In a Luxembourg public limited company or a societas europaea - which are by far the two most common legal forms of IPO issuers - the board of directors has the broadest powers to manage the business of the company and to authorise and perform all acts of disposal, management and administration within the limits of the corporate purpose. The board of directors can delegate the daily management of the company and appoint special proxies. Alternatively, the company may opt for a two-tier management, in which case it is managed by a management board and a supervisory board.
The day-to-day management of the company may be delegated to a single executive or to an executive committee composed of several members.
The company must be supervised by an independent auditor. If the shares are listed on the regulated market of the LuxSE, the independent auditor must qualify as a certified independent auditor or, if the issuer is incorporated in a jurisdiction other than Luxembourg, be registered with the CSSF.
The general meeting of the shareholders appoints the members of the administrative and supervisory bodies, decides on the allocation of results, may amend the articles of association and decide on the winding-up of the company.
Luxembourg law provides a lot of flexibility and thus allows IPO issuers to adopt a bespoke corporate governance regime that should allow each issuer to accommodate best its own governance needs or the governance requirements of its shareholders.
The board of directors must be composed of at least three members. A member of the board of directors may cumulate its membership in the board with an executive position in the company. Likewise, a director may also sit on the board or hold an executive position in an affiliated company. The term of office of a member of the board of directors cannot exceed six years but can be renewed. Board members must always act in the best interest of the company as a whole (which interest may be different from that of a majority shareholder); as a consequence, Luxembourg law does not require the board to be at least partly composed of independent directors (there is only one exception to this rule as regards one member of the audit committee - see below).
There are no residence or nationality requirements as regards the members of the board of directors (or those of the management board and supervisory board if the issuer has a two-tier management structure) or executives. In any case, but especially where there are no or only few Luxembourg residents on the board of directors or in executive functions, it must, however, be ensured that the company provides sufficient substance in Luxembourg.
Even though recommended from a liability management perspective, directors do not have to demonstrate specific professional skills.
If the shares of the company are listed on a regulated market, the board of directors must appoint an audit committee. In addition, the board may appoint additional committees (eg, nomination committee, remuneration committee) as deemed necessary.
All Luxembourg companies with shares admitted to trading on the regulated market operated by the LuxSE must comply with the 10 Principles of Corporate Governance of the LuxSE. These do not apply to foreign issuers with shares listed on the LuxSE.
The 10 Principles include three levels of rules:
- the actual mandatory (compliance) principles;
- the ‘comply-or-explain’ recommendations; and
- the guidelines, which are indicative but not binding.
The scope of the 10 Principles is sufficiently broad for all companies to be able to adhere to them, regardless of their specific features. The recommendations describe the proper application of the principles. Companies must either comply with the recommendations or explain why they deviate from them. In such cases, companies must determine which rules are most suited to their specific situations and provide an appropriate explanation in the statements on corporate governance in their annual reports.
This flexible approach is based on the comply-or-explain system. This system, which has long been adopted in many countries, is recommended by the OECD and the European Commission. Owing to its flexibility, this approach enables companies (including non-Luxembourg companies or Euro MTF market-listed companies who voluntarily adopt the 10 Principles) to take into account their specific circumstances, such as their nationality, size, shareholder structure, business activities, exposure to risk or management structure.
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