Principal Types of Business Entities

Capital companies

The main capital companies are the société anonyme (SA) and the société à responsabilité limitée (Sàrl). Both provide limited liability to their shareholders or members. The SA is generally suited to businesses with a broader or changing investor base, while the Sàrl is commonly used for closely held businesses and holding structures. Luxembourg also provides for the société par actions simplifiée (SAS), which offers significant flexibility in organising the company's governance, and the société en commandite par actions (SCA), which can allow managers to retain control while bringing in investors with limited liability.

Partnerships

The main partnership structures are the société en nom collectif (SNC), the société en commandite simple (SCS) and the société en commandite spéciale (SCSp). The SNC involves unlimited liability for its partners. The SCS and SCSp distinguish between general partners, who have unlimited liability, and limited partners, whose liability is generally limited to their contribution. The SCSp is particularly common in private equity, venture capital and other investment structures because of its contractual flexibility and relatively light formal requirements.

Civil companies and sole traders

Luxembourg also recognises civil companies (sociétés civiles), which can be used for certain non-commercial activities, including the holding or management of assets. Individuals may also carry on a business as sole traders, without establishing a separate legal entity, although they remain personally liable for the business's obligations.

Choice of Structure

Liability and governance

Limited liability is an important consideration for businesses exposed to financial or operational risks. The parties will also consider how much control the founders should retain, how decisions will be taken and how easily new investors can enter or existing investors can exit.

Tax treatment

Tax treatment can be particularly important for holding and investment structures. SA, Sàrl and SCA are generally subject to Luxembourg corporate income tax and municipal business tax, while SCS and SCSp structures may, subject to certain conditions, benefit from tax transparency. The appropriate structure therefore depends on the activities of the entity and the tax position of its investors.

Flexibility, financing and regulation

The parties will also consider the level of contractual and governance flexibility required, the company's financing needs and any regulatory constraints applicable to its activities. In practice, Luxembourg's flexible corporate framework allows the same type of business function to be carried out through different legal forms.

Luxembourg also offers flexibility in how a particular legal form is used in practice. For example, SOPARFI is not a separate legal form, but rather a tax and functional designation generally used for a Luxembourg company whose purpose is to hold and manage participations. In practice, a SOPARFI is most commonly established as an S.A. or Sàrl. This allows the legal form to be selected according to the specific needs of the business, while the company can perform a particular holding or financing function within a wider structure.

Incorporating a Company

The requirements for incorporating a company depend on the legal form chosen. Capital companies such as an SA and a Sàrl must generally be incorporated by notarial deed. The minimum share capital is EUR30,000 for an SA and EUR12,000 for a Sàrl. A Sàrl-S offers a simplified alternative for certain businesses and may be incorporated by private deed with capital ranging from EUR1 to EUR12,000.

The incorporation process generally involves preparing and signing the articles of association before a notary, registering the deed with the Registration Duties, Estates and VAT Authority and filing it with the Trade and Companies Register (RCS). The company must have a registered office in Luxembourg. Beneficial owners must also be declared in the Register of Beneficial Owners (RBE), and the professionals involved in the incorporation must carry out the applicable anti-money laundering and identification checks.

The notary generally registers the deed within 15 days of its signature and file it with the RCS within one month. The deed is then published electronically. Depending on the proposed activity, a business permit (autorisation d’établissement) or other regulatory approval may also be required before the business can start operating.

Compliance Obligations

Accounting and annual accounts

Companies subject to accounting requirements must prepare annual accounts and file them electronically with the RCS. The accounts must generally be approved by the shareholders or members within six months of the end of the financial year and filed with the RCS within one month following approval. This generally results in a maximum filing period of seven months after the financial year-end.

Corporate records and registered information

Companies must keep their corporate records up to date, including registers of shareholders or members and records of decisions taken by the relevant corporate bodies. Information filed with the RCS and information concerning beneficial owners must also be kept up to date when changes occur.

Creation and Issuance of Share Capital

The rules governing share capital are primarily set out in the Luxembourg Companies Law of 10 August 1915. Depending on the legal form, shares may be issued with or without a nominal value, in registered or bearer form, and they can be linked to specific investments (tracking shares). The articles of association set out the subscribed share capital, the number and type of shares issued and, where applicable, the authorised capital and the rights attached to each class of shares.

Where authorised capital is provided for in the articles, the competent management body may increase the issued capital within the limits and during the period authorised by the shareholders. This mechanism facilitates future financing without requiring a full amendment of the articles for each issuance.

Changes to Share Capital

An increase or reduction of the share capital generally requires an amendment to the articles of association and must be approved in accordance with the applicable rules for extraordinary shareholder meetings and recorded by notarial deed. Contributions made may be allocated to the share capital and/or to a share premium account.

Structuring Different Classes of Shares

Luxembourg company law provides for considerable flexibility in structuring different classes of shares and tailoring the rights attached to each class. The articles of association must specify the different classes and the rights attached to each of them. These rights may include different voting rights, dividend entitlements, preferential rights on a liquidation or, where appropriate, veto or consent rights.

This flexibility is commonly used to accommodate different investor profiles and economic interests. For example, founders may retain enhanced voting rights, while investors may receive preferential economic rights or specific protections. Where a corporate decision would affect the rights of a particular class, additional approval requirements may apply at class level.

The articles of association are therefore the appropriate instrument for establishing rights that are attached to the shares themselves. A shareholders' agreement can also be agreed alongside the articles to regulate contractual arrangements between shareholders, including voting undertakings or other governance arrangements.

Other instruments such as beneficiary units, stock options, bonds and warrants can also be issued by Luxembourg companies.

Distributions

Luxembourg law applies capital maintenance rules to distributions to shareholders. Dividends may generally only be paid out of amounts available for distribution, taking into account the company's accumulated profits and losses and the legal and statutory reserves.

Ordinary dividends are generally approved by the shareholders on the basis of the annual accounts. Interim dividends may also be distributed, subject to specific conditions, including the availability of sufficient distributable amounts and the preparation of interim financial information where required.

