Loss of half the share capital in Luxembourg

Loss of half the share capital in Luxembourg: what must a director do?

The loss of half the share capital in Luxembourg requires the management body to convene a general meeting, held within a period not exceeding two months from the moment the loss was ascertained or ought to have been ascertained, with the question of the company's possible dissolution on the agenda.

The rule comes from the amended law of 10 August 1915 on commercial companies, and Guichet.lu lists it among the causes of dissolution specific to capital companies. It does not penalise the loss itself: it organises a deliberation. The meeting may decide to carry on, to recapitalise or to dissolve; what it cannot do is fail to be convened.

The point most often missed is when the clock starts. It does not run from the annual meeting, nor from the filing of the accounts with the trade and companies register: it runs from the moment the loss was ascertained or ought to have been ascertained. A director who waits for the closing of the accounts to discover a position that the monthly bookkeeping had been showing for six months does not gain six months of time, he has already lost them.

We regularly see files where net assets had fallen below half the capital two financial years before the question was put, because the capital had been increased in the meantime and nobody was keeping the ratio up to date. The correction is then twofold: a meeting to convene on an old loss, and annual accounts already filed whose notes say nothing about the situation. The order of magnitude of our fees for an annual accounts engagement is set out in our fee schedule.

How the loss is ascertained: net assets against subscribed capital

The loss of half the share capital is ascertained in Luxembourg by comparing the company's net assets with its subscribed capital: the obligation arises when net assets are reduced to an amount below half of that subscribed capital.

The two terms of the comparison do not move for the same reasons, and that is where the mistakes come from. Subscribed capital comes from the latest notarial deed, not from the figure one believes to know. Net assets follow equity: they fall with the year's losses and with losses carried forward, they rise with a contribution, a waiver of a shareholder claim or a profit. A capital increase therefore raises the trigger level, and a profitable company can find itself below the threshold in the year following a partial recapitalisation.

The ratio of net assets to subscribed capital appears on no line of the structured filing: it is kept in a schedule, next to the trial balance, or it is not kept at all. That is why the loss is so often discovered when the accounts are closed, although the management accounts had been showing it long before.

What the official sources consulted do not settle: whether an interim accounting statement is legally required to ascertain the loss, nor how the moment at which it "ought to have been" ascertained is assessed in practice. We therefore do not settle those two points here. The engagement reflex stays the same: compare equity with subscribed capital at every monthly or quarterly close, and date the finding.

Two thresholds, two voting rules: half, then three quarters

Luxembourg draws a distinction between two thresholds of capital loss: at half, dissolution is decided by simple majority within two months; at three quarters, one quarter of the votes of the shareholders present or represented is enough to pronounce it.

This reversal is the technical heart of the rule, and it reads as a protection for minority shareholders. With half the capital lost, the decision stays in the hands of the majority, which may set dissolution aside and carry on. With three quarters lost, the law takes that blocking power away from the majority, and a minority representing one quarter of the votes cast at the meeting can bring the company to an end. The calculation runs on the votes present or represented, not on the total capital.

There are three possible outcomes. Carrying on, and that decision deserves to be reasoned in the minutes, because it is the one that will be read back if difficulties follow. Recapitalising, by a cash contribution, a contribution in kind, a waiver of a shareholder claim or a capital reduction followed by an increase, whose creditor-protection constraints are those described for a capital reduction with repayment to shareholders. Dissolving, finally, and opening the liquidation.

The official extracts read do not detail the attendance quorum specific to this deliberation alone, nor the numbering of the articles of the coordinated 1915 law applicable today: the indexed versions point to the former numbering. No article number is therefore cited here, only the law is.

Convening it properly: forms and deadlines by legal form

Convening the meeting called to decide on the loss of half the share capital in Luxembourg follows the ordinary forms of the legal form concerned: publication in the RESA and letters for a SA, a registered letter from the managers for a SARL or a SARL-S.

For an unlisted SA, convening notices are published in the Recueil électronique des sociétés et associations by filing with the trade and companies register, at least fifteen days before the meeting, as well as in a Luxembourg newspaper, and letters are sent eight days beforehand to registered shareholders. Where all shares are registered, the notice may be given by registered letter sent at least eight days before the meeting, with no publication in the RESA or in a newspaper: that exception covers the large majority of the companies we administer, and it is what makes the two-month deadline workable.

In a SARL or a SARL-S, the power to convene belongs to the managers, failing that to the supervisory board, failing that to the members representing more than half the share capital, by letter, in principle registered, sent at least eight days before the date set. Ordinary decisions are validly taken by members representing more than half the capital; decisions amending the articles require, unless the articles are more restrictive, three quarters of the capital; an increase in the members' obligations requires unanimity. If the quorum is not met at the first consultation, a second notice is given by registered letter.

