Setting up a societal impact company in Luxembourg

Societal impact companies (société d'impact sociétal or SIS), known as social enterprises or B corporations in some countries, are commercial ventures that have a social purpose.

In other words, they undertake activities that benefit the social and solidarity economy, prioritizing social goods over pure financial profitability.

Unlike forms such as foundations or charitable associations, societal impact companies can make a profit, but they still place society at their heart.

Be inspired! 

A societal impact company can be great way to catalyse change and promote the things you care about in the world. Check out this existing businesses that is making a difference in the Grand Duchy:

Embyy

TERRA is a sustainable farm on the edge of Luxembourg City. They're an agricultural cooperative producing local, fresh, natural produce for their members and customers. They encourage members to get involved on the farm, with every member of the cooperative entitled to a say.

Why would I want to set up an SIS?

If that's not enough to persuade you, here are some more hard-headed reasons.

If your goal is to create a purely money-making venture, then registering as an SIS is not for you.

On the other hand, if you want to help others out and don't plan to make money while doing it, a voluntary association is a more suitable legal vehicle.

However, if you've got an idea that combines making money with a social purpose, then SIS registration provides a distinct legal status, ensuring appropriate legal protection.

It also offers potential tax benefits. If all your share capital is in the form of 'impact shares' - i.e. without the right to a dividend - then the SIS is exempt from wealth tax, corporate income tax, and communal business tax. Donations to such companies are also tax-deductible.

A third benefit is that public procurement rules require some contracts to be awarded to societal impact companies, so registering can help expand opportunities for your organisation.

A fourth benefit is that registering as an SIS can help clarify the value and purpose of your organisation. It signals to others - potential investors, employees or customers, for instance - that you are a mission-driven organisation.

So how do I do it?

Any person - natural or legal (i.e. a company) - can apply to become an SIS.

There are two routes. You can either apply from scratch while forming your company, or apply as an existing company.

There are four types of companies that can apply for SIS status, so make sure you're one of these:

• Public limited company (SA)
• Limited liability company (SARL)
• Simplified limited liabiliy company (SARL-S)
• Cooperative (SCOP)

If you're not yet registered as a company, our guide for freelancers in Luxembourg sets out the steps to do so.

Deed of incorporation

You need to demonstrate that the purpose of your organisation as described in your deed of incorporation meets at least one of the following two conditions:

• you must provide support to people who are vulnerable owing to their economic, social, or personal circumstances

and/or

• you must contribute to a social good, such as promoting gender equality, combating inequality, developing social cohesion, protecting the environment, developing cultural activities or developing training.

You should ensure that you not only state how your company provides a societal impact, but also how that impact will be measured through performance indicators. In other words, how can you prove that you're benefitting society?

In addition to this, you must be engaged in an economic activity, that is, either producing, distributing, or exchanging goods or services.

Share capital

Having cleared these hurdles, the next thing to consider is share capital.

At least 50% of your share capital must be impact shares, that is, shares not entitled to a dividend.

Remember, though, that as a societal impact company you can still make a profit from the firm, and use that profit to pay dividends. It's just that shares with dividend rights (called distribution shares) can make up no more than half the total.

What happens next?

You submit your application via guichet.lu and it goes off for review by the Ministry of Labour, Employment and the Social and Solidarity Economy.

It all goes swimmingly, and you're granted approval to operate as an SIS. Hurrah! What now?

Well, you still have to run your business in line with the requirements of its legal form. But you also have additional legal requirements and supervision.

You could see this as an extra burden, no one likes extra paperwork. But it exists to ensure you're operating in a socially beneficial way. Namely, in operation, an SIS mustnot:

• pay any employee more than six times the social minimum wage
• borrow cash from its members
• issue debt instruments to its members

In addition, every year you must produce a non-financial impact report alongside your financial statements, setting out how you've performed against your social purpose that year, and provide that to your shareholders and the ministry.

Where can I go for more information and support?

To register as an SIS, follow the requirements and apply via the societal impact company page on Guichet.lu.

For an overview of setting up a business in the Grand Duchy, check out our article on freelancing in Luxembourg.

For detailed guidance on the legal and financial rules and procedures around running a business in Luxembourg, guichet.lu have an extensive business hub.

For help in setting up a business, get in touch with the House of Entrepreneurship.

To get support specifically for setting up a societal impact company and to receive support as you go about the initial stages, apply to the next stage of Impuls - the Luxembourg government's social enterprise accelerator programme.