the authorisation of the company’sgeneral meeting of shareholders in particular prior to any issue of shareswhich may permanently prevent the bidder from taking control over thecompany aimed at (Arts. 9(3), 10(2) of the Law on Takeover Bids). Thisprior authorisation of the general meeting is not required if the takeoverbid is launched by a company which, as for itself, does not apply theabove rule or by another company directly or indirectly controlled bysuch a company. With respect to decisions that were taken before theboard of directors or, as the case may be, the management/supervisory

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board of a company received information about the takeover bid and thathave not or only partially been implemented, the general meeting mustapprove or confirm any decision which does not fall within the com-pany’s ordinary course of business and is likely to make the bid fail.54. If, following a decision to increase the capital, the targeted capital hasnot been fully subscribed the capital increase may nevertheless be carriedout if the terms of the capital increase provide that the capital will in thiscase be increased only by the value of the subscriptions received (analo-gous to Art. 30(3) of the Law).

B Shareholders’ pre-emptive rights

55. By law, the existing shareholders of an SA/SE/SCA (but not of aCooperative or a SARL) have a pre-emptive right in the event of a capitalincrease by means of contributions in cash (cf. no 50 of this chapter).This right allows them to subscribe on a pre-emptive basis to shares,convertible bonds or bonds carrying subscription rights. The shares,convertible bonds or bonds carrying subscription rights need to beoffered first to them in proportion to their shareholdings. Shareholdersdo not have a pre-emptive right in the event of a capital increase bymeans of a contribution in kind. The articles of association may yetprovide otherwise.

The articles of association may provide that the aforesaid pre-emptiverights shall not apply to shares which have different rights to participatein distributions or in the assets in the event of liquidation. The articlesmay also provide that, where the subscribed capital of a company withseveral classes of shares is increased by the issue of new shares of onlyone class, the pre-emptive right of the holders of shares of the otherclasses may not be exercised until after that right has been exercised bythe holders of the shares of the class in which the new shares are issued(Art. 32-3(2) of the Law). The same applies to convertible bonds (orother debt instruments) and bonds carrying subscription rights repre-senting shares which have different participation rights in case of liquid-ation or representing different classes of shares.

The pre-emptive rights must be exercised within a period determinedby the board of directors, which may not be less than thirty days from theopening date of the subscription period. A notice of the issue with pre-emptive rights and the subscription period shall be published in theMémorial and in two newspapers published in Luxembourg. If all theshares are in registered form, the shareholders may instead be notified byregistered letter (Art. 32-3(3) of the Law).



Shareholders are entitled to assign their pre-emptive rights during theentire subscription period. No restrictions may be imposed on suchtransferability other than those applicable to the shares in respect ofwhich the right arises (Art. 32-3(4) of the Law).56. The pre-emptive rights cannot be withdrawn or restricted by thearticles of association (Art. 32-3(5) of the Law). The articles may neverthe-less authorise the board of directors or, as the case may be, the manage-ment board to withdraw or restrict these rights in relation to an increase ofcapital made within the limits of the authorised capital. Such authorisationshall only be valid for a period not exceeding five years. A general meetingcalled upon to resolve, at the conditions prescribed for amendments to thearticles of association (cf. no 50 of this chapter), on an increase of capital oron the authorisation to increase the capital, may limit or withdraw pre-emptive subscription rights or authorise the board of directors or, as thecase may be, the management board to do so. Any proposal to that effectmust be specifically announced in the convening notice to the generalmeeting that shall resolve thereon. Detailed reasons for the withdrawal orrestriction of the said rights must be set out in a report prepared by thecorporate body to be authorised and presented to the meeting, dealing inparticular with the proposed issue price (Art. 32-3(5) of the Law).

The issue of shares to banks or other financial institutions with a viewto offering them to shareholders in proportion to their pre-emptive rightsdoes not qualify as a withdrawal or restriction of these rights (Art. 32-3(6)of the Law).57. Unexercised subscription rights shall, after the end of the subscriptionperiod, be sold publicly by the company on the Luxembourg StockExchange; the proceeds of sale, after deduction of the expenses thereof,shall be held at the disposal of the shareholders for a period of five years.Any balance not claimed shall revert to the company.