Return of Capital

A return of capital may be achieved through a reduction of share capital, subject to the applicable corporate law requirements. Such a reduction generally requires shareholder approval, an amendment to the articles of association and a notarial deed, together with the relevant filings and publications.

The tax treatment of a distribution or return of capital should also be considered separately, as it may differ depending on the nature of the payment and the situation of the shareholders.

Repurchase and Redemption of Shares

The company may only acquire its own shares, either directly or through a person acting in their own name but on behalf of the company, subject to the following conditions:

• authorisation must be granted by the general meeting;
• acquisitions, including shares which the company has previously acquired and holds in its portfolio, as well as shares acquired by a person acting in their own name but on behalf of the company, must not result in the net assets falling below the statutory threshold consisting of the subscribed share capital and non-distributable reserves;
• the transaction may relate only to fully paid-up shares; and
• the offer to purchase must be made on the same terms to all shareholders in the same situation.

Financial Assistance

Financial assistance rules should also be considered where a company, directly or indirectly, provides financing, security or other assistance for the acquisition of its own shares or, in certain circumstances, shares of its parent company. The rules and available exceptions depend on the legal form and the structure of the transaction and should therefore be assessed on a case-by-case basis.

In Luxembourg, private companies are subject to various reporting and disclosure obligations, including:

• Beneficial ownership– companies must identify their ultimate beneficial owners (UBOs) and report the required information to the Luxembourg Register of Beneficial Owners (RBE). This information must be kept up to date when changes occur.
• Shareholder and member registers– companies must maintain registers of their shareholders or members and keep the relevant information up to date.
• AML/KYC requirements– additional identification and disclosure requirements may apply under Luxembourg anti-money laundering and know-your-customer rules. These requirements are particularly relevant to regulated sectors, including the financial sector, and to professionals such as notaries, lawyers, approved statutory auditors and corporate domiciliation providers.
• Business permit– where the company's activity is subject to a business permit, the permit may, depending on the activity, rely on one of the company's managers meeting the applicable professional requirements.

The principal laws and regulations governing corporate governance in your Luxembourg are as follows:

• The amended Law of 10 August 1915 on commercial companies, which sets out the main rules governing Luxembourg companies and their corporate organisation.
• The amended Law of 19 December 2002 on the Trade and Companies Register and the accounting and annual accounts of undertakings, which governs, among other matters, registration and filing requirements and accounting and annual reporting obligations.
• The amended Law of 5 April 1993 on the financial sector, which applies in particular to credit institutions and certain investment firms.
• CSSF circulars and recommendations, which provide additional guidance and requirements for entities falling within the supervision of the Commission de Surveillance du Secteur Financier.

The duties of directors primarily derive from the amended Law of 10 August 1915 on commercial companies, supplemented by general principles of agency and civil liability.

Directors are generally expected to act in the best corporate interests of the company, within the scope of their powers and with loyalty towards the company. These principles form the basis of the duties owed by directors in the exercise of their mandate

Directors are liable to the company, in accordance with ordinary law, for the performance of the duties entrusted to them and for any errors committed in the course of their management. They are jointly and severally liable, either to the company or to any third party, for any damage resulting from breaches of the provisions of this Act or the articles of association. In addition, directors may be personally liable under criminal law for offences committed in connection with their functions, such as the use of false corporate documents, misuse of corporate assets or the payment of fictitious dividends.

The legal requirements and best practices in Luxembourg regarding board composition, including residence, independence standards, and diversity requirements are as follows:

• SA – an SA is generally managed by a board of directors composed of at least three directors. Where the company has a sole shareholder, a single director is permitted. Directors may be individuals or legal entities.
• Sàrl – a Sàrl is managed by one or more managers. There is no statutory minimum number of managers, and managers may be individuals or legal entities
• Residence – Luxembourg law does not generally impose a residence requirement on directors or managers. It is nevertheless advisable to have a majority of resident directors for tax substance requirements.
• Independence – private companies are not generally required to appoint independent directors. The main considerations are that directors act in the corporate interest and that conflicts of interest are properly managed, with specific procedures applying in certain cases, particularly for SAs.
• Diversity – listed companies are subject to increasing diversity requirements, particularly regarding the representation of women on boards, as a result of European developments. Corporate governance codes also encourage diversity in terms of skills, professional experience, nationality, age and gender.

ESG and Sustainability Obligations

Luxembourg companies are subject to a growing body of EU legislation relating to ESG and sustainability, with the applicable requirements depending on the nature and size of the company and its activities.

• CSRD and ESRS – the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) provide the framework for sustainability reporting for companies falling within their scope.
• EU Taxonomy Regulation – Regulation (EU) 2020/852 establishes a framework for classifying environmentally sustainable economic activities and provides for related disclosure requirements.
• SFDR – the Sustainable Finance Disclosure Regulation (SFDR) mainly applies to financial market participants and financial advisers and introduces sustainability-related disclosure requirements in the financial sector.
• CSDDD – EU corporate sustainability due diligence rules are also relevant to certain large companies, requiring them, within the applicable scope and timetable, to address adverse human rights and environmental impacts arising from their activities and value chains.

Current Regulatory Requirements

For companies falling within the scope of the CSRD, sustainability reporting must provide information necessary to understand both:

• the company's impacts on sustainability matters; and
• how sustainability matters affect the company's development, performance and position.

The applicable sustainability information is reported in accordance with the relevant ESRS. The EU Taxonomy Regulation also provides specific disclosure requirements concerning environmentally sustainable activities.

Directors’ Duties

Under Luxembourg corporate law, directors' duties remain primarily based on the requirement to act in the best corporate interest of their company. There is no general rule imposing specific environmental, social or stakeholder duties on directors.

ESG considerations may nevertheless increasingly form part of the matters considered by directors when assessing the corporate interest, particularly where ESG-related risks may affect the company's business, strategy or long-term interests.

Best Practices for Boards

Boards should consider ESG-related risks and opportunities as part of their broader oversight of the company's business and strategy. In particular, where ESG matters may affect the company's activities, risks or long-term performance, they should be considered when assessing the company's corporate interest and making strategic decisions.

