Initiating the capital increase: the Extraordinary General Meeting
For a capital increase to be valid in Luxembourg, it must be decided by the shareholders or partners convened in an Extraordinary General Meeting (EGM), in accordance with the quorum and majority rules set out in the amended law of 10 August 1915 on commercial companies. This requirement stems from the fact that the transaction entails an amendment to the company’s articles of association, in particular the amount of share capital stated in the deed of incorporation or in the published articles.
Use case: A Luxembourg SME wishes to increase its capital to finance an international expansion project. Management convenes an EGM, specifying on the agenda the proposed increase of the share capital through the issuance of new shares. During the EGM, the shareholders discuss not only the amount of the increase, but also the terms of issuance, the pre-emptive subscription rights and, where applicable, the subsequent amendment of the articles of association. A failure to convene the meeting properly, or an irregular convening (incomplete agenda), may lead to the annulment of the adopted resolution, as any transaction affecting share capital must be approved by an EGM in accordance with the prescribed majorities.
At this stage, it is essential to respect the pre-emptive subscription rights of existing shareholders. As a rule, they must be offered priority to subscribe to the new shares in proportion to their existing shareholding. Luxembourg law provides that this right may be maintained or, under certain conditions, excluded or limited by a reasoned decision of the EGM, but this requires sound economic and legal justification in order to protect the interests of minority shareholders.
Capital contribution and the role of the notary
Once the decision to increase the capital has been taken, the transaction is implemented through the subscription and payment of the contributions. For companies limited by shares, the increase may be carried out by way of cash contributions, contributions in kind, or the conversion of receivables. The transaction must be formalised in a notarial deed in order to be enforceable against third parties.
Use case: A public limited company (SA) increases its capital by issuing new shares against cash payment. Following the EGM, a bank confirms receipt of the funds corresponding to the subscription. The notary then incorporates this information into the notarial deed amending the articles of association. The notary will also ensure the payment of any share premium, where applicable (an amount paid in addition to the nominal value of the shares to reflect the company’s economic value). The notarial deed evidencing the capital increase must confirm that the shares have been duly subscribed and that the funds are available, in accordance with the applicable payment terms (full payment or, for certain corporate forms subject to regulatory adjustments, deferred payment).
Contributions in kind are often subject to an independent expert’s report assessing the value of the assets contributed, in order to avoid overvaluation contrary to the interests of the company or existing shareholders. An error in the valuation or an omission in the deed may give rise to subsequent challenges that could call into question the validity of the capital increase.
Publication and filing with the Trade and Companies Register (RCS)
Once the notarial deed has been signed, the decision to increase the capital and the amendment of the articles of association must be filed with the Trade and Companies Register (RCS) for publication. Any change to the share capital must be made public in order to be enforceable against third parties and to ensure transparency of the company’s legal information.
Use case: After paying in the contributions and signing the notarial deed of capitalisation, a private limited liability company (SARL) submits the updated consolidated version of its articles of association to the RCS through the notary. This filing triggers the update of the share capital in the Register and the publication of the deed in the Electronic Compendium of Companies and Associations (RESA). This update enables business partners, banks or authorities to verify the change in share capital. Without such publication, the increase would not be enforceable against third parties (suppliers, creditors, etc.) and could give rise to legal and contractual risks.
Publication with the RCS must take place within the statutory deadlines, and a late filing may, in certain circumstances, affect the rights of third parties or render the transaction vulnerable to challenge.
Conclusion
A capital increase in Luxembourg is a transaction that requires rigor and forward planning. From the proper convening of the EGM to the practical organisation of the payment of contributions, through to the drafting of the notarial deed and its publication with the RCS, each step is governed by rules designed to protect shareholders and third parties alike. A procedural error may call into question the validity of the transaction or generate costly disputes. To secure this process, it is strongly recommended to seek the assistance of specialised legal advisers and a notary, who can ensure that the transaction complies with Luxembourg company law and market best practices.
