When creating a business, the entrepreneur chooses a legal form that corresponds to their business project.

This form is not definitive and the entrepreneur may decide to change it later in order to adapt to their current activity.

Changing the legal form of a company may be beneficial for:

• a person who began trading as a sole trader, and wishes to:
  • transform their business into a company in order to limit their own liability; or
  • form a partnership with new investors;
• shareholders or partners of an existing company that can be reorganised and whose legal form can be changed in order to better adapt to new operating requirements.

Who is concerned

The legal form of civil companies and commercial companies can be changed if the company's articles of association do not forbid doing so.

Prerequisites

If there are no provisions in the articles of association prohibiting such a change:

• partnerships (sociétés en nom collectif – SENC);
• limited partnerships (sociétés en commandite simple – SECS);
• public limited companies (sociétés anonymes – SA);
• simplified shareholder companies (sociétés par actions simplifiée – SAS);
• partnerships limited by shares (sociétés en commandite par actions – SECA);
• limited liability companies (sociétés à responsabilité limitée – SARL);
• simplified limited liability companies (sociétés à responsabilité limitée simplifiée – SARL-S);
• cooperative companies (sociétés cooperatives – SCOP);
• European companies (societas europea – SE);
• civil companies (sociétés civiles);
• economic interest groups (EIG);
• European economic interest groupings(groupement européen d’intérêt économique);

can be transformed into any one of the other types of company, with the exception of an SE and an SARL-S.

An SA incorporated under Luxembourg law may be transformed into an SE if it has had a subsidiary incorporated under the law of another Member State of the European Economic Area for at least 2 years.

An SE headquartered in Luxembourg may be transformed into an SA incorporated under Luxembourg law. The decision to transform the company may only be taken:

• at least 2 years after it was first registered;
• once the first 2 sets of annual financial statements have been approved.

How to proceed

Transformations involving an SE and a European Cooperative Society (société coopérative européenne - SEC) are subject to specific requirements.

Preparing for the transformation

A financial statement summarising the company's asset and liability position must be drawn up no later than 6 months prior to the transformation. The company's annual financial statements can be used to fulfil this requirement.

The partners and holders of other securities carrying voting rights may decide not to include the report on the company's financial statement.

Depending on the situation, when the company's net assets are less than the share capital specified in the financial statement, the amount of the difference and the company's share capital after the transformation must be mentioned. That capital may not exceed the net assets specified in the financial statement.

Implementing the transformation

The additional reports mentioned below are required when changing the legal form of:

• a civil company;
• an EIG;
• an SENC;
• a limited partnership;
• a SCOP to an SA, or to a partnership limited by shares;
• a SARL to an SA or to a partnership limited by shares, when the SARL has received a contribution in kind in the 2 years preceding the partners' decision to transform the company into an SA or a partnership limited by shares.

Report by the company's management body on the reasons for the transformation

The report setting out the reasons for the transformation must be produced by the company's management body.

Auditor's report

The corporate auditor’s role is to produce a report on the company's financial statement summarising to its asset and liability position, mentioning in particular whether or not the net assets have been overestimated.

In situations where the net assets are less than the capital specified in the financial statement summarising the company's asset and liability position, the report must also mention the amount of the difference.

Procedures for communicating with partners

The report setting out the reasons for the transformation must be included on the agenda for the meeting which is to rule on the transformation. The financial statement summarising the company's asset and liability position, or the last set of annual financial statements, as appropriate, must be appended to the report.

By unanimous decision, the partners and holders of other securities carrying voting rights may decide to forego this report.

All partners are entitled to receive the following, free of charge, 15 days prior to the meeting:

• a copy of the financial statement or the last set of annual financial statements;
• a copy of the management body's report;
• a copy of the company auditor's report;
• the draft amended articles of association.

Decision to transform the company

The decision to transform the company must be taken by the general meeting (GM).

The company's articles of association may contain special provisions that apply in the event of a change in legal form.

If the articles of association do not contain such special provisions, the following rules apply as a bare minimum:

• when the transformation of the company is put to the vote, the conditions of quorum and majority, which may vary depending on the type of company, must be satisfied;
• in limited partnerships and cooperative companies, the partners' voting rights are proportional to their holdings in the company.

