1. Framework for an exit from an SARL

Prior to 23 August 2016, any transfer of shares to non-shareholders of an SARL was subject to the prior approval of the shareholders holding not less than 75% of the SARL's share capital. This procedure was an impediment to the enforceability of exit and drag and tag-along clauses.

The Law has introduced the ability for an SARL to reduce the required majority for shareholder approval to a proposed share transfer (to non-shareholders) to not less than 50% of the share capital, provided this is expressly provided for in the company's articles. The default majority, in the absence of such a provision, remains at 75%.

In addition to the option to include a more favorable simple majority, the Law now provides a framework in the event that a transfer of shares of an SARL to a non-shareholder has not been approved by a general meeting of the shareholders under the conditions set out above. Within a period of three months from the refusal by the shareholders to consent to the proposed transfer (or in exceptional circumstances, six months with the consent of the president of the district court), the shareholders may purchase the shares or arrange for them to be purchased or alternatively, with the consent of the transferring shareholder, may determine that the company will redeem the shares. If upon expiry of the relevant time period a resolution has not been reached then the transferor may proceed with the initial transfer.

2. Abolition of the double majority requirement to amend the constitution of an SARL

Before the Law was amended, a 75% majority of shareholders of an SARL in both number and shareholding percentage was necessary to amend the company's articles of association and accordingly to undertake capital increases, capital reductions, mergers and liquidations. Since private equity investors are often minority investors, certain measures (such as nominee structures and voting undertakings, etc.) were employed to circumvent the double majority requirement. The new Law has abolished the double majority requirement meaning that the articles can now be amended with the support of the holders of 75% in nominal value of the SARL's share capital.

3. Implementation of an authorized capital for an SARL

As was previously the case for an SA or an SCA, an SARL can now implement an authorized capital raising provided that the new shares are issued in favor of (i) existing (considered at the time of issuance of the new shares) shareholders, or (ii) non-shareholders that have been approved, before the issuance of the new shares, by a decision in general meeting of shareholders holding not less than 75% of the share capital (or not less than 50% of the share capital if this has been provided for by the articles of association).

4. Issue and redemption of shares in an SARL

An SARL can now issue redeemable shares provided that this is expressly provided for in its articles of association. In addition, the articles must specify the conditions applicable to the shares. The principle benefit of redeemable shares for the SARL, compared to the redemption of ordinary shares, is that the board of managers is authorized to redeem the shares without the requirement to obtain a further authorization from shareholders in general meeting.

Whereas the board of directors of an SA can decide not to suspend the financial rights attached to redeemed shares held by it, the voting and financial rights attached to the redeemed shares of an SARL (both where ordinary shares are redeemed or on the redemption of redeemable shares) are suspended for so long as the shares are held by the SARL. Nevertheless in private equity structures where generally, the redemption of shares is immediately followed by a cancellation of such shares, this is not of issue.

5. Different nominal values

An SARL, an SA and an SCA may now issue shares with different nominal values. Accordingly, the Law allows each share in an SA or an SCA to now have voting rights that are proportionate to its nominal value but also to attach one vote to each share irrespective of the share's nominal value, provided that the latter is expressly provided for in the articles of association of the company.

As a result, whilst each share entitles its owner to one vote, the share capital of an SA or an SCA could include a class of shares (class A) having a nominal value of EUR 1, for example, whilst shares of another class (class B) would have a nominal value of EUR 100, resulting in different voting powers for the class A and the class B shareholder even though the amount of each investment is the same.

6. Suspension of voting rights

The Law allows the management of an SARL, an SA or an SCA to suspend the voting rights of its shareholders in the event of a breach by them of their obligations under the articles of association of the company, provided that this is expressly provided for in the articles of association.

This amendment now provides a legal basis for the types of voting suspension default mechanisms found in investment agreements used in private equity transactions.

7. Tracking shares

The amended Law now codifies the already established Luxembourg practice of issuing tracking shares.

Tracking shares can be issued by an SARL, an SA or an SCA and reflect the performance of different investments. They allow investors to receive dividends relating to the performance of the associated class of tracking shares they invested in, regardless of the overall performance of the company's business taken as a whole, subject always to there being available profits for distribution. Tracking shares are used widely in Luxembourg, particularly by private equity and other alternative asset managers.

8. Possibility for an SA or an SCA to issue shares for no consideration

Both an SA and an SCA can now issue shares to employees or directors, or to the employees or directors of one of its group members, for no consideration, provided that this is expressly permitted by its articles of association. This is good news for private equity firms looking to implement effective management incentive plans at the Luxembourg investment company level of a private equity structure.

9. A flexible non-voting share regime for SAs and SCAs

Prior to the entry into force of the Law, an SA or an SCA could only issue non-voting shares up to a maximum of 50% of its share capital. Furthermore, those non-voting shares had to entitle the holder to a preferred dividend right. The new Law abolishes both the 50% limitation and allows full flexibility in respect of the economic rights attached to the shares, provided that those economic rights are set out in the articles of association.

In addition to the greater flexibility to determine the rights attaching to non-voting shares, the holders of non-voting shares are permitted to vote in general meeting whenever changes to the rights attaching to those shares are considered or when a capital decrease is proposed.

The non-voting shares regime does not apply to an SARL. However, an SARL can now issue both founder shares and is subject to the new redeemable shares regime.