Luxembourg adopts bill allowing deferred capital payment for SARLs

In case of an incorporation by contribution in cash of a SARL with minimum share capital of EUR 12,000 such share capital must be fully subscribed and the cash had to be paid to a bank account of the SARL prior to its incorporation. In practice, this requirement often led to delays in the incorporation process.

The provisions of the New Law apply to both SARL and SARL-S, with the option to defer the payment of share capital only concerns cash contributions.

The New Law provides for the possibility for the founders of a SARL to defer the cash payment of all or part of the initial minimum share capital (EUR 12,000) for up to 12 months from the date of incorporation, subject to the terms and conditions set out in the company's constitutional documents. In the case where the initial share capital exceeds EUR 12,000, the full amount of this capital shall be paid at incorporation. Any share premium, if applicable, must also be fully paid up at the time of incorporation and is not eligible for deferred payment. Contributions in kind must be fully paid-up on the date of the company's incorporation or, if made after incorporation, on the effective date of the issuance of the shares allotted in consideration of the capital increase.

Practical benefit: incorporation of SARL, with minimum capital, decoupled from the opening of the bank account

The deferred payment regime allows SARLs to be incorporated before the cash payment of EUR 12,000 into a bank account. Under the former regime, the obligation to pay up the share capital in full at incorporation effectively requires founders to have a bank account in the company's name prior to incorporation, which often delayed the process. The New Law cancels this constraint by allowing founders to proceed with incorporation and defer the cash payment of all or part of the minimum share capital (EUR 12,000) for up to 12 months, thereby decoupling the incorporation timeline from the bank account opening process.

Role of the management and capital calls

The New Law expressly provides that the authority to call for the payment of outstanding capital contributions rests with the management (gérance) of the company. This clarification is intended to prevent any ambiguity as to which corporate body holds the competence to trigger capital calls during the twelve-month deferral period. The articles of association may further specify the modalities and timing of such calls, including fixed call dates or conditions linked to the company's actual funding needs.

Liability of shareholders

Shareholders are responsible for the part of the contribution in cash which has not yet been paid. The voting rights attached to any shares for which payment has not been made shall be suspended, provided that such payments have become due and have been duly called by the management (gérance), until payment is processed.

In the case of a transfer of shares, the transferring shareholder shall bear no liability for any contribution arising after the transfer of the shares has become effective vis-à-vis the company, nor for any contribution arising after the publication of the transfer with respect to third parties; however, the transferring shareholder holds joint and several recourse not only against the immediate transferee but also against any subsequent transferees.

Protection of third parties

A list of the shareholders who have not yet paid up their shares, together with the outstanding amounts, shall be disclosed in the annual accounts. This transparency requirement ensures that creditors and other third parties dealing with the company are duly informed of the extent to which the share capital has been paid-up at any given time

Transitional provisions

The provisions of the New Law will apply to all SARLs and SARL-S incorporated after the law enters into force. The new regime does not apply retroactively to companies already incorporated.

The reform is expected to be promulgated shortly following its adoption by the Luxembourg Parliament. While the New Law introduces a welcome degree of flexibility, it requires precise drafting of the articles of association to govern the timetable, modalities and powers for capital calls, which fall within the competence of the management, and to anticipate the consequences of any failure to pay, notably the suspension of voting rights once payments have become due and been duly called, and the disclosure of amounts due, as well as the implications in the event of a transfer of unpaid shares within the 12-month period.