The document comprehensively outlines the legal framework and operational details of the investment company in risk capital (SICAR) under Luxembourg law, emphasizing its advantages as a flexible and tax-efficient vehicle for private equity and venture capital. It describes eligibility criteria for investors, types of assets and investment strategies allowed, and highlights regulatory compliance requirements overseen by the Commission de Surveillance du Secteur Financier (CSSF). Additionally, it addresses capital structure, taxation implications, and the roles of required service providers in the management of a SICAR.

1. <br />Dr. Pierre Alexandre DELAGARDELLE<br />Partner / Ph.D. / Avocat à la Cour<br />Luxembourg, <br />a domicile of choice for “SICARs” <br />The investment company in risk capital (the “SICAR”) governed by the Luxembourg law of 15 June 2004 relating to the investment company in risk capital, as amended from time to time (the \"
2004 Law\"
) is Luxembourg’s flagship investment vehicle for private equity/venture capital and accommodates qualified investors. <br />The SICAR is a tailor made investment vehicle for the needs of private equity promoters by offering flexibility in legal structuring, operational flexibility and cost efficiency. <br />The law of 24 October 2008 improving the legal framework of the Luxembourg financial sector, modifying, inter alia, the 2004 Law and published in Luxembourg’s official journal (the “Memorial”) on 29 October 2008 (the “2008 Law”) enhanced significantly the SICAR’s operational framework and was aimed at producing the diversity and competiveness which traditionally has only been available in offshore centers. <br />The SICAR has become a very popular investment vehicle amongst the international communities and elegantly combines the advantages of a regulated flexible entity with the tax efficiency of a multiple choice of vehicles that are transparent or tax resident as requested.<br />A “sui generis” vehicle<br />While the SICAR is the premier private equity/venture capital vehicle per se, other structures may also be used to host private equity investments, under certain conditions. These other vehicles include the undertakings for collective investment (the \"
UCIs\"
), the specialised investment funds (the “SIFs”) and non-regulated commercial companies (sociétés de participations financières, the “SOPARFIs”) investing in private equity. <br />Notwithstanding the operational similarity with fund vehicles such as UCIs and SIFs, the SICAR may not be qualified as an “investment fund”. Many investment funds adopt the form of the SICAV, a variable capital company whose acronym is deceptively close to that of a SICAR. The latter should, in reality rather be considered as a “sui generis” vehicle.<br />Nevertheless, certain concepts of the 2004 Law are originated from the UCI law. As for UCIs and SIFs, SICARs must:<br />have their central administration in Luxembourg;<br />appoint a custodian and an independent auditor;<br />be authorised and supervised by the CSSF;<br />report to the CSSF and their shareholders.<br />The SICAR offers the advantages of a considerably flexible corporate structure for the sole purpose of investing in risk capital while simultaneously offering the benefits of the supervision of the Commission de Surveillance du Secteur Financier (the \"
CSSF). <br />Prospectus<br />The prospectus must include the information necessary for investors to be able to make an informed judgement of the investment proposed to them and the associated risks. The constitutional documents of the SICAR (essentially, the articles of incorporation) shall form an integral part of the prospectus and must be annexed thereto or be available to investors upon request.<br />Supervision by the CSSF<br />Any changes to the constitutional documents must be approved by the CSSF. Only annual accounts need to be issued (no semi-annual accounts). <br />Eligible investors<br />The shares in a SICAR can only be subscribed by qualified investors who are either:<br />an institutional investor ; or <br />a professional investor ; or<br />any investor who (a) has confirmed in writing that he adheres to the status of well-informed investor and (b) invests a minimum of 125,000 Euro in the company or (c) has obtained a certificate from a credit institution certifying his experience and his knowledge in adequately appraising an investment in risk capital. <br />The derogation providing that the general partners of limited partnerships do not need to qualify as “well informed investors”, should they which to subscribe to shares in the SICAR has been extended by the 2008 Law to the directors and all persons who operate the management of the SICAR regardless of its legal structure.<br />Eligible assets / strategies<br />All types of private equity / venture capital investments (including real estate private equity). Temporary investments in other assets pending investments in private equity / venture capital are possible.<br />Risk diversification rules<br />A SICAR invests its assets in securities representing risk capital in order to provide its investors with the benefit of the result of the management of its assets in consideration for the risk which they incur. By risk capital is understood the direct or indirect contribution of assets to entities in view of their launch, their development or their listing on a stock exchange.<br />By contrast with the law on UCIs, the 2004 Law does not impose any investment diversification rules. A SICAR may therefore invest in just one or two companies, for example in particularly narrow sectors such as biotechnology or geological prospecting.