For companies subject to sustainability reporting requirements, the board should also ensure that the relevant ESG information is properly identified and reflected in the company's reporting.

In Luxembourg, conflicts of interest and related-party transactions are subject to various legal and regulatory requirements, as outlined below:

• Conflicts of interest – directors must avoid situations in which their personal interest conflict with those of the company. Where a director has a direct or indirect financial interest conflicting with that of the company in a transaction submitted to the board, the director must inform the board, have the declaration recorded in the minutes and abstain from taking part in the deliberations and vote.
• Related-party transactions – transactions with related parties are not, as a general principle, prohibited. However, specific rules apply to material related-party transactions, including prior approval by the relevant management body and disclosure requirements. These rules are subject to certain exceptions, including transactions entered into in the ordinary course of business and on normal market terms.
• Approval and disclosure – where the relevant related-party transaction involves a director or shareholder, that person may not participate in the approval or vote. In some cases, material transactions must also be disclosed to the shareholders with information allowing them to assess the nature and terms of the transaction.

Shareholder Rights Under Corporate Law

Shareholders have a number of statutory rights under Luxembourg corporate law, including:

• Participation and voting– shareholders have the right to participate in and vote at general meetings. Under Article 450-1 of the amended Law of 10 August 1915 on commercial companies, the general meeting has the broadest powers to carry out or ratify acts relating to the company.
• Right to information– shareholders have a right to receive information concerning the company, including access to certain corporate documents such as the annual accounts, the management report and the auditors' report. This right also includes the possibility of asking questions at general meetings.
• Approval of fundamental changes– amendments to the articles of association fall within the competence of the extraordinary general meeting and are subject to the quorum and majority requirements provided by law.
• Financial rights– shareholders may also benefit from the economic rights attached to their shares, including the right to receive dividends and, where applicable, a share of the liquidation surplus.

Statutory Remedies

Shareholders have several remedies available under Luxembourg corporate law, including:

• Annulment of corporate decisions– shareholders may seek the annulment of corporate decisions in cases provided for by law.
• Liability claims– the general meeting of shareholders may bring liability claims against directors or managers where the applicable conditions are met.
• Abuse of majority or minority– Luxembourg law recognises remedies in cases of abuse of majority or abuse of minority rights.
• Minority protection mechanisms– minority shareholders benefit from specific rights allowing them, subject to the applicable thresholds and conditions, to request the convening of a general meeting, request the addition of items to the agenda or request the postponement of a general meeting, bring a liability claim against the directors, or ask the court to appoint an expert to check some transactions.

Shareholder Agreements

Shareholders' agreements are contractual arrangements between shareholders that regulate their relationship and certain aspects of the company's governance. They can therefore supplement the statutory framework and provide for specific arrangements such as restrictions on the transfer of shares, including restrictions on transfers to third parties, best corporate governance practices, exercise of voting rights and information rights.

The enforceability of a shareholders' agreement is primarily of contractual nature. Provisions included in the articles of association are valid towards any third party but those agreed in a shareholders' agreement are usually confidential and cannot be oppose to bona fide third parties. Specific performance of the agreement can be required but a breach often led to damages. It is therefore crucial to ensure that important provisions of the SHA can be automatically enforced by the benefiting party.

Resolving Shareholder Disputes

Shareholder disputes are often solved before Luxembourg courts. Shareholders may, in particular, seek the annulment of a general meeting resolution in the circumstances provided for by Article 100-22 of the amended Law of 10 August 1915 on commercial companies.

The general meeting of shareholders can also bring liability claims in the name and on behalf of the company against directors or certain members of the company's management or supervisory bodies. Such an action is brought in the interests of the company.

Shareholders can also claim, before the judge sitting in urgent matters, for the appointment of experts or interim directors in case of deadlock situations.

Finally, a commercial company may be dissolved by court decision for serious grounds (serious disagreement among shareholders) at the request of a shareholder, with the dissolution followed by the liquidation of the company. Judicial winding-up could also be required by the public prosecutor in case of breach of Luxembourg company law.

Otherwise, Luxembourg company law does not provide, under these terms, for a general “oppression remedy” or “unfair prejudice remedy” comparable to those available in certain common law jurisdictions.

Principal Laws and Regulations

Mergers and acquisitions in Luxembourg are primarily governed by the amended Law of 10 August 1915 on commercial companies. It provides the framework for domestic and cross-border mergers, including mergers by absorption and mergers by incorporation of a new company.

Public takeover bids are governed by the Law of 19 May 2006 on takeover bids. For a Luxembourg public company, the acquisition of 33⅓% of the voting rights generally triggers a mandatory takeover bid.

Depending on the transaction, other regulatory regimes may also be relevant. In particular, certain transactions may be subject to EU merger control rules, while acquisitions by foreign investors of Luxembourg entities carrying out certain critical activities may be subject to the Luxembourg foreign direct investment screening regime introduced in 2023.

Structuring Considerations

Mergers

A Luxembourg merger generally requires the management or governing bodies of the companies involved to prepare common merger terms. These address, among other matters, the exchange ratio, the allocation of shares in the absorbing or newly incorporated company and any special rights attached to certain securities.

The merger must in principle be approved by the general meetings of the companies involved, in accordance with the quorum and majority requirements applicable to amendments to the articles of association. The relevant resolutions are recorded in notarial deeds.

The main effect of a merger is the universal transfer of the assets and liabilities of the absorbed company to the absorbing company. The shareholders of the absorbed company become shareholders of the absorbing company and the absorbed company ceases to exist.

Acquisitions

Private acquisitions are commonly structured either as a share deal or an asset deal. The choice between the two will depend on the assets and liabilities being transferred, the desired corporate structure and the parties' commercial and regulatory considerations.

For public companies, the transaction may instead take the form of a voluntary or mandatory takeover bid, depending on the level of control being acquired and the circumstances of the transaction.

The transaction timetable may also need to take into account regulatory approvals, including any applicable merger control or foreign investment screening requirements.

