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Luxembourg LLC Limited Liability Company (SARL) Formation

Form a Luxembourg LLC Limited Liability Company (SARL) Introduction

A Luxembourg LLC or Limited Liability Company is officially known as a “Société à Responsabilité Limitée” (SARL). It is a cross between a corporation and a partnership. Its members (partners) liability is limited to their contributions to the company. Approximately 66% of all Luxembourg companies are SARL’s making it the most popular type of company in the country.

Luxembourg Background

Luxembourg is a small European country with an estimated population of 700,000. It is located between Belgium and Germany whose official name is the “Grand Duchy of Luxembourg”. Its political system is a unitary parliamentary constitutional monarchy with a prime minister and a legislature known as the Chamber of Deputies.

Luxembourg Limited Liability Company (SARL) Benefits

A Luxembourg Limited Liability Company (SARL) obtains the following benefits:

  • Limited Liability: All of the partners have limited liability beyond their contributions to the company’s capital.
  • One Member: A SARL can have a minimum of one member who has total control.
  • Low Minimum Capital: The minimum authorized capital is only 12,500 Euro.
  • Simple Business Structure: Reduced administrative formalities to run the business.
  • Privacy: The only document filed to register a SARL is a Memorandum of Association which does not contain the names of partners (shareholders).

Luxembourg Company Name

A Luxembourg Limited Liability Company must have a unique name which is not similar to any other Luxembourg company or corporation name.

Either the words “Société à Responsabilité Limitée” or the abbreviation “SARL” or “GmbH” must appear at the end of the limited liability company’s name.

The SARL cannot be engaged in the following types of business: banks, savings, insurance, or investments.

Company Registration

The following document must be prepared, notarized, and filed with the Trade and Companies Register (registre de commerce et des sociétés – RCS): Memorandum of Association for a Luxembourg SARL. The Memorandum can be prepared in English, French, or German. In addition, the document is published in the Official Bulletin (Mémorial C) which is similar to other countries’ Official Gazette.

Minimum Authorized Capital

The minimum authorized capital is 12,500 Euro.

Limited Liability

Partners are only legally liable up to the amount of their contributions to the company’s share capital.

The founders and the managers (in the event of a capital increase) are jointly and severally liable to third parties.

Duration

The SARL can have a perpetual life or for a shorter period as stated in the Articles of Association. It cannot be terminated upon a partner’s death, incapacity, bankruptcy, or suspension unless otherwise specified in the Articles of Association.

Partners

A single member SARL is allowed subject to the rules governing SARL’s. The member can be either a natural person or a legal entity. The manager can be the member or a non-partner. The single partner makes all of the decisions for the SARL. A single person can dissolve his/her SARL at any time.

There are no restrictions as to who could be a partner. There can be a minimum of two partners to a maximum of 100 who can either be natural persons or legal entities.

Company Shares

Only registered shares of a minimum value of 24.79 Euros are allowed. Profit shares are permitted to be issued as long as the rights of their shareholders are specified in the Articles of Association. Issuance of public shares is prohibited. However, offering private bonds are allowed subject to approval by the partners if the bonds can be converted into shares.

Shares are not freely transferable. Only living persons (not legal entities) can transfer shares to non-partners subject to the approval at a general partners’ meeting where at least 75% of the partners are represented. The share transfer must be recorded in a private or notarized deed.

Manager

The Articles of Association will designate the number of managers and their functions, as well as, whether partners will assume management functions. Otherwise, general meetings will determine these roles and the length of time.

Business managers can be natural persons or legal entities. Managers are considered agents for the company. Managers can be residents of any country and nationality. The SARL is bound by the acts of its business managers even if said acts go beyond their authority. The following are prohibited from being managers of a SARL; lawyers (except for their law firms), court employees, civil servants, notaries, members of the military and government (including members of parliament). A manager can only be dismissed from office for legitimate reasons like embezzlement of company funds, unfair competition with the company, or manifest incapacity.

Registered Agent and Office

Every SARL must have a registered office in Luxembourg. However, a registered agent is not required.

Accounting

SARL’s are required to maintain balance sheets, profits & loss accounting, financial statements, and management reports (approved at the partners meeting and filed with the RCS). Required financial reports must be filed with the RCS within seven months of the end of the financial year.

Only SARL’s having at least 60 partners must have mandatory supervision by at least one auditor designated in the Articles of Association.

A statutory auditor’s supervision is required for SARL’s having two consecutive years meeting two out of three following criteria:

(1) net turnover of 8.8 million Euro;

(2) balance sheet total of 4.4 million Euros;

(3) average staff of at least 50.

Taxes

The corporate income tax is 20% on income up to 15,000 Euro and 21% exceeding that amount plus a 7% solidarity surtax. The minimum tax for companies not requiring a trade license whose assets, securities and bank balances exceed 90% of their total balance sheet is 3,000 Euro plus 210 Euro (7%).

In addition, all companies pay a small municipal business tax (ICC) based on their annual profits, It is collected by the Luxembourg Inland Revenue (ACD) which is used to help communities with their public amenities such as parking spaces and environmental projects.

Annual General Meeting

Annual general meetings are required for SARL’s with more than 60 partners.  Otherwise, they are not required. The Articles of Association will specify the rules for calling and conducting meetings.

Public Records

The only document filed to register a SARL is a Memorandum of Association which does not contain the names of partners (shareholders).

Registration Time

Since only one document is filed to register the SARL, registration can be completed in one day.

Shelf Companies

Shelf companies are available to purchase for faster registration.

Luxembourg LLC – Limited Liability Company (SARL) Conclusion

A Luxembourg Limited Liability Company (SARL) obtains the following benefits: limited liability, minimum of one member, low minimum capital, simple business structure, and privacy.