C Payment for newly issued shares

58. At least 25 per cent of the nominal value or, in the absence thereof,the accountable par value of the newly issued shares of an SA/SE/SCAmust be paid-up; contributions in kind must be fully assigned within fiveyears (Arts. 26(1) 4), 32–1(5) of the Law). Shares issued by a SARL mustbe entirely paid up (Art. 183 3° of the Law). Any share premium to bepaid to an SA/SE/SCA/SARL must be paid in full (Art. 32–2 of the Law).However, the Law does not provide for minimum payment requirementsin relation to shares issued by a Cooperative or share premium to be paidto a Cooperative (Arts. 137–4(2) and (5) of the Law).

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D Sanctions

59. The directors shall be jointly and severally liable towards all interestedparties, notwithstanding any provision to the contrary, for the fullamount of the capital increase which is not validly subscribed for (andthey shall ipso jure be deemed to be subscribers thereof) and for thepayment of the shares (Arts. 31, 32–1(2) of the Law).

The release of shareholders from their obligation to pay-up theircontribution (outside the scope of the provisions relating to the reductionof the subscribed capital) constitutes a criminal offence (Art. 166 4° of theLaw).

3 Capital reduction

A Capital reduction and creditors’ protection

60. A decision to reduce the capital must be approved by the generalmeeting with the quorum and the majority required for the amendmentof the articles (cf. no 50 of this chapter). The convening notice shallspecify the purpose of the reduction and how it is to be carried out. Thisapplies to the SA, SE, SCA and SARL (Arts. 69(1), 103, 199 of the Law).

The decision to decrease the capital must be published in accordancewith no 51 of this chapter.

Capital decreases in the abovementioned corporate forms are subjectto special rules protecting creditors.

The Cooperative being essentially a company with variable capital, acapital decrease in this type of company does not entail an amendment ofits articles of association and therefore does not require the approval ofthe general meeting provided the capital decrease occurs within the limitsof the minimum share capital provided for in the articles.61. In the event of a capital decrease by means of a repayment toshareholders or a waiver of their obligation to pay up their shares,creditors whose claims predate the publication in the Mémorial of theminutes of the general meeting deciding the capital decrease may, withinthirty days from such publication, apply to the judge presiding over thechamber of the district court (tribunal d’arrondissement) dealing withcommercial matters and sitting in urgent matters for the providing ofsecurity. The president may only reject such an application if the creditoralready has adequate safeguards or if such security is unnecessary con-sidering the assets of the company (Art. 69(2) of the Law).

No payment further to the capital decrease may be made or waivergiven to the shareholders until the creditors seeking security for or



settlement of their claims have been satisfied or until the judge presidingover the chamber of the tribunal d’arrondissement dealing with commer-cial matters and sitting in urgent matters has ordered that the creditors’application should not be acceded to (Art. 69(3) of the Law).62. The aforesaid shall not apply to a capital decrease the purpose ofwhich is to offset losses incurred that are not capable of being covered bymeans of other own funds or to form a reserve provided that this reservedoes not exceed 10 per cent of the reduced subscribed capital (Art. 69(4)of the Law).

Where the reduction of capital results in the capital being reducedbelow the legally prescribed minimum (cf. no 16 of this chapter), thegeneral meeting must at the same time resolve to either increase thecapital up to the minimum amount or transform the company.

B Capital redemption

63. The articles of association of an SA/SE/SCA (and a SARL, by analogy)may provide that, by resolution of the general meeting to be published asdescribed in no 9 of this chapter, all or part of the profits and reservesother than those which may not be distributed by law or according to thearticles shall be used to amortise the capital by way of repayment at parvalue of all, or a portion drawn by lot, of the shares, without the sharecapital being reduced (Art. 69-1(1) of the Law).