Deal Structures

The most common private M&A structures are share deals, asset deals and mergers. Share deals are generally used where the buyer intends to acquire the company as a whole, while asset acquisitions allow the parties to identify specific assets and liabilities to be transferred.

For listed companies, acquisitions are generally structured through voluntary or mandatory takeover bids, depending on the circumstances of the transaction.

Regulatory Changes

Recent developments include the implementation of the EU Mobility Directive on cross-border mergers, transformations and divisions, which has introduced additional requirements for cross-border corporate reorganisations.

The Law of 14 July 2023 establishing a foreign direct investment screening mechanism is also relevant to certain M&A transactions. Where the regime applies, a foreign investor must notify the relevant investment before completion, and the investment may not be completed until the screening procedure has been completed and the required authorisation has been obtained.

The Regulatory Framework for Capital Markets

The Luxembourg capital markets framework is mainly based on the Law of 30 May 2018 on markets in financial instruments, the Law of 11 January 2008 on transparency requirements for issuers, and the Law of 23 December 2016 on market abuse and Regulation (EU) 2017/1129 on prospectuses.

The main regulatory authority is the Commission de Surveillance du Secteur Financier (CSSF), which supervises the financial markets and is responsible for the application of the relevant regulatory requirements, including market abuse rules.

The Luxembourg Stock Exchange (LuxSE) operates two main markets: the Luxembourg regulated market, known as the Bourse de Luxembourg, and the Euro MTF, which is a multilateral trading facility.

Principal Laws, Regulations, and Requirements for Public Offerings

Where an offer of securities to the public or an application for admission to trading on a regulated market falls within the scope of the Prospectus Regulation, a prospectus must generally be published before the offer or admission. The prospectus must be approved by the CSSF before publication.

The approval process is handled through the CSSF's e-Prospectus platform. The CSSF generally has ten working days to review a prospectus once it has received the documents required for its review. This period may be extended to 20 working days in certain circumstances, and the timetable may be extended where the documentation is incomplete.

For issuers whose securities are admitted to trading on a regulated market and for which Luxembourg is the home member state, the Transparency Law imposes ongoing reporting obligations. These include the publication of an annual financial report within four months of the end of the financial year, a half-yearly financial report within three months of the end of the relevant half-year and certain notifications concerning major shareholdings.

Stock Exchange Listing Requirements

Listing requirements depend on the market chosen by the issuer. A listing on the Luxembourg regulated market is subject to the regulatory framework applicable to regulated markets, including the Prospectus Regulation and the supervision of the CSSF.

The Euro MTF is a multilateral trading facility operated by the LuxSE and has its own admission requirements. The distinction between the two markets is therefore relevant when determining the regulatory and disclosure requirements applicable to an issuer.

Prospectus Exemptions Available for Securities Offerings

The main Luxembourg prospectus exemptions for securities offerings are the EU Prospectus Regulation exemptions, supplemented by Luxembourg’s national regime; they relate to qualified investors (broadly MiFID professional clients/eligible counterparties and certain institutional/professional entities), small number of offerees (fewer than 150 natural or legal persons per member state), large investment (at least EUR100.000 for each investor), certain secondary issuances and public offers below the Luxembourg threshold (a total consideration in the EU over 12 months is below EUR12m).

A broader retail/public offer can fall within Luxembourg's EUR12 million exemption, but at EUR5 million plus, the Luxembourg information-note requirement becomes relevant under the current national framework.

Separate disclosure regimes can continue to apply. For example, PRIIPs KID requirements for retail investors, where applicable, and ongoing transparency/market-abuse obligations for issuers within their respective scope.

Resale Restrictions or Hold Periods

There is generally no Luxembourg statutory “holding period” attached merely because securities were initially distributed under a prospectus exemption. The key restriction is instead on how a subsequent resale is made: a resale can itself constitute a new “offer to the public” and therefore may trigger a prospectus requirement unless the resale independently qualifies for an exemption.

If a resale that constitutes a public offer is conducted without the required prospectus, the consequences can include CSSF supervisory measures and administrative sanctions.

For issuers whose securities are admitted to trading on a regulated market and for which Luxembourg is the home Member State, the main ongoing disclosure obligations include:

• publication of an annual financial report within four months of the end of the financial year;
• publication of a half-yearly financial report within three months of the end of the relevant half-year; and
• disclosure of certain information relating to major shareholdings.

Issuers are also subject to the applicable market abuse rules.

Material events can be disclosed by the following circumstances.

• Material information falling within the scope of the market abuse rules must be disclosed to the market.
• The disclosure requirements are intended to ensure that relevant information is made available to investors in a timely manner.
• In certain circumstances, disclosure may be delayed where the conditions provided by the applicable rules are satisfied.

The main rules on market abuse and insider trading in Luxembourg are set out at EU level in Regulation (EU) No 596/2014 on market abuse (MAR), supplemented by Luxembourg legislation, including the Law of 23 December 2016 on market abuse.

The framework covers, in particular:

• insider dealing;
• unlawful disclosure of inside information; and
• market manipulation.

The CSSF is the main regulatory authority responsible for supervising compliance with the market abuse rules. The Luxembourg Stock Exchange also has a role in monitoring trading on its markets.

The CSSF has supervisory and enforcement powers in relation to market abuse. It may investigate suspected breaches and take the measures and impose the sanctions provided for under the applicable Luxembourg and EU rules.

The disclosure of substantial shareholdings is mainly governed by the Law of 11 January 2008 on transparency requirements for issuers, as amended.

The notification requirements apply to natural or legal persons acquiring or disposing of shares carrying voting rights in an issuer whose shares are admitted to trading on a regulated market and for which Luxembourg is the home member state.

Failure to comply with the applicable notification requirements may result in enforcement measures and sanctions under the Transparency Law.

The CSSF is responsible for supervising compliance with these requirements and may take the measures provided for by the applicable legislation in the event of a breach.

