The Luxembourg AIFM Law, revamped and updated the legal framework for limited partnerships under the 1915 Law, i.e. the société en commandite simple (SCS). In addition, the AIFM Law also introduced another form of limited partnership under Luxembourg law, namely the société en commandite spéciale
(SCSp), which, unlike the SCS, does not have legal personality itself. Both vehicles have increasingly been used for structuring private equity or venture capital investments. Records of the Luxembourg trade register show that by September 2018, 2,260 SCSp have been set up since its introduction in July 2013, seemingly substituting the former vehicle of choice, the SARL While the principal reasons for choosing the legal form of a Luxembourg private equity or venture capital investment vehicle may often be driven by considerations of applicable foreign (tax) law, the increased structuring flexibility of the SCS or the SCSp is another decisive aspect.
The Limited Partnership Agreement will fix the company’s operating rules and its tax transparent status (under Luxembourg tax law and subject to appropriate structuring under applicable foreign tax law, to the extent applicable) has added to its increased popularity.
The following examples illustrate how private equity (“PE”) or venture capital (“VC”) investments may be structured using a variety of Luxembourg vehicles, including options to locate PE or VC funds themselves in Luxembourg.
Luxembourg PE or VC investment structures downstream of a PE or VC fund (residing in Luxembourg or not) typically consist of either a SOPARFI, an unregulated SCS/SCSp, a SICAR, RAIF or SIF or of a combination of the latter two with one or more holding companies.
In the case of an FCP-SIF or FCP-RAIF, SCS and SCSp qualifying as a tax transparent structure, the use of intermediate companies may (depending on the applicable tax regime to the investors and/or the investments of the relevant vehicle) proof useful to benefit from double tax treaties and EU directives that only companies can benefit from, unlike an FCP, SCS or SCSp.
Investors can also invest either directly into the Luxembourg investment vehicle or fund or indirectly via an additional Luxembourg-based or non-Luxembourg-based feeder (fund) vehicle. The following charts are examples of typical Luxembourg PE or VC investment structures using investment vehicles residing in Luxembourg or not.