Luxembourg's One-Euro Company Provides Major Incentive For Entrepreneurs

Luxembourg's law of July 23, 2016, which came into force on January 16, 2017, creates an incentive for entrepreneurs to establish a business in the grand duchy by introducing the simplified private limited liability company (société à responsabilité limitée simplifiée or Sàrl-S) – also known as the one-euro company.

The main legal features of the new company type are:

Minimum capital requirement of €1

By contrast with the private limited liability company (Sàrl), which must have capital of at least €12,000, the simplified private limited liability company may be incorporated with a minimum share capital of €1, which must be fully subscribed and paid-up.

The minimal capital requirement is counterbalanced by an obligation to create legal reserves to which it must allocate at least one-twentieth of the company's net profit annually. The obligation to create legal reserves ceases once the share capital threshold of €12,000 is reached.

When the share capital reaches €12,000, either by incorporation of legal reserves or by a share capital increase, the Sàrl-S must be transformed into another eligible legal form, such as an Sàrl, S.A. or S.C.A., subject to any applicable capital requirements they may entail.

Shareholders must be individuals

The simplified private limited liability company is restricted to shareholders that are individuals, otherwise they will have no legal validity. Similarly, the governance of an Sàrl-S must be conducted solely by individuals.

In addition, an individual may hold shares in only one simplified private limited...