<br />Entity type<br />Corporate entity (SA, SCA, S.à r.l., SCoSA, SCS).<br />An important innovation of the 2008 Law is the possibility for a SICAR set up in the form of a limited partnership to opt for variable capital structure. Furthermore, if this structure is chosen and by derogation to the law on commercial companies, the identity of the limited partners, as well as their respective participations in and commitments towards the SICAR, do not need to be published and inscribed in the Register of Commerce and Companies Luxembourg. <br />Segregated compartments<br />The 2008 law provides for the introduction of compartments in a SICAR.<br />Each compartment can have its own specific investment policy and each company may offer securities of a different par value or no nominal value. The constitutional documents must expressly provide for the creation of multiple compartments or subfunds within a SICAR. A multiple compartment SICAR, by itself, is a single legal entity. However, in contrast to the Luxembourg Civil Code, the assets and liabilities of each compartment are segregated, so that the assets are only subject to the liabilities of that specific compartment - unless otherwise provided for in the constitutional documents.<br />Required service providers in Luxembourg<br />Depositary (credit institution);<br />Administrative agent;<br />Independent auditors.<br />Approval process by the CSSF<br />Launching of a SICAR is subject to prior approval by the CSSF of:<br />the articles of incorporation, the prospectus and the agreements with main service providers;<br />the directors / managers (must be experienced and reputable);<br />the choice of depositary and auditor.<br />The CSSF generally does not carry out an in-depth review of documents and mainly checks eligibility of investment strategy.<br />No offer of securities may be made before CSSF approval.<br />Capital<br />Fixed or variable capital<br />Minimum capital / net assets requirements<br />Upon incorporation:<br />For an SA/SCA: EUR 31,000;<br />For an S.à r.l.: EUR 12,500.<br />Subscribed share capital must reach EUR 1 Mio within 12 months of authorisation.<br />Structuring of capital calls and issue of shares / units<br />Capital calls may be organised either by way of capital commitments or through the issue of partly paid shares (to be paid up to 5% at least);<br />Existing shareholders have no preemptive right of subscription, unless otherwise provided for in the articles of incorporation;<br />Issues of shares of SICAR with a variable capital do not require an amendment of the articles of incorporation before a public notary.<br />Issue price<br />The issue price may be freely determined in accordance with the principles laid down in the articles of incorporation.<br />Distribution of dividends<br />There are no statutory restrictions on payments of (interim) dividends (except for compliance with minimum capital requirement).<br />Calculation of NAV<br />The NAV must be determined at least once a year. Assets are to be valued at fair value. The requirement for investors to be informed at least once every six month about the NAV has been abolished by the 2008 Law.<br />Managers<br />The managers of the SICAR must be of sufficiently good repute and have adequate experience to hold such a position. The term “Managers” means:<br />the general partners in the case of limited partnerships;<br />the members of the board of directors in the case of public companies limited by shares;<br />the directors in the case private limited liability companies respectively.<br />SICAR – S.A.<br />Aboard of directors composed of at least three members.<br />SICAR - S.à r.l.<br />At least two managers according to the \"
four-eyes principle\"
or a board of managers. <br />SICAR – SCA<br />One or more general partner(s), required to be unlimited shareholder(s) of the SCA. <br />Financial reports / consolidation<br />Audited annual report (within 6 months from end of relevant period) and verification of the accounts by a recognized auditing company. <br />Explicit exemption from consolidation requirements<br />Tax regime<br />The income tax treatment of the SICAR depends upon the legal form under which it has been incorporated. <br />Incorporation of the SICAR<br />Capital duty: EUR 75,- flat<br /> General tax features<br />EU directives and tax treaties: In principle: Compatible, a SICAR should be considered as a “fully taxable” company;<br />VAT: Management services rendered to a SICAR are VAT exempted;<br />Annual Subscription Tax: Exempted;<br />Net Worth Tax (ISF): Exempted;<br />Corporate Income Tax (IRC): Yes but revenues and capital gains from private equity participations are exempted;<br />Municipal Business Tax (ICC): Yes, depending on the municipalities, but revenues and capital gains from private equity participations are exempted.<br />Incoming flows<br />Revenues from participations(dividends): Exempted;<br />Capital gains from participations: Exempted;<br />Revenues from other sources than participations: Yes;<br />Losses in value of participation: Realized and non-realized losses in value of the participations cannot be deducted on the taxable revenues of the SICAR.<br />Outgoing flows<br />Dividends paid: No withholding tax;<br />Interests paid: No withholding tax, but: “Savings Directive” is applicable.<br />INFORMATION SOURCES<br />www.cssf.lu;<br />The Commission de Surveillance du Secteur Financier (Luxembourg Financial Supervisory Commission).<br />www.alfi.lu <br />The Association of Luxembourg Fund Industry.<br />