Luxembourg law does not provide for a single, general compliance programme applicable to all companies. Compliance and internal control requirements depend largely on the nature and activities of the company, with more extensive requirements applying to regulated sectors such as financial services.

Companies should nevertheless maintain appropriate internal procedures and controls to identify and manage the legal and regulatory risks arising from their activities. The specific governance framework will therefore depend on the company's business and regulatory status.

The Law of 16 May 2023 implementing Directive (EU) 2019/1937 provides a general framework for the protection of whistleblowers.

Entities falling within the scope of the law may be required to establish internal reporting channels allowing certain violations of the law to be reported. The law also provides protection against retaliation for persons making a protected report.

The Principal Laws and Regulations

The main Luxembourg laws governing security interests include:

• the Civil Code, which sets out the general rules on security interests;
• the Law of 5 August 2005 on financial collateral arrangements, which provides a specific regime for collateral over, in particular, financial instruments and monetary claims; and
• the Law of 10 August 1915 on commercial companies, including certain provisions relevant to security over shares and partnership interests.

The main types of security interests used in Luxembourg include:

• pledges;
• mortgages, in particular over real estate;
• pledges over financial instruments and monetary claims subject to the 2005 Law;
• certain assignments by way of security; and
• personal security, such as guarantees.

Enforcing Security Interests

The formalities required to make a security interest enforceable against third parties and to establish its priority depend on the type of security and the asset concerned.

For certain security interests, registration in a specific register is required or relevant to establish their enforceability and priority. For example, a mortgage must be registered with the mortgage registry in order to establish its rank.

Security Package Structure

In an acquisition financing, the security package is generally assessed on an asset-by-asset basis and also depends on which entity provides the security.

Depending on the structure of the transaction, the security package may cover:

• shares or partnership interests;
• bank accounts;
• certain receivables;
• financial instruments;
• real estate; and
• other assets that may be given as security.

Where several creditors are involved, their respective rights and priorities may also be organised through intercreditor arrangements.

Luxembourg contract law is mainly governed by the Civil Code. A contract is formed by the common agreement of the parties, provided that they have the required legal capacity and have given free and informed consent.

A commercial contract therefore requires:

• the consent of the parties;
• parties with the capacity to contract; and
• a certain and lawful subject matter.

A contract validly formed is binding on the parties and must be performed in good faith. The parties have broad freedom to determine the terms of their contract, subject to mandatory rules and public policy.

The main grounds for invalidity include defects affecting the consent of a party, such as mistake, fraud or duress, as well as lack of capacity or an unlawful subject matter.

Where the terms of a contract are ambiguous, the courts will refer to the common intention of the parties when interpreting the agreement.

Failure to properly perform contractual obligations may give rise to contractual liability. The parties may, within certain limits, agree contractual limitation or exclusion of liability clauses, subject to mandatory rules of Luxembourg law.

Remedies for Breach of Contract

The main remedies available for breach of contract include:

• specific performance, where this is possible;
• termination or resolution of the contract in the event of sufficiently serious breach; and
• damages to compensate the loss suffered as a result of the breach.

A party may also, under certain conditions, suspend performance of its own obligations where the other party has failed to perform its corresponding obligations. The parties may also provide for specific contractual remedies, such as a penalty clause.

Termination of the Contract

Legitimate termination

The possibility of terminating a contract depends primarily on its terms. A contract may provide for termination rights and specify the events allowing a party to terminate. The parties may also agree to terminate the contract by mutual agreement.

In the event of sufficiently serious non-performance, a party may also seek termination or resolution of the contract under the applicable rules.

Wrongful termination

A party that terminates a contract without a valid contractual or legal basis may incur contractual liability. The other party may seek compensation for the loss suffered as a result of the wrongful termination.

Force Majeure

Luxembourg law recognises force majeure as a circumstance which may, subject to the applicable conditions, affect a party's liability where it is unable to perform its contractual obligations.

Commercial contracts may also contain specific force majeure clauses defining the events covered and their consequences.

Otherwise, in Luxembourg, the position on contractual “hardship” is relatively restrictive. The key distinction is between hardship, where performance becomes substantially more difficult or expensive, and force majeure, where performance becomes impossible.

The main intellectual property rights relevant to commercial transactions include patents, trademarks, copyrights, and designs.

• Patents – patent rights may be assigned or licensed.
• Trade marks – the owner may assign the trade mark or grant a licence. Licences and certain changes of ownership may be recorded in the relevant trademark register.
• Copyright – Luxembourg law distinguishes between economic rights and moral rights. Economic rights may generally be assigned or licensed, while moral rights are subject to separate protection.

The contractual documentation should therefore clearly address the ownership and use of the relevant IP rights. In particular, the mere commissioning and payment for a work does not, by itself, automatically transfer all intellectual property rights to the client.

Specific rules apply to inventions created by employees. An invention generally belongs to the employer where it is made as part of an inventive mission under the employment contract, pursuant to specifically assigned research or studies, or, in certain circumstances, in the course of the employee's functions, within the company's activities or using the company's specific technical resources or information. Inventions falling outside these categories generally belong to the employee.

Where a work is created jointly by several persons and their contributions cannot be separated, Luxembourg copyright law provides for a specific regime for collaborative works. Similarly, several persons may jointly own a patent application and exercise the rights provided by law.

As regards AI-generated content, there is currently no specific Luxembourg rule providing that such content automatically belongs to the user, the AI tool provider or the company commissioning the content. Ownership should therefore be considered carefully in the contractual arrangements.

Luxembourg has implemented the EU framework on the enforcement of intellectual property rights, including through the Law of 22 May 2009.

A rights holder may seek provisional and protective measures, in particular to prevent or stop an infringement. Other remedies may also be available depending on the type of intellectual property right and the circumstances of the infringement.

The main intellectual property rights relevant to commercial transactions include patents, trademarks, copyrights and designs.

• Patents: patent rights may be assigned or licensed.
• Trade marks: the owner may assign the trade mark or grant a licence. Licences and certain changes of ownership may be recorded in the relevant trademark register.
• Copyright: Luxembourg law distinguishes between economic rights and moral rights. Economic rights may generally be assigned or licensed, while moral rights are subject to separate protection.

