Ekateryna Soboleva

Sometimes we need general rules to understand corporate legal procedures and processes. However, a detailed individual case gives us the possibility to study a question deeper and concentrate on specific legal collision and issues.

This article is devoted to corporate legal issues for public companies incorporated in Luxembourg.

Luxembourg Companies Legislation

Luxembourg has a very stable corporate legislation. Companies Act (hereinafter — the Act) was adopted in 1915 and only influenced several amendments. The Act provides that the main forms of business established there are private limited liability companies and public limited liability companies. According to legislation, the liability of members is limited by the contribution to the capital and the main difference between the two is that the share capital provided by the public companies is higher and the shares of the private companies are not freely tradable, unlike the shares of public companies. Amended in 2015, it introduced a new form of companies — the simplified public company (SAS). All legal entities registered in Luxembourg must have a registered office as their principal headquarters, and must be registered with the Register of Commerce and Companies in Luxembourg before starting any commercial activity.

We are focused on the corporate issues of public limited liability company. The pros of such a type of company, financial instruments, which a company may use, should be effectively stated in the Charter.

The purpose of the Company shall be the acquisition of ownership interests, in Luxembourg or abroad, in any companies or enterprises in any form whatsoever, the management of such ownerships as well as any management services. The Company may in particular acquire by way of subscription, purchase and exchange, or in any other manner, any stock, shares and securities of whatever nature, including bonds, debentures, certificates of deposit and other debt instruments and more generally any securities and financial instruments issued by any public or private entity whatsoever. It may participate in the creation, development and control of any company or enterprise. It may further invest in the acquisition and management of a portfolio of patents and other intellectual property rights.

The Company may borrow in any way or form. It can issue notes, bonds and debentures and any kind of debt or other equity securities. The Company may lend funds, including the proceeds of any borrowings and/or issues of debt securities, to its subsidiaries, affiliated companies or to any other companies which form part of the same group of companies as the Company. It may also give guarantees and grant security interests for the benefit of third parties to secure its obligations or the obligations of its subsidiaries, affiliated companies or any other companies, which form part of the same group of companies as the Company.

The Company may further mortgage, pledge, hypothecate, transfer or otherwise encumber all or some of its assets. The Company may generally employ any techniques and utilize any instruments relating to its investments for the purpose of their efficient management, including techniques and instruments designed to protect the Company against credit risk, currency fluctuations risk, the risk of interest rate fluctuation as well as other risks.

The Company may carry out any commercial, financial or industrial operations and any transactions with respect to real estate, movable property, corporate rights, intellectual property rights and any other type of property, which may be or are conducive.

We recommend inclusion in the Chapter on such companies the clause that if the Board of Directors or, as the case may be, the Sole Director, determines that extraordinary political, economic, social or military events have occurred or are imminent, which would render impossible the normal activities of the Company at its registered office or the communication between such registered office and persons abroad, the registered office may be temporarily transferred abroad until the complete cessation of these abnormal circumstances, such provisional measures shall have no effect on the nationality of the Company which, notwithstanding such temporary transfer, shall remain a Luxembourg company.

Shares and funds

All the Shares of the company shall be issued in registered or bearer form.

Bearer share certificates shall be established in accordance with the provisions of Luxembourg law. A bearer share certificate may represent one or more, or even all, the shares issued.

The issued registered shares shall be entered in the shares register which shall be maintained by the Company or by one or more persons designated by the Company.

The inscription of the Shareholder’s name on the shares register evidences its right of ownership for registered shares. A certificate shall be delivered upon request by the shareholder.

Shares held through a securities settlement system or a depository or sub-depository may be transferred in accordance with customary procedures for the transfer of securities in book-entry form.

Shareholders shall provide the company with an address to which notices and announcements should be sent. Such address will also be entered into the shares register.

In the event that a shareholder does not provide an address, the company may permit a notice to that effect to be entered into the shares register, and the shareholder’s address will be deemed to be at the registered office of the company or at such other address as may be so entered into the shares register by the company from time to time, until another address shall be provided to the company by such shareholder. A shareholder may, at any time, change its address as entered into the shares register by means of a written notification to the Company at its registered office, or at such other address as may be determined by the company from time to time.

The company recognizes only one single owner per share. If one or more shares are jointly owned or if the title of ownership to such share(s) is divided, split or disputed, all persons claiming a right to such share(s) have to appoint one single attorney to represent such share(s) towards the company. The failure to appoint such attorney implies a suspension of all rights attached to such share(s).

Any shareholder, company or individual, who acquires or sells shares, including certificates representing shares of the Company, shall notify to the company the percentage of the voting rights he/she/it will own pursuant to such acquisition or sale, in case such percentage reaches the thresholds of 5%, 10%, 15%, 20%, 33 1/3%, 50% and 66 2/3% or supersedes or falls under such thresholds. The shareholders shall also notify the company should the percentage of their respective voting rights reach the thresholds mentioned above or supersede them or fall under such thresholds pursuant to certain events amending the voting rights repartition of the company.

