When law changes across borders

Despite all the ease of finding a job or setting up a business across borders, there are still differences between the German and Luxembourg legal systems that employees and employers should be aware of. Together with the German Bar Association in Luxembourg (DAV), the German newspaper “Trierischer Volksfreund” has filtered out important points from individual legal areas.

Luxembourg company law has different rules for companies and their directors. What are the main differences?

Brigitte Czoske, DAV Vice-President, Kaufhold & Reveillaud Law Firm, Luxembourg: All traders are considered merchants who must register in the Luxembourg Commercial and Companies Register (Registre de Commerce et des Sociétés, RCS). Thus, even a small business cannot be operated as a civil law partnership (société civile). Companies acquire their legal personality, which gives them their own rights and obligations, upon conclusion of the constitutional agreement and not only upon registration in the RCS.

The basic principle is that, in the case of partnerships, the partners have unlimited liability for company debts with their own assets, whereas corporations have a legally defined minimum share capital or capital stock, which limits the liability of the partners to these contributions.

The most common forms of company in Luxembourg are the Société à responsabilité limitée – S.à r.l., comparable to the German GmbH, and the public limited company, the Société Anonyme, or S.A. for short.

The management acts on the basis of a resolution passed by the shareholder(s).

In an S.A., the supervisory board is not mandatory in addition to the managing board of directors. In this monistic model, the auditor of the financial statements (commissaire aux comptes) assumes the supervisory function.

The day-to-day management can be delegated to a non-board member. However, the company officer with statutory authority (“Prokurist”) is alien to Luxembourg law.

Instead, a Luxembourg “fondé de pouvoir” has the power of attorney conferred to him in individual cases as a special power of attorney.

The aforementioned differences in Luxembourg company law are due to its different development. Historically, it is closely linked to the Napoleonic commercial code, the Code de Commerce of 1808, and is closely aligned with Belgian company law. The law in force today is mainly laid down in the Law of Commercial Companies of 10 August 1915 in its latest version.

If I want to open a Luxembourg subsidiary, what could be the biggest hurdles?

Czoske: The analysis of needs with regard to finding the appropriate legal form for the intended business in Luxembourg can prove to be intensive. However, this is particularly important for family businesses, where there is often a confusion of financial power and management.

The opening of a bank account in Luxembourg, which is necessary for the incorporation of a company, can be time-consuming due to high control measures and formalities.

If, according to the company’s purpose, an activity requiring a licence exists, a business licence must be applied for. A suitable holder of the business licence, who brings with him the qualifications required for obtaining it and works in Luxembourg, must be found and suitable office space must be rented for the exercise of the business.
You can download the whole article here.