The contractual documentation should therefore clearly address the ownership and use of the relevant IP rights. In particular, the mere commissioning and payment for a work does not, by itself, automatically transfer all intellectual property rights to the client.

Specific rules apply to inventions created by employees. An invention generally belongs to the employer where it is made as part of an inventive mission under the employment contract, pursuant to specifically assigned research or studies, or, in certain circumstances, in the course of the employee's functions, within the company's activities or using the company's specific technical resources or information. Inventions falling outside these categories generally belong to the employee.

Where a work is created jointly by several persons and their contributions cannot be separated, Luxembourg copyright law provides for a specific regime for collaborative works. Similarly, several persons may jointly own a patent application and exercise the rights provided by law.

As regards AI-generated content, there is currently no specific Luxembourg rule providing that such content automatically belongs to the user, the AI tool provider or the company commissioning the content. Ownership should therefore be considered carefully in the contractual arrangements.

Luxembourg has implemented the EU framework on the enforcement of intellectual property rights, including through the Law of 22 May 2009.

A rights holder may seek provisional and protective measures, in particular to prevent or stop an infringement. Other remedies may also be available depending on the type of intellectual property right and the circumstances of the infringement.

Luxembourg currently does not have a general domestic pre-merger notification regime. Transactions may nevertheless fall within the EU Merger Regulation where the applicable EU thresholds are met.

In addition, the Luxembourg Competition Authority may seek a referral to the European Commission under Article 22 of the EU Merger Regulation for certain transactions that do not meet the EU turnover thresholds but may affect competition in Luxembourg.

A domestic merger control regime is proposed under Bill No. 8296, initially providing for mandatory notification where the following cumulative thresholds would be met:

• combined Luxembourg turnover of the undertakings concerned exceeding EUR60 million; and
• Luxembourg turnover exceeding EUR15 million for at least two of the undertakings concerned.

The bill is not currently in force and is expected to be revised.

As Luxembourg does not currently have a general domestic merger notification regime, there is no general Luxembourg penalty for failing to notify a transaction under such a regime.

Anti-competitive conduct is, however, subject to the Luxembourg Competition Law and EU competition rules. The Luxembourg Competition Authority has powers to investigate suspected infringements, including through inspections and requests for information, and may impose administrative fines and other remedies where the applicable competition rules have been infringed.

The main areas of concern include anti-competitive agreements and practices, such as cartels, and abuses of a dominant position.

Laws and Regulations

Luxembourg has introduced a foreign direct investment screening mechanism under the Law of 14 July 2023.

The regime applies to investments by investors from outside the EU and EEA that confer control over a Luxembourg entity carrying out a critical activity in Luxembourg. There is no minimum investment amount or general turnover threshold triggering the regime.

The foreign investor must notify the investment to the Minister of the Economy before the investment is completed. The notification is not itself suspensive, but the investment cannot be completed if a screening procedure is initiated until the Minister has issued a decision.

The procedure does not involve a general filing fee. The Minister may ultimately authorise the investment, impose conditions or prohibit it where it is considered likely to affect security or public order.

Foreign Ownership Restrictions

Luxembourg does not generally restrict foreign ownership of Luxembourg companies. However, investments in certain critical activities are subject to the foreign investment screening regime.

The legislation identifies specific critical activities, including areas relating to energy, transport, water, health, communications, data processing and storage, cybersecurity, space activities, defence and certain critical technologies.

Regulated sectors may also be subject to sector-specific licensing or ownership requirements. These requirements apply independently of the foreign investment screening regime.

Security Review Process

The 2023 foreign investment screening mechanism is the Luxembourg process for reviewing foreign investments on national security and public order grounds.

Following notification, the Minister of the Economy, based on the assessment of the interministerial committee responsible for investment screening, decides whether to initiate a screening procedure.

Where screening is initiated, the authorities assess whether the investment may affect security or public order. The screening procedure may result in an authorisation, an authorisation subject to conditions or a prohibition of the investment.

Incentives for Foreign Investors

Foreign investors are generally eligible for the same investment support measures as Luxembourg businesses, provided that the relevant conditions are met.

Depending on the nature of the investment, available support may include investment aid, research and development and innovation support, and certain tax incentives. These measures are generally linked to the nature and characteristics of the investment rather than to the foreign nationality of the investor.

Luxembourg Freeport is also available and provides a high-security storage facility located near Luxembourg Airport. It provides secure, tax-efficient storage for valuable goods such as works of art, precious metals, jewellery, wine and other collectibles.

Recent Developments

The main recent development is the introduction of the foreign investment screening regime by the Law of 14 July 2023, implementing the EU framework for screening foreign direct investments.

The regime has established a formal review process for foreign investments in critical activities where security or public order concerns may arise. It does not, however, introduce a general restriction on foreign investment in Luxembourg.

Privacy and Data Protection Framework

The main data protection framework in Luxembourg is the General Data Protection Regulation (GDPR – Regulation (EU) 2016/679), which is directly applicable in Luxembourg. The National Commission for Data Protection (CNPD) is the Luxembourg supervisory authority.

Specific rules also apply to electronic communications, including rules on cookies, under the amended Law of 30 May 2005 on the protection of privacy in the electronic communications sector.

Obligations for Organisations

An organisation must have a valid legal basis to process personal data. The GDPR recognises, in particular:

• the individual's consent, which must be freely given, specific, informed and unambiguous;
• the necessity of processing for the performance of a contract;
• compliance with a legal obligation;
• protection of vital interests;
• performance of a task carried out in the public interest; and
• legitimate interests, subject to the applicable conditions.

Organisations must also comply with the GDPR's core principles, including lawfulness, fairness and transparency, purpose limitation, data minimisation, accuracy, storage limitation, and integrity and confidentiality.

Individuals must receive the information required by the GDPR, including information on the identity of the controller, the purposes and legal basis of the processing, the recipients, the retention period and their rights.

