Luxembourg SCSp companies

Luxembourg SCSp companies

A Special Limited Partnership (SCSp) is a partnership type recently introduced in Luxembourg by the Law of July 12, 2013, which implemented the Alternative Investment Fund Managers Directive (AIFMD). The main characteristic of SCSp's is their absence of legal personality and was introduced by the legislator to respond pragmatically to the wishes of international investors accustomed to the “limited partnerships” of English law, which lack this attribute.

SCSp are particularly appropriate in situations requiring flexibility, confidentiality and tax efficiency. This type of partnership is ideal for the creation of alternative investment funds (AIFs) such as funds specializing in private equity and venture capital or real estate funds, as it allows the relationships between partners to be customized through contractual agreements and guarantees confidentiality by not publicly registering the names of the Limited Partners. In addition, their transparent taxation avoids double taxation by allowing income to be directly attributed to the partners.

They are also suitable for co-investment structures and joint ventures as they facilitate collaboration between multiple investors or companies on specific projects while maintaining great flexibility in governance and profit sharing.

SCS's main features

Following we will examine in detail the main characteristics of the SCSp in Luxembourg, among which we find the modalities of incorporation, the particularities of the partnership agreement, the duration of the company, the characteristics of the partners and their participations, the share capital and the governance structure, among others.

Deed of incorporation and partnership agreement

An SCSp can be incorporated by private deed so a notary is not necessary and for its incorporation, an extract of the deed must be filed with the Luxembourg Trade and Companies Register (RCS) which must contain at least:

• The name of the company and its registered office.
• The object of the company.
• A description of the contributions of the partners.

Duration

An SCSp may be incorporated for a limited or unlimited period, this must be set forth in the partnership agreement.

Share Capital

There is no minimum capital requirement and contributions can be in cash, in kind or in industry (services, know-how, etc.), they can be made as and when required and do not have to be paid up at the time of incorporation. In addition, non-cash contributions do not require an auditor's valuation.

Shareholdings

In SCSp the capital is formed by ownership shares which are exclusively nominative and can only be transferred, disposed of or pledged in accordance with the terms and conditions and in the forms established in the articles of incorporation. If nothing is specified in the partnership agreement, the following procedures must be followed depending on whether they are general partner or limited partner interests:

• Limited partners' ownership shares: a transfer other than by death, dismemberment or the pledge of a limited partner's interest requires the approval of the limited partners.
• General partners' ownership shares: a transfer other than by death, dismemberment or pledge of a general partner's share requires the approval of the partners who decide by a majority of 3 quarters of the shares and the consent of the general partners.

Additionally, the articles of incorporation may establish the terms and conditions for the purchase of shares by the managing partners or members.

Members

To form a special limited partnership at least 2 partners are required of which one must be a general partner and the other a limited partner with the possibility for a legal entity to be a partner. In addition, a general partner may also be a limited partner, provided that there is always at least one general partner and one limited partner legally distinct from each other and unless a contrary provision is made in the partnership agreement. General partners have unlimited joint and several liability for the partnership's commitments, while limited partners are only liable to the extent of their contributions.

Governance structure

The SCSp is managed by one or more managing partners who may or may not be general partners and whose assignment is made in accordance with the rules set forth in the partnership agreement. This means that the general partners have the right to manage the partnership although they are not obliged to do so. In addition, if no appointment is made in the partnership agreement, all general partners may bind the partnership.

The partnership agreement may contain specific provisions relating to the operation of the partnership, otherwise the general meeting decides on amendments to the partnership agreement, the change of nationality of the partnership and the transformation or liquidation of the partnership. These decisions require a majority of 3 quarters of the shares, the voting rights of each partner being determined by the number of shares held.

Legal personality

The SCSp is devoid of legal personality, however, it retains some characteristics applicable to companies with legal personality, making it a hybrid entity in this respect.

• The SCSp has a registered office: The registered office of an SCSp is located at the seat of its central administration, which is deemed to coincide with the place of its registered office established in the partnership agreement.
• The SCSp owns its own assets: The assets contributed to or held by the SCSp are registered in the name of the SCSp and not in the name of its partners or managers. The assets contributed to the SCSp are reserved exclusively for creditors whose claims have arisen in connection with the creation, operation or liquidation of the SCSp. The assets of the SCSp are only available to satisfy the claims of the SCSp's creditors, to the exclusion of the personal creditors of the SCSp's partners.
• The SCSp may be subject to legal proceedings: the SCSp is represented by its administrator(s) in legal proceedings, and claims may be brought in the name of or against the SCSp.