The agenda is the item to get right. It must allow the meeting to decide on the possible dissolution: a notice carrying only "approval of the accounts and allocation of the result" does not discharge the obligation, even if the loss was discussed at the meeting. We put three separate items on the agenda: finding on the state of net assets, measures proposed, decision on dissolution. The minutes then carry all three, with the figures.

Going concern: when the accounts must change basis

The loss of half the share capital does not in itself require the going concern principle to be abandoned in Luxembourg: what governs the accounting basis is the undertaking's ability to continue its activity in the foreseeable future.

The amended law of 19 December 2002 presumes that continuation without organising any assessment procedure. The Commission des normes comptables fills that silence in its question and answer 21/022: it is of the opinion that the administrative or management body has an obligation to assess the undertaking's ability to continue as a going concern.

Where the undertaking does not have that ability, or where the management body intends to liquidate it or cease operations, it is in a situation of discontinuity of operations and the going concern assumption must be abandoned in favour of a liquidation basis of accounting. The CNC adds a timing point that matters in practice: in the interest of prudence, it would seem preferable for the liquidation basis to be applied as soon as the discontinuity is established, whether the events and conditions leading to that conclusion arose during the financial year or after the year end but before the annual accounts are closed.

The accounting obligations do not disappear for all that. An undertaking in discontinuity remains, prior to its liquidation, subject to general accounting law: balance sheet, profit and loss account and notes are still due. The notes then carry the abandonment of the going concern principle, the change of accounting basis, the principles and methods used on a liquidation basis and the main assumptions used to value assets and liabilities. The CNC ties that framework to an explicit objective of protecting third-party creditors and shareholders, which is also the useful lens for settling a note disclosure in difficult annual accounts.

What the CNC does not do, and it should be said plainly: it does not turn the loss of half the capital into an automatic indicator of discontinuity. The two frameworks are separate. A company may have lost half its capital and remain perfectly a going concern thanks to its shareholder's support; another may show comfortable equity and be in discontinuity because its only customer has gone.

From difficulty to cessation of payments: conciliation, stay, confession

The loss of half the share capital in Luxembourg is not a cessation of payments: the law of 7 August 2023 on the preservation of undertakings, in force since 1 November 2023, opens procedures that presuppose precisely that this stage has not yet been crossed.

Company conciliation is the first step. The application is filed with the Ministry of the Economy and handled by the assessment unit for businesses in difficulty, the CEVED. It aims at a confidential agreement between the business in difficulty and its creditors with a view to preventing a cessation of payments: the business must be facing a demonstrable or foreseeable difficulty but must not yet be in cessation of payments, and must be in a position to honour its debts despite its short-term difficulties.

Judicial reorganisation is the next step, under court supervision. It comes in three routes: a stay intended to allow an amicable agreement to be concluded, a collective agreement put to a creditors' vote on the basis of a reorganisation plan, and a transfer of assets or activities by court decision. The length of the stay set by the court may not exceed four months, the court being able to extend or amend it as the situation develops. The reorganisation plan is filed within the period set in the opening judgment, through an authenticated procedure on MyGuichet.

Once the threshold is crossed, the register changes. Any trader and any commercial company that ceases its payments and whose credit is impaired is in a state of bankruptcy and must confess it to the registry of the competent district court within one month of the cessation of payments. Three conditions apply together: the status of trader, the cessation of payments and the impairment of credit. A late confession, one incomplete as to jointly liable partners, or one containing inaccurate information exposes the director to criminal liability. Where the company remains solvent, the ordinary route stays a voluntary liquidation, decided by the shareholders rather than imposed on them.

Director liability: what inaction costs

The loss of half the share capital in Luxembourg does not of itself engage the directors' liability: the failure of a business does not automatically make its director liable, and fault is assessed by reference to a normally diligent director.

That civil liability may be individual or collective. It is individual where the fault is attributable to a particular director, and it is then not joint and several. It is collective where it is expressly provided for, notably by the articles of association, or in the case of a common fault, where several directors together contributed to producing the damage: liability is then joint and several. A failure to convene the meeting after a loss of half the capital is typically a breach argued on that ground, not an offence carrying an automatic penalty.

The action for contribution to the shortfall is the heaviest scenario, and it presupposes a bankruptcy. It concerns directors in law or in fact, apparent or hidden, paid or unpaid, and requires serious and characterised faults that contributed to the bankruptcy to be established. Only the bankruptcy trustee may bring it; the court sets the contribution payable by the directors, and the order may be individual or joint and several. The law of 7 August 2023 amended the provisions on director liability.

