Luxembourg has a great range of different business forms, customizable depending on different company needs. It is very important for entrepreneurs to have a deep knowledge of the differences of those legal forms to be able to choose wisely the right type of company for their business. That goes for all investors and professionals who are trying to establish a presence in Luxembourg.
Quick overview of businesses in Luxembourg
There are quite a few legal business structures in Luxembourg, suited to different entrepreneurial needs, whether we are talking about small startups or large multinational companies, new or already established, as there are options for conversion of a company as it evolves.
In summary, there are sole proprietorships for individual entrepreneurs or freelance workers, partnerships, general or limited partnerships, which can combine flexibility with different liability levels, and then capital companies, such as limited liability companies, which are the most common company type in the country.
Additionally, you can find specialized structures for investment and holding activities in Luxembourg, which we will elaborate on in this article. There are also some other unique forms of business, for niche business or investment purposes only. As mentioned, choosing the right business structure is very personal and it depends on factors like liability, taxation, regulatory requirements, and business objectives.
Company types in Luxembourg - Main features and characteristics
1️⃣ Sole Proprietorship 👤
Sole Proprietorship (Entreprise Individuelle): This business structure is ideal for individual entrepreneurs who prefer to operate under their name. The company owner has unlimited liability, which means that personal assets are liable for company debts.
2️⃣ Partnerships 🤝
- General Partnership (Société en Nom Collectif - SNC): This structure is formed by two or more partners with unlimited liability and it is ideal for small to medium-sized enterprises where partners would like to be actively involved in management.
- Limited Partnership (Société en Commandite Simple - SCS): This structure includes general partners with unlimited liability but also limited partners whose liability is -as per name- limited to their own capital contribution. This structure is usually used in investment funds and other private equity structures.
- Special Limited Partnership (Société en Commandite Spéciale - SCSp): This structure is similar to the SCS but without legal separation from its partners. It offers flexibility and is mainly used in venture capital and private equity.
3️⃣ Capital Companies 🏛️
- Public Limited Company (Société Anonyme - SA): This type of business requires a minimum share capital and allows public trading for shares. It is widely chosen by larger corporations. Shareholders' liability is limited to their contributions.
- Private Limited Liability Company (Société à Responsabilité Limitée - SARL): This is the most common business form chosen in Luxembourg, because it is objectively the best for small to medium-sized businesses. It can have between 2 and 100 shareholders, with limited liability to their capital contributions.
- Simplified Private Limited Liability Company (Société à Responsabilité Limitée Simplifiée - SARL-S): This type of business, very similar to the ‘mother type’ SARL, it offers a lower minimum capital requirement, making it easier to start a new business.
- Simplified Joint Stock Company (Société par Actions Simplifiée - SAS): This business structure is relatively new, and it offers flexibility, a simpler governance structure, and is a good fit for various business activities.
- Partnership Limited by Shares (Société en Commandite par Actions - SCA): This structure is a combination of partnerships and corporations as it has both general partners with unlimited liability and shareholders with liability limited to their own contributions.
4️⃣ Investment Companies 📈
- Specialized Investment Fund (SIF): This is a regulated fund structure suitable for institutional and qualified investors with flexibility in investment policies.
- Reserved Alternative Investment Fund (RAIF): This structure is an unregulated fund instead, which means it must be managed by an authorized external Alternative Investment Fund Manager (AIFM). Much like the SIF though, it combines flexibility with investor protection.
5️⃣ Other legal forms of businesses 🗂️
- Civil Company (Société Civile - SC): This business structure is mainly used for non-commercial activities, such as holding or real estate assets, that is probably why it is often chosen for estate planning.
- Economic Interest Grouping (Groupement d'Intérêt Économique - GIE): This is a specialized business form which helps different companies to combine resources and cooperate on projects without merging.
Conclusion - How to choose
As demonstrated in this article, the right legal form to choose heavily depends on specific personal and company needs, which is why it is important to take into consideration several factors before choosing what is best for you and your business. Those factors are:
- 📝 Liability: Are you willing to risk your assets for business debts?
- 🌱 Growth: How do you see your company evolving? Do you need investors?
- 📊 Investments: Is your company investment-based?
The best way of moving forward before opening your business, is -besides having a general business plan in mind- to consult a legal and financial advisor, as well as, potentially an accountant or tax expert, to help you clarify your goals but also give you insight on the Luxembourgish tax regulations and business policies. If you start the right way, chances are you are aiming for success! Good luck with your new business!
