The Major Reform of the Legal Framework Governing Non-Profit Associations in Luxembourg

Until now, the operation of non-profit associations (hereinafter referred to as “ASBLs”) was governed by the amended Law of 21 April 1928.

On 28 June 2023, the Luxembourg Chamber of Deputies adopted Bill No. 6054 on non-profit associations and foundations. On 4 July 2023, the Council of State waived the requirement for a second constitutional vote on the bill (hereinafter the “Bill”).

The new law is expected to enter into force in the coming weeks, bringing about a comprehensive overhaul of the legal framework governing associations and foundations.

This article focuses exclusively on ASBLs and aims to explain the main changes introduced by the Bill.

1. Governance Rules

The Bill takes technological and digital developments into account in order to modernise the governance of ASBLs.

1.1 The Board of Directors

As a preliminary point, it should be noted that the new rules governing the management of ASBLs are very similar to those applicable to traditional companies.

The management of an ASBL is entrusted to its board of directors, which must comprise at least three members. The members of the board of directors perform their duties collectively. Directors serve on an unpaid basis.

The Bill introduces several provisions aimed at modernising the operation of the board of directors:

• Notices convening board meetings, which must be sent to directors at least eight days before the meeting, may now be sent electronically (Article 6(2) of the Bill);
• Directors will also be able to participate in board meetings by “videoconference or other means of telecommunication allowing their identification” (Article 6(4) of the Bill);
• Decisions may be adopted by written circular resolutions, provided that they are approved unanimously by all directors and that the ASBL’s articles of association expressly authorise this decision-making procedure;
• The rules applicable to delegates responsible for day-to-day management are now governed by Article 7 of the Bill, which notably provides for the possibility of delegating such management to a legal entity.

1.2 The General Meeting

As with the board of directors, the Bill introduces new rules aimed at modernising the operation of general meetings:

• Members must be convened to any general meeting at least fifteen days in advance. Notices may be sent by post or electronically (Article 12(1) of the Bill);
• Members will also be able to participate in general meetings by videoconference or other means of telecommunication allowing their identification, provided that the articles of association authorise this form of participation.

2. Possibility of Acquiring Real Estate

Under the amended Law of 21 April 1928, an association was not permitted to own or otherwise hold real estate other than property necessary to achieve its corporate purpose or the objectives for which it was established.

This restriction has been removed under the Bill. Associations are now permitted to own real estate that is not directly necessary for the fulfilment of their objectives.

3. New Applicable Accounting Rules

The Bill introduces a new, tailored accounting framework designed to ensure greater accounting transparency.

Associations are classified according to their size, based on the following criteria.

3.1 Small Associations

Any association which, for two consecutive financial years, does not exceed at least two of the following three thresholds at the end of its financial year falls within the category of “small associations” and may therefore maintain simplified accounts (Article 18(4) of the Bill):

• Number of full-time equivalent employees: fewer than three;
• Total income: EUR 50,000;
• Total assets: EUR 100,000.

Small associations must maintain, at a minimum, simplified accounts recording all income and expenditure of the association.

3.2 Medium-Sized Associations

Any association that does not qualify as a small association within the meaning of Article 18(4) of the Bill and which, for two consecutive financial years, does not exceed at least two of the following three thresholds at the end of its financial year falls within the category of “medium-sized associations”:

• Number of full-time equivalent employees: more than fifteen;
• Total income: EUR 1,000,000;
• Total assets: EUR 3,000,000.

A medium-sized association must maintain accounts using a system of accounting books and records in accordance with generally accepted double-entry bookkeeping principles.

3.3 Large Associations

Any association which, for two consecutive financial years, exceeds at least two of the three thresholds referred to in the preceding section (see Section 3.2) at the end of its financial year falls within the category of “large associations” for the purposes of this article.

A large association must maintain accounts using a system of accounting books and records in accordance with generally accepted double-entry bookkeeping principles.

A large association is also required to have its annual accounts audited by an approved statutory auditor (réviseur d’entreprises agréé).

3.4 Approval of Annual Accounts

Each year, no later than six months after the end of the financial year, the board of directors must submit the accounting documents relating to the previous financial year, together with the proposed budget for the following financial year, to the general meeting for approval (Article 18(2) of the Bill).

4. Restructuring

The Bill introduces several mechanisms allowing associations to undergo restructuring.

4.1 Conversion into a Foundation

An association may be converted into a foundation by means of a notarial deed, subject to approval by Grand Ducal decree (Article 30 of the Bill).

This conversion does not result in the dissolution of the association or the creation of a new legal entity.

Any draft deed of conversion must be submitted to the Minister responsible for Justice for approval by Grand Ducal decree.

4.2 Conversion into a Societal Impact Company

An association may, without being dissolved or creating a new legal entity, adopt the legal form of a company governed by the amended Law of 12 December 2016 establishing societal impact companies (sociétés d’impact sociétal, or “SIS”), provided that its share capital consists entirely of impact shares (Article 31 of the Bill).

If the proposed conversion is approved by the general meeting, the association must submit an application for accreditation as a societal impact company to the Minister responsible for the Social and Solidarity Economy.

Both conversion mechanisms described above (Sections 4.1 and 4.2) preserve the legal personality of the ASBL.

4.3 Mergers

A merger may take place either through the absorption of one or more associations by another association or through the incorporation of a new association (Article 32(1) of the Bill).

The board of directors of each merging association must prepare a joint written merger proposal setting out the reasons for the transaction and all its terms and conditions.

The joint merger proposal, a statement summarising the association’s assets and liabilities, and the report of the approved statutory auditor must be provided to the members of the associations concerned together with the notice convening the general meeting called to decide on the proposed merger.

The merger requires the approval of the general meetings of each of the merging associations or, where applicable, each of the associations that will cease to exist, in accordance with the quorum and majority requirements applicable to amendments to the articles of association.

The merger results in the dissolution without liquidation of the associations that cease to exist and the universal transfer of their assets and liabilities to the absorbing association or the newly established association, as applicable.

Members of an association that ceases to exist automatically become members of the association resulting from the merger.

4.4 Administrative Dissolution

A procedure for administrative dissolution without liquidation has been introduced.

The administrator of the Luxembourg Trade and Companies Register may send associations a written request to update their registered information.

This procedure may be initiated where two cumulative objective criteria are satisfied:

• The association has failed to update its information within a period of six months;
• No documents have been filed in the association’s file with the Luxembourg Trade and Companies Register for at least five years.

If no response is received within the prescribed deadlines, the administrative dissolution procedure without liquidation is initiated.

5. Transitional Provisions

Upon the entry into force of the new law, the amended Law of 21 April 1928 on non-profit associations and foundations will be repealed.

ASBLs established before the new law enters into force will be required to amend their articles of association to comply with its provisions within twenty-four months of its entry into force.

During this transitional period, existing ASBLs will remain subject to the previous legislative provisions.

Conclusion

This reform will bring Luxembourg’s ASBLs firmly into the 21st century.

By introducing new rules, modernising existing provisions and establishing a more comprehensive regulatory framework, this legislation undoubtedly creates a new legal environment for ASBLs and fundamentally modernises their operation.

If you have any questions regarding ASBLs or require assistance in updating your articles of association, please do not hesitate to contact us.

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