Shares so repaid shall be cancelled and replaced by bonus shares(actions de jouissance) which shall carry the same rights as the cancelledshares, save the right to reimbursement of the contribution and the rightto participate in the distribution of a first dividend allocated to theunamortised shares. The issue of bonus shares by a SARL is in this casegenerally acknowledged.

C Withdrawal of shares

64. In the event of a reduction in the subscribed capital by the withdrawalof shares acquired by the company itself or by a person acting in its ownname but on behalf of the company, the withdrawal must always beresolved by the general meeting (Art. 69-2(1) of the Law). This decisionof the general meeting shall be subject to a separate vote for each class ofshares the rights of which are affected by the operation.

The rules laid out in no 61 of this chapter shall apply unless fully paid-up shares are acquired free of charge or by distributable sums pursuant toArticle 72-1 of the Law (cf. no 67 below). In the latter case an amountequal to the nominal value, or in the absence thereof, the accounting par

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value, of all the withdrawn shares must be incorporated in a reserve. Suchreserve may not, except in the event of a reduction of the subscribedcapital, be distributed to shareholders; it may be used only to offset lossesincurred or to increase the subscribed capital by capitalisation of reserves.

D Redeemable shares

65. The articles of association of an SA/SE/SCA may allow the issue ofredeemable shares (Art. 49-8 of the Law) provided that the redemptionthereof is subject to the following conditions:

(i) the redemption must be authorised by the articles of associationbefore the redeemable shares are subscribed to;

(ii) the shares must be fully paid-up;(iii) the terms and conditions for the redemption must be laid down in

the articles of association;(iv) the redemption can only be made by using sums available for

distribution as mentioned in no 67 of this chapter or the proceedsof a new issue made with a view to carry out such redemption;

(v) an amount equal to the nominal value, or, in the absence thereof,the accounting par value, of all the shares redeemed must beincluded in a reserve which cannot be distributed to the sharehold-ers except in the event of a reduction in the subscribed capital; thereserve may only be used to increase the subscribed capital bycapitalisation of reserves. This rule shall not apply to a redemptionusing the proceeds of a new issue made with a view to carry outsuch redemption;

(vi) where provision is made for the payment of a premium to share-holders in consequence of a redemption, the premium may be paidonly from sums which are available for distribution as mentionedin no 67 of this chapter; and

(vii) a notice of redemption shall be published in accordance withArticle 9 of the Law.

This provision does not apply to a Cooperative (Art. 137–4(14) of theLaw.

The issue of redeemable shares of an SARL is not expressly dealt withby law. It is however generally agreed that an SARL may issue redeem-able shares provided (i) that its articles of association allow for suchissue and set the conditions applicable thereto and (ii) that such optiondoes not result in a forced exclusion of a shareholder, who shall neverbe obliged by the company to sell their shares. The redemption of these



shares may therefore only be possible at the initiative of the respectiveshareholders. The benefit of providing for the issue of redeemableshares is that it allows these shareholders to sell the redeemable shareseven if they do not find a transferee who is approved by the othershareholders.

XII Distribution of profits

1 Limitations on the distribution of profits

66. Each year, upon approval of the annual accounts presented by theboard of directors or the managers, the general meeting of shareholdersmust set aside an amount equal to 5 per cent of the net profits in a reserveuntil this reserve reaches 10 per cent of the company’s capital (Art. 72 ofthe Law). This reserve shall not be distributed. This provision applies toall companies with limited liability.

At other times, the general meeting of shareholder can decide todistribute profits out of reserves. However, the general meeting mayarguably not declare a dividend from profits from the running year. Inview of the wording of the Law, it may be argued that this power begranted by the articles of association and be reserved to the board ofdirectors (see no 68 of this chapter).67. A distribution of profits to the shareholders and holders of bonusshares is only possible if, on the closing date of the last financial year, thedistribution will not cause the company’s net asset value as set out in itsannual accounts to fall below the subscribed capital (reduced by theamount of subscribed capital remaining uncalled if the latter amountis not included as an asset in the balance sheet) plus those reserveswhich may not be distributed by law (i.e., the legal reserve mentionedat no 66 above) or pursuant to the articles of association (Arts. 72–1, 197of the Law).