One body is rarely mentioned in this debate, and it should be: the supervisory auditor. A judgment of the Court of Cassation of 4 November 2021, published on justice.public.lu, counts among the auditor's faults the failure to report to the general meeting the absence of a dissolution proposal from the directors in the event of a loss of half or three quarters of the share capital.

The control we apply is accordingly as much documentary as accounting: date the finding of the loss, keep the convening notice and its agenda, and set out in the minutes the figures on which the meeting took its decision. It is those three items that show, two years later, that the obligation was followed.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). The documentary review dated 7 October 2026 relies on the accessible sources identified below. Points not confirmed against primary texts are explicitly identified in this section.

The sources consulted, all read on 7 October 2026, are the following. On Guichet.lu: the page "Dissolution / voluntary liquidation of a company" for the common causes of dissolution and for the two voting rules, simple majority within two months on a loss of half the capital and one quarter of the votes of shareholders present or represented on a loss of three quarters;

the pages "General meeting of shareholders of a SA" and "Convening a general meeting of a SA" for the duty to convene a meeting held within a period not exceeding two months from the moment the loss was ascertained or ought to have been, for the agenda allowing a decision on possible dissolution, and for the forms of notice, publication in the RESA and in a Luxembourg newspaper fifteen days beforehand, letters eight days beforehand to registered shareholders, registered letter alone at eight days where all shares are in registered form;

the page "General meeting of members of a SARL or a SARL-S" for the managers' power to convene, the eight-day period, the majorities of more than half and of three quarters of the capital, unanimity for an increase in members' obligations and the second notice; the page "Civil liability of a company director" for the normally diligent director benchmark, individual or collective liability and the conditions of the action for contribution to the shortfall;

the page "Confession of bankruptcy" for the three conditions and the one-month deadline; the pages "Company conciliation" and "Judicial reorganisation" for the CEVED, the requirement of a difficulty short of cessation of payments and the stay of four months at most.

The remaining sources are the legislation and the accounting doctrine. The amended law of 10 August 1915 on commercial companies carries the reduction of net assets below half and then below one quarter of the subscribed capital and the corresponding voting regime. The amended law of 19 December 2002 on the trade and companies register and on the accounting and annual accounts of undertakings carries the presumption that activities continue and the permanence of methods.

Question and answer 21/022 of the Commission des normes comptables, on discontinuity of operations and the liquidation basis of accounting, gives the management body's assessment obligation despite the silence of the law, the definition of a situation of discontinuity, the application of the liquidation basis as soon as discontinuity is established including for events arising after the year end but before the accounts are closed, the continuing obligations of a balance sheet, a profit and loss account and notes, the disclosures required in the notes, and the objective of protecting third-party creditors and shareholders.

The law of 7 August 2023 on the preservation of undertakings and modernising bankruptcy law, in force on 1 November 2023, carries the detection units, the company conciliator, the amicable agreement, judicial reorganisation and the revision of the director liability regime; its overall presentation was cross-checked against the Chamber of Commerce publication on that reform, cited as a secondary source. The judgment of the Court of Cassation of 4 November 2021 (number 130/2021, docket CAS-2020-00130) published on justice.public.lu supports the passage on the supervisory auditor's fault.

Five points could not be verified in their primary source and are therefore not asserted here. The full texts first: the domains guichet.public.lu, legilux.public.lu, data.legilux.public.lu, cnc.lu, justice.public.lu and cc.lu are blocked by the network proxy of our editorial environment, and those pages were read through indexed extracts using a search restricted to official domains.

Next, the numbering of the applicable articles of the coordinated 1915 law: the extracts obtained point to the former numbering, so no article number is cited, only the law itself. Then the literal transposition of the SA convening mechanism to the SARL, which Guichet.lu presents among the general causes of dissolution without detailing it form by form; whether an interim accounting statement is legally required to ascertain the loss; the attendance quorum specific to this deliberation alone; and whether any standalone penalty attaches to the mere failure to convene.

These points can be verified in the coordinated text of the law of 10 August 1915 on legilux.public.lu, in question and answer 21/022 on cnc.lu and with the trade and companies register on lbr.lu.

This article sets out the state of the law at the date of publication and does not constitute personalised legal or tax advice: the applicable threshold, the date of the finding, the majorities required, the choice between carrying on, recapitalising and dissolving, and whether a preservation procedure is appropriate all depend on the company's legal form, its articles of association, the state of its equity and its cash position. Report an error to contact@financialservices.lu: the correction is dated in the article.