Where a processor is involved, it must process personal data in accordance with the documented instructions of the controller and comply with the applicable security and confidentiality requirements.

In the event of a personal data breach, the controller must assess whether the breach is likely to result in a risk to the rights and freedoms of individuals. Where such a risk exists, the breach must be notified to the CNPD without undue delay and, where feasible, within 72 hours after the controller becomes aware of it.

Cross-Border Data Transfer Requirements and Data Localisation

Transfers of personal data within the EEA are not subject to the specific transfer regime applicable to transfers to third countries, although processing must continue to comply with the GDPR.

Transfers to a country outside the EEA are subject to Chapter V of the GDPR, which sets out specific requirements for international data transfers.

Luxembourg does not generally impose a requirement for personal data to be stored in Luxembourg. The main consideration for businesses is therefore ensuring that any transfer outside the EEA complies with the GDPR's international transfer requirements.

Anti-Money Laundering and Anti-Terrorist Financing Obligations

Luxembourg's main AML/CFT framework is set out in the Law of 12 November 2004 on the fight against money laundering and terrorist financing.

The obligations apply to a broad range of professionals and businesses, and not only to banks. They include, in particular:

• credit institutions and professionals of the financial sector;
• insurance companies and certain insurance intermediaries;
• certain investment funds and management companies;
• crypto-asset service providers;
• lawyers, accountants, auditors and other legal and accounting professionals when carrying out activities covered by the law;
• notaries, bailiffs and other professionals covered by the law;
• certain traders in goods, in particular in relation to cash transactions reaching the applicable statutory threshold; and
• certain professionals operating in the art sector.

The applicable obligations include customer and beneficial owner identification and verification, risk assessment and appropriate due diligence measures, as well as the reporting of suspicious activities to the competent authorities.

Financial Restrictive Measures

The main Luxembourg framework for the implementation of financial restrictive measures is the Law of 19 December 2020 on the implementation of international restrictive measures in financial matters, as supplemented by subsequent legislation and regulations.

Export controls are governed in particular by the Law of 27 June 2018 on export controls, the EU Dual-Use Regulation (EU) 2021/821 and applicable EU restrictive measures.

The Office for the Control of Exports, Imports and Transit (OCEIT) is responsible, among other things, for authorisations relating to the export, transfer, transit, technical assistance, brokering and import of defence-related products, dual-use goods and goods related to torture.

Businesses must therefore assess whether their transactions, products and counterparties are subject to applicable restrictive measures or export controls and obtain any required authorisation.

Violations of the financial restrictive measures covered by the Law of 19 December 2020 are subject to criminal penalties, including imprisonment for between eight days and five years and/or a fine ranging from EUR12,500 to EUR5 million.

Anti-Corruption and Anti-Bribery Obligations

Active and passive bribery are mainly prohibited under the Luxembourg Criminal Code. The relevant provisions cover, among others, persons acting as directors, managers, agents or employees who solicit or accept an undue advantage in connection with their functions without the knowledge or authorisation of the relevant corporate body, principal or employer.

The Law of 16 May 2023 on the protection of whistleblowers also forms part of the Luxembourg framework for preventing and detecting legal violations by protecting individuals who report certain violations.

In practice, companies may use internal reporting channels and other compliance measures to identify and address corruption risks.

Enforcement Powers

Enforcement powers depend on the area concerned. The relevant Luxembourg authorities may supervise compliance, carry out investigations and, where provided by law, impose administrative or criminal sanctions.

In the AML/CFT and financial sanctions fields, the competent supervisory and enforcement authorities have powers to investigate breaches and take the measures provided by the applicable legislation. Criminal authorities may also intervene where conduct constitutes a criminal offence, including breaches of financial restrictive measures or corruption offences.

Environmental Regulatory Requirements

The main environmental regulations relevant to businesses include the Law of 15 May 2018 on environmental impact assessments, which provides for an environmental impact assessment procedure for projects falling within its scope.

The Law of 10 June 1999 on classified establishments subjects certain industrial, commercial or craft installations to a prior authorisation regime where they may present risks to health, safety or the environment.

The CASIPO (cadastre des anciennes décharges et des sites potentiellement contaminés) identifies former landfill sites and potentially contaminated sites. This may be relevant in the context of due diligence for transactions involving real estate or companies holding potentially contaminated land.

Luxembourg is also subject to the applicable EU framework on carbon pricing.

Climate Litigation and Environmental Liability

Climate-related litigation remains relatively limited in Luxembourg. Companies nevertheless remain subject to the applicable environmental requirements and may face liability in case of non-compliance with those requirements.

From a transactional perspective, environmental due diligence should therefore focus in particular on the existence of environmental permits and authorisations, compliance with the applicable requirements and any potentially contaminated sites.

Health and Safety Obligations

Employers are subject to a general obligation to ensure the health and safety of their employees. This includes, in particular, carrying out risk assessments and taking appropriate measures to prevent or reduce occupational risks.

Occupational health monitoring is also required. Compliance with these obligations is monitored, in particular, by the Labour and Mines Inspectorate (Inspection du travail et des mines – ITM).

Licensing and Permitting

Businesses may be subject to an establishment permit (autorisation d’établissement) depending on the nature of their activities.

In addition, certain activities and installations require specific authorisations under the Law of 10 June 1999 on classified establishments. Environmental permits or authorisations may also be required depending on the activity or project.

In the context of a corporate transaction, it is therefore relevant to verify which permits and authorisations the target holds and whether the transaction, a change of control or a change in the target's activities may require any additional notification, amendment or authorisation.

The main regulatory framework governing the use of artificial intelligence in Luxembourg is the EU AI Act – Regulation (EU) 2024/1689 of 13 June 2024 laying down harmonised rules on artificial intelligence. The AI Act applies progressively, with different obligations becoming applicable at different stages.

For organisations, the main areas of compliance include:

• Transparency – specific transparency obligations apply to certain AI systems, including systems interacting with individuals, AI-generated content and general-purpose AI (GPAI) models.
• Bias and non-discrimination – organisations must take into account risks of bias and discriminatory outcomes in the context of the requirements applicable to the relevant AI system.
• Accountability and governance – depending on the type and risk level of the AI system, the AI Act provides for requirements relating to governance, documentation, risk management and human oversight.