Those notification requirements apply also to certain situations as listed by Article 9 of the Law On Transparency of 11 January 2008 obligations with respect to the information of companies whose securities are listed on a regulated market.

The notification by the company is made public as soon as possible and at least within the period of four listing days, starting on the listing day following the date on which the shareholder 1) acknowledges the acquisition, the transfer or the sale of the shares or the possibility to exercise the voting rights attached to such shares or should have been informed, according to the circumstances, irrespective of the date of the acquisition, the transfer or the sale or the possibility of exercising voting rights attached to such shares, or 2) is informed of the event which amends the repartition of voting rights. So long as the new participation has not been notified to the Company, the exercise of voting rights attached to such shares exceeding the relevant threshold will be suspended.

It is always important to use the additional investment mechanisms for strengthening a public limited company’s position. For example, apply for different funds (for example, GEM).

Management issues

As long as the company has a Sole Shareholder, the company may be managed by a Sole Director only. Where the company has more than one shareholder, the company shall be managed by a board of directors consisting of a minimum of three directors.

The General Meeting of shareholders may decide to appoint Directors of two different classes, being class A Director(s) and class B Director(s). Any such classification of Directors shall be duly recorded in the minutes of the relevant meeting and the Directors be identified with respect to the class they belong. The Directors are to be appointed by the General Meeting of shareholders for a period not exceeding six years and until their successors are elected.

The Board of Directors shall appoint from among its members a chairman (the ‘Chairman’)by majority for a term of six (6) years, and may choose among its members one or more vice-chairmen. The Board of Directors may also choose a secretary (the ‘Secretary’), who need not be a Director and who may be instructed to record the minutes of the meetings of the Board of Directors as well as to carry out such administrative and other duties as directed from time to time by the Board of Directors.

Meetings of the Board of Directors shall be held in the European Union.

The Board of Directors or the Sole Director shall be entitled to limit or suppress the preferential right of subscription granted to each shareholder pro rata its/his/her shareholding when the Board of Directors or the Sole Director increases the share capital.

The Board of Directors may act validly and validly adopt resolutions only if at least a majority of the Directors are present or represented at the meeting of the Board of Directors. In the event that the General Meeting of shareholders has appointed different classes of Directors (namely class ‘A’ Directors and class ‘B’ Directors) any resolutions of the Board of Directors may only be validly taken if approved by the majority of Directors including at least one class ‘A’ and one class ‘B’ Director (which may be represented). If a quorum is not obtained, the Directors present may adjourn the meeting to a venue and at a time no later than five calendar days after notice of the adjourned meeting is given.

The Directors may participate in a meeting of the Board of Directors by a conference call or similar means of communications equipment whereby all persons participating in the meeting can hear each other and participate in a meeting by such means shall constitute presence in person at such meeting.

Notwithstanding the foregoing, a resolution of the Board of Directors may also be passed by unanimous consent in writing which may consist of one or several documents containing the resolutions and signed by each and every Director. The date of such a resolution shall be the date of the last signature.

Vis-à-vis third parties, the company is validly bound in the case of a sole director, by the sole signature of the Sole Director, or by the joint signature of any two (2) Directors of the company, or by the signature(s) of any other person(s) to whom authority has been delegated by the Board of Directors by means of a decision adopted by a majority of the Directors.

In the event that the General Meeting of shareholders has appointed different classes of Directors (namely class A Directors and class B Directors) the company will only be validly bound by the joint signature of two (2) Directors, one of whom shall be a class A Director and one class B Director (including by way of representation), or by the signature(s) of any other person(s) to whom authority has been delegated by the Board of Directors by means of a decision adopted by a majority of the Directors, provided that such a decision is approved at least by one ‘A’ Director and by one ‘B’ Director.

Conflict of interests

In the event of a conflict of interests of a Director, it being understood that the mere fact that the Director serves as a director of a shareholder or of an associated company of a shareholder shall not constitute a conflict of interest, such a Director must inform the Board of Directors of any conflict and may not take part in the vote. A Director who has a conflict as to any item on the agenda must declare this conflict to the Chairman before the meeting is called to order.

Any Director with a conflict due to a personal interest in a transaction submitted for approval to the Board of Directors conflicting with that of the Company, shall be obliged to inform the Board of Directors, and to cause a record of his statement to be included in the minutes of the meeting. He may not take part in the business of the meeting. At the following General Meeting of shareholders, before any other resolution to be voted on, a special report shall be made on any transactions in which any of the Directors may have a personal interest conflicting with that of the Company.