This rule applies to all companies with limited liability save (i) invest-ment companies with variable capital (“SICAVs”) under the UCITS Law,for which the provisions of the UCITS Law shall apply (cf. Art. 31 of theUCITS Law), (ii) investment companies in risk capital (“SICAR”)governed by the SICAR Law (cf. Art. 6 of the SICAR Law) and (iii)investment companies with fixed capital (Art. 72–3 of the Law). In thiscontext, investment companies with fixed capital are considered to besociétés anonymes the exclusive object of which is to invest their funds invarious transferable securities, real estate or other assets with the sole

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purpose of spreading the investment risks and giving their shareholdersthe benefit of the results of the management of their assets and whichoffer their own shares for subscription to the public, provided that (i)they include the words “société d’investissement” in their instruments,notices, publications, letters and other documents; (ii) their total assets asset out in the annual accounts at the closing date of the last financial yearare not or, following a distribution of profits, would not become less than150 per cent of the amount of the company’s total liabilities to creditorsas set out in the annual accounts, and (iii) the annual accounts contain anote to that effect.

The amount of a distribution to shareholders may not exceed theamount of the profits at the end of the last financial year plus any profitscarried forward and any amounts drawn from reserves which are avail-able for that purpose, less any losses carried forward and sums to beplaced to reserve in accordance with the law or the articles of association.

The term “distribution” as used here above includes in particular thepayment of dividends and of interest relating to shares.

2 Interim dividends

68. The articles of association of an SA/SE/SCA may give the board ofdirectors/management board/manager(s) authority to distribute interimdividends. The amount to be distributed may not exceed the total profitsmade by the company since the end of the last financial year for whichthe annual accounts have been approved, plus any profits carried forwardand sums drawn from reserves available for this purpose, less lossescarried forward and any sums to be allocated to a reserve by law(cf. no 66 of this chapter) or pursuant to the articles of association(Art. 72–2(1) of the Law).

Before making any payment, the board must prepare a statement ofassets and liabilities showing that the funds available for distribution aresufficient to pay an interim dividend.

The decision to distribute an interim dividend must be taken withintwo months from the date of the statement of assets and liabilitiesshowing that an interim dividend can indeed be paid. Furthermore, aninterim dividend cannot be distributed within the first six months afterthe close of the previous fiscal year or prior to approval of the annualaccounts (which must be approved within the first six months of thefollowing fiscal year). After a first interim dividend, a second interimdividend can be paid, but no earlier than three months after the first.



In their report to the board of directors/management board/manager(s), the statutory auditors or the réviseur d’entreprises shall verify whetherthe above conditions have been satisfied.

If the interim dividends exceed the amount of annual dividends asdetermined by the general meeting when approving the annual accountsfor the financial year to which the profits being distributed relate, theexcess amount shall be deemed an advance on the next dividend (Art.72–2(2) of the Law).

The aforesaid rules do not apply to Cooperatives (Art. 137–4(16) ofthe Law).

The possibility for a SARL to distribute interim dividends is notexpressly allowed for by the Law. However, it is generally acknowledgedthat a SARL may distribute interim dividends if (i) its articles of associ-ation provide for such possibility and (ii) there are real profits availablefor distribution the existence of which must result from an inventory(cf. Art. 167 of the Law).

3 Capital increase by the incorporation of reserves

69. The restrictions on the distribution of profits and interim dividendsdo not apply to a capital increase after the incorporation of reserves.

4 Sanctions

70. Any distribution made in infringement of the rules mentioned in no68 and 69 must be returned by the shareholders who have received it ifthe company proves that the shareholders knew of the irregularity of thedistributions made in their favour or could not, in the circumstances,have been unaware of it (Art. 72-4 of the Law).

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