What is an ASBL and what are its advantages?
This type of organisation was until recently governed by the Law of April 21, 1928. However, the regulatory framework has recently evolved and as of September 23, 2023 ASBLs are regulated by the Law of August 7, 2023.
One of the main differences between an ASBL and a company is the fact that an ASBL cannot pursue profit-making purposes, that is, carry out its activity for the sole purpose of making profits or procuring dividends for one of its members.
Although this does not mean that an ASBL cannot generate income, an ASBL can generate surpluses as long as they are fully reinvested in its activities.
ASBLs are generally used to create sports associations, cultural clubs, NGOs, educational foundations and other types of organisations aimed at the common good rather than personal enrichment.
When it comes to carrying out a common project, creating an ASBL offers a number of advantages over the prospect of doing it without any legal structure or doing it under the umbrella of a traditional company. Below are some of these advantages:
- ⚖️ Legal recognition and limited liability: by registering the association with the Register of Commerce and Companies, it acquires a legal personality of its own. This means that the association can carry out legal transactions, sign contracts and assume obligations as an autonomous entity. In addition, members are not personally liable for the association's debts, unless they have acted negligently or fraudulently.
- 🌟 Recognition of public utility: ASBLs that pursue general interest purposes (philanthropic, religious, scientific, artistic, social, sports, etc.) can be recognised as public utility entities. This recognition can facilitate access to subsidies and tax advantages. This recognition, however, is subject to strict criteria and is granted sparingly by the Ministry of Justice. It only affects a limited number of ASBLs.
- 💸 Tax advantages for donations received: donations made to ASBLs recognised as being of public utility are tax-deductible for the donors, which encourages private contributions and facilitates the financing of the ASBL.
- 💼 Possibility of complementary economic activities: although ASBLs do not have a profit-making purpose, they may carry out economic activities, such as the sale of goods or services, to finance their main objectives, provided that these activities are not their exclusive purpose. Commercial activities must however be ancillary; above a certain threshold, an establishment permit is required and the EDA may reclassify the entity.
Characteristics of an ASBL and requirements to set it up
In order to create an ASBL in Luxembourg it is necessary to comply with the legal requirements set out in the Law of August 7, 2023. They are set out in detail below.
🎯 Purpose
The purpose of the ASBL must be altruistic, cultural, social, educational, artistic, sporting, or any other non-profit field. It cannot seek to generate economic profit for its members.
👥 Members
To constitute an ASBL, at least two founding members are required, who may be individuals or legal entities. The members have limited liability and are not personally liable for the debts of the association, the liability rests solely with the ASBL as a legal entity.
💰 Share capital
No initial capital is required to form an ASBL.
🏛️ Governance structure
An ASBL must be managed by a board of directors and a general assembly. The board of directors manages the affairs of the association and represents it in all judicial and extrajudicial acts. The administrators do not assume any personal obligation with respect to the commitments of the ASBL, their responsibility is limited to the execution of the mandate they have received and to the faults committed in their management.
The general assembly is the sovereign body of the association, it is composed of all the members and is in charge of taking important decisions such as the modification of the statutes or the dissolution.
📆 Duration
The ASBL can be constituted for a limited or indefinite duration, as stipulated in its statutes.
✍️ Articles of association
The articles of association may be freely drafted but should at least contain identifying information about the association and its members, information about the governance structure and operation and certain financial aspects and legal procedures:
- Name and registered office of the association.
- The purpose of the association.
- Minimum number of members.
- The names, occupations, residences and nationalities of the members.
- The conditions under which members may join or resign.
- The powers and method of convening the general assembly and the conditions under which its resolutions shall be brought to the attention of the members and third parties.
- The method of appointment and the powers of the administrators.
- The maximum subscription fees to be paid by the members.
- The method of settling accounts.
- The rules to be followed for amending the by-laws and the destination of assets in the event of dissolution.
Process to set up an ASBL in Luxembourg
Having seen the characteristics of ASBLs and the requirements to form them, it is possible to get an idea of how to create one, however, it is necessary to review practical aspects and arrange the information in order to have a clear idea of the process of setting up an ASBL. The following is the step-by-step process.
1️⃣ Preparing the project and creating a business plan
Before starting the legal incorporation process it is essential to carefully plan how the ASBL will achieve its objectives. This includes clearly defining its mission and the specific objectives it seeks to address.
2️⃣ Domiciliation of the company
Domiciliation of the Company When creating ASBL in Luxembourg it is mandatory to declare a registered office so it is necessary to define beforehand what this place will be, the only condition is that this place must be located in the Grand Duchy of Luxembourg.
3️⃣ Choosing a name for the company and checking its availability
Before creating an ASBL it is necessary to choose the name it will bear, which cannot coincide with the names of existing persons or the names of other associations or companies. It is therefore advisable to check the availability of the chosen name to ensure that it is not in use and to avoid rejections during the official registration. The availability check is done by submitting an application for a name availability certificate electronically to the Luxembourg Business Registers (LBR).
It is important to note, however, that the free name certificate does not allow the name in question to be reserved. Any available name may be used by the first person who requests it at the time of its registration with the RCS.
In addition, to protect the ASBL name, it is worth considering the possibility of registering it as a trademark.
4️⃣ Drafting and signing of the articles of association and election of the board of directors
The founding members must draft and approve the bylaws, which set out the association's operating rules and must contain at least the information detailed in the previous section. The founding members must then meet in a general assembly to elect the persons who will serve on the association's board of directors and sign the articles of association. The signing of the articles of association can be done by private act.
5️⃣ Registration in the Register of Commerce and Companies (RCS)
Once the statutes have been signed it is necessary to register the association in the Luxembourg Register of Commerce and Companies (RCS). This registration is carried out electronically through the RCS portal and involves completing a registration form and attaching the signed articles of association.
6️⃣ Publication in the RESA
Once registered with the RCS, the incorporation of the association must be published in the Recueil Electronique des Sociétés et Associations (RESA) which is the official gazette of Luxembourg where all acts related to companies and associations are published. This publication is a necessary step to make the existence of the company known to the public and to ensure transparency about its incorporation, its domicile, its share capital and its administration.
7️⃣ Registration of beneficial owners
A final requirement is to register with the Registry of Beneficial Owners (RBE). Although ASBLs are not-for-profit organisations and do not have beneficiaries (that is, individuals who directly receive financial benefits), they are also obliged to declare certain individuals to the Registry of Beneficial Owners in Luxembourg.
This is because the RBE legislation applies to all legal entities registered in the country, including ASBLs, to ensure transparency and compliance with anti-money laundering and anti-terrorist financing regulations. Failure to comply with this registration will result in the ASBL facing a fine ranging from 1,250 to 1,250,000 euros.
Conclusion
This guide has attempted to cover the basic aspects related to ASBLs in Luxembourg, from their definition and advantages to the requirements and the incorporation process. The incorporation process is much simpler than the process to create a company, however, when it is done for the first time or when the association intended to be created is of a certain size, doubts and uncertainties may arise about many aspects such as the drafting of the articles of association or the process itself. If you are planning to create an ASBL and you have doubts, do not hesitate to contact us, we will be happy to give you a hand.