In connection with resignation of directors we recommend to include in the applications the following statement by the resigning director: ‘I have no claim for compensation for loss of office or for unfair or wrongful dismissal or redundancy or any other claim whatsoever against the Company, its servants, officers, agents or employees and I acknowledge that there is no agreement or arrangement outstanding under which the Company has, or could have, any obligations towards me. To the extent that any such claim exists or may exist, I hereby expressly and irrevocably waive such claim, and hereby release the Company from any liability whatsoever in respect thereof.’

Сompanies Law amendments

The Luxembourg law effective as of August 23, 2016 modernized the law of August 10, 1915 on commercial companies, amending the Civil Code and the law of December 19, 2002 On the register of commerce and companies and the accounting and annual accounts of companies.

One of the main amendment allows the articles of association of your company to decrease the required majority for transfer of shares to non-shareholders from 75 to 50 percent in such form of companies, to enable the company to proceed to public bond issues, to issue shares below par value, to allow for the convening of notices for general meetings to be sent by email or courier services, or to allow the board of directors/managers to suspend the voting rights of shareholders in the event of breach of their obligations.

Transparency Law

All public companies incorporated in Luxembourg have to comply with the Law On Transparency Requirements for Issuers of 11 January 2008 (hereinafter — the Transparency Law). Information about the issue should be provided to the Officially Appointed Mechanism (OAM), which is your access point for the filing, storage and consultation of documents. The “issuer” means, according to the Transparency Law, a legal entity governed by private or public law, including a State whose securities are admitted to trading on a regulated market, the issuer being, in the case of depository receipts representing securities, the issuer of the securities represented.

According to the Law, disclosure should be made to the OAM of 1) periodic and 2) ongoing information about the issuers of securities.

The annual financial report shall consist of audited financial statements, the management report, the statements made by the persons responsible within the issuer. Half-yearly financial reports shall be made up of a condensed set of financial statements, an interim management report, statements made by the persons responsible within the issuer. An Interim management statement is a statement that provides: a) an explanation of material events and transactions that have taken place during the relevant period and their impact on the financial position of the issuer and its controlled undertakings and b) a general description of the financial position and performance of the issuer and its controlled undertakings during the period in question.

Control by CSSF

The Commission de Surveillance du Secteur Financier (CSSF) is the competent authority which ensures that the provisions of this Law are applied.

The CSSF may, inter alia, request a réviseur d’entreprises agréé(approved statutory auditor), a statutory auditor or a third-country auditor to carry out an inspection of one or several obligations imposed on an issuer or on a person who has applied for admission to trade on a regulated market without the issuer’s consent or on an OAM pursuant to this law.

This inspection shall be carried out at the expense of the issuer or the person who has applied for admission to trading on a regulated market without the issuer’s consent or the OAM in question.

The disclosure to the CSSF by the réviseurs d’entreprises agréés(approved statutory auditors), statutory auditors or third-country auditors of any fact or decision related to the requests made by the CSSF shall not constitute a breach of any restriction on the disclosure of information imposed by contract or by any law, regulation or administrative provision and shall not involve such auditors in liability of any kind.

If the CSSF considers that information it receives in accordance with Articles 8, 9 or 12 does not comply with this law or that it is likely to mislead the public, the CSSF shall inform the reporting entity of this. Furthermore, the CSSF may request the reporting entity to remedy its non-compliance within the deadlines it sets. Finally, the CSSF can impose administrative or criminal sanctions.

On 27 June 2016 the CSSF also updated its competence in the Transparency Law and the Grand-Ducal transparency regulation. Issuers for which Luxembourg is the home member state obtained a reduction in the administrative burden through the removal of certain transparency requirements. Foreign issuers, for which Luxembourg is their home member state, and who are active in extractive industries or the logging of primary forests, obtained a new requirement to publish a report on payments to governments. Notification obligations are now imposed on investors taking exposure on shares via a much broader range of financial instruments, the definition of which is considerably widened, and introduction of aggregation rules. The CSSF receives significant new injunction and sanction powers. Changes are also introduced with respect to the disclosure of the home member state. 

Taxation

In 2017 the Ukrainian Parliament took a step ahead of simplification of taxation. Namely, on March 14, 2017 it finally ratified the Convention signed between the Government of Ukraine and the Government of the Grand Duchy of Luxembourg on the avoidance of double taxation, and the prevention of tax evasion with respect to taxes on income and on capital, signed on September 6, 1997, and the Protocol on the Amendment to the Convention, signed on September 30, 2016.

Conclusion

Public companies incorporated in Luxembourg obtained a wide range of corporate instruments that enable the effective operation of the company and understandable transparency legislation as well as improved tax regulations between Luxembourg and Ukraine. 

Ekateryna Soboleva, PhD, Soboleva International Legal Bureau