The legal framework for non-profit associations (ASBL) and foundations in Luxembourg is undergoing significant changes in 2024 with the introduction of three new legislative texts:
- Draft Law n°8420 aims to simplify administrative procedures, including the abolishment of the homologation procedure and the extension of administrative dissolution without liquidation (dissolution administrative sans liquidation) to all insolvent organisations.
- Draft Grand Ducal Regulation introduces stricter financial transparency requirements for these entities.
- Lastly, Draft Law n°8447 proposes stricter financial controls for organisations receiving public funds or donations, marking a shift towards greater accountability in the non-profit sector.
Draft Law n°8420 on non-profit associations and foundations
Draft Law n°8420 submitted by the Government of Grand Duchy of Luxembourg on 23 July 2024 (the “Draft Law”) amending Article 7 and Article 77 of the Law of 7 August 2023 on non-profit associations and foundations (the “Law”) aims to simplify and harmonise the legal framework regarding non-profit associations and foundations.
This Draft Law is part of the general drive to reduce the administrative burden and increase the efficiency of management procedures for ASBL and foundations.
The key proposed modifications are outlined below.
Abolishment of the homologation procedure for all ASBL and foundations
Under the existing legal framework, the homologation procedure required ASBL and foundations to submit their decisions, such as amendments to their articles of association, to the district court (tribunal d’arrondissement) for approval if the minimum quorum of two-thirds of members is not reached at the second extraordinary general meeting.
The purpose of the Draft Law is to abolish the homologation procedure for all ASBL and foundations, including those who are currently subject to the former Law of 21 April 1928. This abolishment is intended to reduce bureaucracy and facilitate the settlement and management of ASBL and foundations.
Application of administrative dissolution without liquidation to insolvent ASBL and foundations
The administrative dissolution without liquidation (dissolution administrative sans liquidation), previously limited to ASBL and foundations established after the Law entered into force, will now be extended to all insolvent ASBL and foundations. This modification addresses the issue of older ASBL and foundations that may not update their articles of association before the end of a transition period of twenty-four months as provided for by the Law.
This amendment will avoid lengthy and costly judicial proceedings for insolvent organisations.
Correction of a material error in Article 7, paragraph 4 relating to the delegation of day-to-day management
The Law contains a material error regarding the delegation of day-to-day management of an ASBL or a foundation as it was omitted to specify that only the delegation to a director (administrateur) is subject to a prior authorisation requirement by the general meeting and a management report. The Draft Law aims to clarify that this obligation does not apply to other individuals, such as a managing director (directeur salarié), to whom management can be delegated without any prior authorisation.
The Council of State provided their opinions on the Draft Law on 24 September 2024, and the Chamber of Commerce followed up with a letter dated 30 September 2024.
Draft Grand Ducal Regulation establishing the annual financial statements’ annex of ASBL and foundations
On 18 September 2024, the Government of Grand Duchy of Luxembourg approved the Draft Grand Ducal Regulation establishing the annex to be attached to the annual financial statements of ASBL and foundations. The intention of the proposed regulation is to determine the content of this annex, categorising small, medium and large ASBL and foundations and ensure financial transparency, good governance, and compliance with international standards, such as anti-money laundering and countering the financing of terrorism.
The Council of State was formally requested on 2 October 2024 to submit its opinion on the proposed draft Grand Ducal Regulation, which has not yet been issued.
Draft Law n°8447 on financial governance of organisations and foundations managing public funds in Luxembourg
Draft Law n°8447 submitted on 10 October 2024 by a member of the Luxembourg Chamber of Deputies (the “Caritas Draft Law”) amending the Law and the Law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of undertakings aims to restore public trust and prevent future embezzlement by implementing stronger financial controls for organisations that receive public funds or donations.
The Caritas Draft Law has two main proposals, i.e. the establishment of a more stringent ex-ante approval mechanism for transactions exceeding EUR 10,000.-, and even more robust controls for those exceeding EUR 100,000.- and the disclosure of any funding agreements between the State and any association or foundation at the time of registration with the Luxembourg Trade and Companies Register (Registre de commerce et des sociétés). Approval shall be preceded by a discussion during a meeting held in person or by a documented telephone or video conference.
While the Caritas Draft Law still needs to go through the legislative process before being adopted, this initiative is a positive step towards increasing transparency and accountability in the non-profit sector.
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