Within Luxembourg, Bill No. 8476, submitted on 23 December 2024, aims to designate the competent authorities responsible for supervision and enforcement of the AI Act, including the National Commission for Data Protection (CNPD).

The AI Act also needs to be considered alongside other applicable legislation, in particular the GDPR where the use of an AI system involves the processing of personal data.

Additional regulatory compliance requirements are imposed in the insurance, banking and financial sector by the competent authorities.

The main legal framework governing employment relationships in Luxembourg is the Luxembourg Labour Code (Code du Travail).

It regulates, among other things, employment contracts, working conditions and the termination of employment.

For an indefinite-term employment contract (CDI), an employer may in principle terminate the employment relationship with notice, provided that the dismissal is based on real and serious grounds (motifs réels et sérieux).

The statutory notice period depends on the employee's length of service:

• Less than five years: two months' notice.
• Between five and ten years: four months' notice.
• Ten years or more: six months' notice.

The employee may request the employer to provide the reasons for the dismissal.

A dismissal with immediate effect and without notice is possible in cases of serious misconduct (faute grave), ie conduct making the continuation of the employment relationship immediately and definitively impossible.

A dismissal may be considered unfair (abusive) if it is not based on real and serious grounds or if the applicable procedural requirements have not been complied with. The employee may challenge the dismissal before the competent labour court (Tribunal du Travail).

Certain categories of employees also benefit from specific protection against dismissal, including, in certain circumstances, employees benefiting from protections relating to pregnancy, maternity leave, employee representation or other protected statuses.

Finally, an employee may, in certain circumstances, resign with immediate effect due to acts or breaches attributable to the employer and ask the labour court to recognise that the resignation should be treated as a termination with immediate effect due to the employer's fault.

Executive compensation arrangements are generally structured through the employment agreement and, where applicable, separate incentive or equity plans.

The main considerations include the structure of fixed and variable remuneration and, where applicable, the terms governing equity incentives, including vesting conditions and the consequences of a change of control. A specific regime called “prime participative” allow employees to benefit from 50% tax exemption on the paid premium.

The tax treatment of executive compensation, in particular equity-based compensation, should be assessed on a case-by-case basis.

Non-compete clauses are governed by Article L.125-8 of the Luxembourg Labour Code. Luxembourg courts take a strict and restrictive approach to such clauses, given their impact on the employee's freedom to work.

For a non-compete clause to be valid, in particular:

• it must be in writing;
• the employee must be at least 18 years old;
• the employee's remuneration must exceed the statutory threshold set by Grand-Ducal regulation;
• it must be limited to activities that are actually competitive with those of the employer;
• it may not exceed 12 months following termination of the employment relationship; and
• its geographical scope may not extend beyond Luxembourg.

Non-solicitation clauses are not specifically regulated by the Labour Code. Their enforceability is therefore assessed by the courts, in particular by reference to proportionality and the respective legitimate interests of the employer and the employee, including the duration and geographical scope of the restriction.

Confidentiality obligations are based, during the employment relationship, on the employee's general duty of loyalty. Post-termination confidentiality obligations should be clearly defined, proportionate and limited to legitimate confidential information, such as trade secrets or strategic business information.

The main form of ownership of real estate in Luxembourg is full ownership (pleine propriété).

Other forms of rights over real estate include, in particular:

• co-ownership/joint ownership (copropriété/indivision);
• emphyteusis (emphytéose), which provides a long-term right of enjoyment over real estate; and
• surface rights (droit de superficie), which allow, in particular, a person to own buildings or other constructions on land owned by another person.

Transfers of ownership of real estate are generally carried out by notarial deed.

There is no general restriction based on nationality preventing a foreign individual or foreign company from acquiring or holding real estate in Luxembourg.

Similarly, there is no general prohibition based on nationality on the acquisition of particular categories of real estate.

Accordingly, foreign individuals and companies can generally acquire, hold and sell real estate in Luxembourg, subject to the ordinary legal and notarial formalities applicable to real estate transactions.

The main legal framework governing commercial real estate transactions in Luxembourg is mainly based on the Civil Code, together with the rules applicable to land registration, planning, environmental matters and commercial leases.

Acquisition and disposal:

• Real estate transactions are generally documented through a private sale agreement (compromis de vente) followed by a notarial deed.
• The transfer of ownership must be registered with the Mortgage Registrar (Bureau de la conservation des hypothèques) in order to be enforceable against third parties.
• Due diligence will typically cover title, mortgages and other encumbrances, easements, zoning and planning, existing leases, environmental matters and applicable permits.
• A buyer may also carry out technical, soil and environmental investigations, depending on the property.
• A valid energy performance certificate is generally required for the sale of real estate.

Environmental liability and permits:

• Certain commercial or industrial activities require prior authorisation under the law of 10 June 1999 on classified establishments.
• Depending on the project, an environmental impact assessment may also be required.
• Potentially contaminated land should be checked, including against the CASIPO register of former landfills and potentially contaminated sites.

Mortgage financing:

• Real estate financing is commonly secured by a mortgage over the property.
• The mortgage must be registered with the Mortgage Registrar in order to establish its enforceability and priority against third parties.
• Priority between mortgages generally depends on their rank of registration, subject to applicable legal rules.

Commercial leases:

• Commercial leases are governed primarily by the Civil Code and the contractual terms agreed between the parties.
• The lease should address, in particular, duration and renewal, rent and indexation, permitted use, assignment and subletting, maintenance and repairs, insurance and termination rights.
• The consequences of default, including termination and damages, will depend on the lease and applicable contractual law.

Recent developments:

• Commercial real estate transactions continue to be affected in particular by planning, environmental and energy-efficiency requirements.
• The law of 15 May 2018 on environmental impact assessment and the rules relating to classified establishments are relevant where a transaction involves development, construction or certain regulated activities.