Social Impact Companies in Luxembourg: serving sustainability with business

The law creating Social impact companies (SIS) was adopted in December 2016, after ongoing debates and discussions on the establishment of a specific legal status for businesses in the social and solidarity economy. The SIS law was then reformed in 2021 in order to address some practical issues and simplify the process, but the spirit remains the same: a SIS is aimed at any individual or legal entity, whether acting alone or in partnership, that seeks to establish a business committed to activities grounded in the principles of the social and solidarity economy.

The SIS status is reserved to commercial companies (e.g. S.A, S.à.r.ls, Cooperatives) provided they comply with the principles of the social and solidarity economy.

The SIS is meant for both existing enterprises or organisations and project sponsors who wish to engage in an economic activity with a social or societal purpose.

The Ministry of Labour is in charge for accreditation as societal impact companies and has implemented an incubator that offers tailor-made support to carry out the procedures for setting up an SIS.

The SIS offers a number of benefits for the entity concerned, including a clearly defined legal framework, an appropriate tax regime, and access to national and European public procurement contracts.

Through the SIS approval, values such as solidarity, altruism, and non-profit orientation are supported, encouraged, and highlighted—not only as additional characteristics but as fundamental elements at the core of socially engaged companies.

This is why SISs are subject to strict obligations in terms of transparency and governance.

When drafting the articles of association for a SIS, it is essential to consider the following:

• A precise definition of the pursued social objective (e.g. providing support to people in vulnerable situations, contributing to the preservation and development of social ties, the fight against exclusion and inequalities, the maintenance and strengthening of territorial cohesion, environmental protection, the development of cultural or creative activities, or the development of initial or continuing training activities).

• A list of performance indicators that will enable the effective and reliable verification of the social objective’s achievement.

• The necessity to respect the principle of limited profitability (The share capital must consist of at least 50% impact shares at all times.).

• The requirement for autonomous management.

Holders of Impact shares cannot have the profit related thereto distributed to them, such profit being compulsorily reinvested in the realization of the corporate object of the SIS. 

Investors seeking for return on investment may however find an interest in investing in profit shares (whether voting or not), representing not more than 50% of the share capital. The SIS law does not prevent either the issue of profit shares outside of the share capital (parts bénéficiaires), which renders the investment structure flexible.

Depending on the amount of profit generated by the SIS, a statutory auditor or a supervisory auditor must be appointed in order among others to certify that the SIS law requirements are fulfilled.

In conclusion, Social Impact Companies are far from being philanthropic associations. They are real business oriented commercial companies, but with a social and sustainable object, designed to serve the solidarity economy. Cooperatives are a particularly adapted vehicle for achieving this goal.