If there are several classes of shares or units, and the change in legal form will alter the respective rights attached to them, then the required conditions of quorum and majority must be satisfied for each such class, in addition to the following requirements:

• an increase in the shareholders' commitments can only be decided upon by unanimous agreement of the partners;
• the GM may validly deliberate if:
  • at least half of the company's capital is represented at the meeting;
  • the published agenda includes the proposed amendments to the articles of association;
• the text of the proposed amendments is available for scrutiny.

If the attendees do not collectively represent half of the company's capital, but the other conditions have been met, a new meeting may be called, as allowed for in the articles of association, by announcements:

• filed with the Trade and Companies Register (Registre de commerce et des sociétés - RCS);
  
• published at least 15 days prior to the GM:
  • in the Electronic Compendium of Companies and Associations (Recueil électronique des sociétés et associations – RESA);
  • in a newspaper published in Luxembourg.

This call to meeting must include the agenda, and specify the date and outcome of the previous meeting.

The second meeting may validly deliberate regardless of the proportion of the capital there represented.

At both meetings, resolutions can only be validly made if they are passed by at least 2/3 of the votes cast. The votes cast do not include those attaching to shares whose holders have not taken part in the vote, or cast a blank or spoiled ballot.

The agreement of all the partners to change the legal form of the company is required in:

• a limited partnership; or
• a partnership limited by shares.

The agreement of all partners is also required when the legal form is being changed to a:

• SENC (partnership);
• limited partnership;
• EIG;
• civil company;
• a SCOP, if the company being transformed is a limited partnership, a partnership limited by shares, a SARL or an SA;
• an SENC, if the company being transformed is a non-limited cooperative company, an EIG or a civil company.

If a company's articles of association specify that its legal form cannot be changed, the same conditions apply to a decision to change that provision.

In SCOPs, all partners are entitled to resign during the course of the business year, from the calling of the GM to rule on whether to change the company's legal form. The resignation must be notified to the company by registered letter, posted at least 5 days prior to the date of the meeting. It will only take effect if the proposed change in legal form is approved.

Partners must be informed of this option in the notice calling the meeting.

Obligation to adapt articles of association

The company's articles of association must be changed immediately once the decision to change the legal form is made. The new articles of association must be decided upon in accordance with the same conditions of quorum and majority as are required for the transformation to a new legal form.

Failing this, the decision to change the company's legal form will be void.

Rights of creditors, bond-holders and holders of securities carrying special entitlements

When the legal form of a company is changed, the rights of third parties are protected.

Liability

If the transformed company becomes a:

• limited liability company (SARL);
• limited liability cooperative company;
• public limited company (SA);
• partnership limited by shares;

the provisions regarding the specification and oversight of contributions in kind, and the liability of the founders or managers in the event of an increase in capital or the incorporation of the company by means of subscriptions, do not apply.

If the company being transformed is:

• an SENC;
• a non-limited liability cooperative company;
• an EIG;
• a civil company;

the partners and members of the management bodies of these companies remain liable, jointly or severally as applicable, to interested parties, in spite of any stipulation to the contrary, for the overestimation of the net assets appearing in the financial report.

If the company being transformed is:

• an SENC;
• a limited partnership;
• a partnership limited by shares;
• a non-limited liability cooperative company;
• an EIG;
• a civil company;

the partners and members remain liable, jointly or severally as applicable, to third parties for the company's undertakings until notice of the change in legal form is published in the RESA.

If the transformed company becomes:

• an SENC;
• a limited partnership;
• a partnership limited by shares;
• a non-limited liability cooperative company;
• an EIG;
• a civil company;

the partners and members remain liable, jointly or severally as applicable, to third parties for the company's undertakings made prior to the date of transformation.

Publishing notice of the transformation

The deed of transformation must be published in its entirety, and the new articles of association must be published at the same time, either in full or as extracts, depending on the legal form of the company.

The transformation has no effect with respect to third parties until the required documentation has been published in the RESA.

Nullity of a transformation

If an authenticated instrument is not provided where such an instrument is required, the transformation shall be null and void.

The absence of a report setting out the reasons for the transformation, or of an auditor's report, where required, shall invalidate the decisions made by the general meeting.

Effects of the transformation

Non-dissolution of the transformed company

Transformations do not entail the dissolution of the company, or the creation of a new legal personality.

Contracts

Ongoing contracts are automatically transferred to the company in its new form.

Employment contracts remain binding.

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