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Tax and accounting obligations

Since in Luxembourg the SCSp has no legal personality, it is transparent for tax purposes and is not taxed as such, however, it is subject to certain taxes:

• Fixed registration fee
• Property tax
• Commercial tax
• Business tax
• Net wealth tax (if the shareholder is an opaque entity)
• VAT return depending on the annual turnover and the activity carried out.

And as far as accounting is concerned, the SCSp must keep accounts appropriate to the nature and scope of its activities, but it is not obliged to prepare annual accounts, so it does not need to prepare a balance sheet, a profit and loss account and the annexes.

Steps to create a SCSp in Luxembourg

Now that we have in mind the characteristics of the SCSp in Luxembourg, we can get an idea of the requirements to form this type of company. We are now going to organize these requirements and add some others that we have not yet mentioned in order to see what would be the step-by-step procedure to form this type of company.

Project and business plan preparation.

Before starting the legal process of incorporation, it is essential to carefully prepare the business project, this involves preparing a detailed business plan containing a market analysis, a marketing strategy, the organizational structure and financial projections.

This document is essential as it serves as a roadmap to guide the company's growth and make informed decisions. It is also a key tool for attracting investors, obtaining financing, assessing the viability of the business and anticipating challenges and opportunities.

Moreover, during this phase, it is crucial to define many of the aspects that will later be included in the bylaws, such as the type of company, the form of governance, the number of shareholders or partners and their contribution percentages. These elements help to structure the ideas, demonstrate the viability of the project and prepare the necessary documentation for the following steps.

Domiciliation of the company 

Although a company without legal personality does not usually have a domicile, the SCSp must have a domicile fixed at its actual headquarters, in the same way as companies with legal personality.

Opening of a bank account and deposit of the share capital

Before signing the articles of incorporation, it is necessary to open a bank account in the name of the company being formed in order to deposit the share capital. 

Drafting and signing of the partnership agreement

In order to register the company, it is indispensable to first draft the partnership agreement, which must contain essential information such as the name of the company, the registered office, the corporate purpose, the duration of the company, the share capital and other details. Most of the elements to be included should have been prepared beforehand in the first step which deals with the definition of the project. The signing of the partnership agreement can be done by private act.

Registration with the Registry of Commerce and Companies (RCS)

Once the articles of association have been signed, it is necessary to register the company with the Luxembourg Register of Commerce and Companies (RCS). This registration is mandatory and confers legal personality to the company, officially recognizing it as a legal entity in Luxembourg.

Publication in the RESA

Once registered in the RCS, the incorporation of the company 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 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, domicile, share capital and administration.

Application for an authorization of establishment if necessary

In certain cases depending on the type of activity of the company it is necessary to apply for an establishment permit. This permit is mandatory for commercial, industrial and artisan activities and for some self-employed activities.

However, it is important to keep in mind that the SCSp as such does not need an establishment permit as it has no legal personality and does not act as an independent entity or as a recognized merchant under Luxembourg law. However, the General Partners, who are responsible for representing and operating on behalf of the SCSp, may need to obtain an establishment permit depending on the nature of the activities carried out by the SCSp.

There are two ways to apply for an establishment permit, either by entering an application online through MyGuichet.lu, from the professional zone or by sending a request for an establishment permit by postal mail to the General Directorate for SMEs, Crafts and Trade.

General Directorate for SME, Craft and Retail:

• Phone: (+352) 24 77 47 00
• Address: B.P. 535 L-2937 Luxembourg
• Working Hours: Monday to Friday from 9:00 to 12:00 and from 13:30 - 16:30

Social Security registration

If the company is going to hire employees, it must register with the National Health Fund (CNS) to comply with social security and pension contribution obligations.

Registration for TVA purposes (if applicable).

If the company expects to invoice more than 35,000 euros per year, it must register with the TVA administration to obtain a TVA number.

Comparison with other company types

To conclude, we will make a comparison with other company types such as the SA, the SAS, and the SCOP. The following table then shows this comparison.