SCSp vs. SCA: A comparison for unregulated AIFs in Luxembourg

Legal Form & Structure

The legal structure of an investment vehicle determines its operational flexibility, liability framework, and governance model. While both SCSp and SCA involve general partners (GPs) and limited partners (LPs), their fundamental characteristics differ significantly.

• SCSp (Société en Commandite Spéciale) – Special Limited Partnership:

  • A contractual partnership with no legal personality.
  • Formed by at least one General Partner (GP) with unlimited liability and one Limited Partner (LP) with limited liability.
  • Governed primarily by a Limited Partnership Agreement (LPA), offering high customization.
  • Functions as a pass-through entity, making it attractive for tax-efficient structuring.

• SCA (Société en Commandite par Actions) – Corporate Partnership Limited by Shares:

  • A corporate entity with legal personality, combining features of a joint-stock company (SA) and a limited partnership.
  • Requires at least one General Partner (GP) with unlimited liability and shareholder Limited Partners (LPs).
  • Governed by Luxembourg’s 1915 Commercial Companies Law, resulting in a more structured governance model.
  • Allows issuance of shares to LPs, making it more appealing to institutional investors.

Liability & Governance

Liability considerations impact risk exposure for fund managers, while governance determines control mechanisms and decision-making processes. SCSp offers greater flexibility, while SCA follows a corporate-style governance model.

• SCSp:

  • The GP bears unlimited liability, meaning they are personally responsible for the debts and obligations of the SCSp.
  • LPs have limited liability, only at risk for their capital commitments.
  • The governance model is highly flexible, with roles and decision-making processes defined in the LPA.
  • LPs cannot engage in management without losing their liability protection.

• SCA:

  • The GP has full management control, acting as the fund’s decision-maker.
  • The LPs act as shareholders, with voting rights similar to an SA (Société Anonyme).
  • More structured governance due to compliance with company law.
  • More suitable for institutional investors who require transparency and regulatory oversight.

Regulatory Aspects

While both SCSp and SCA can operate as unregulated AIFs, they differ in their regulatory obligations. SCSp benefits from a lighter regulatory framework, whereas SCA must comply with corporate reporting requirements.

• SCSp:

  • Not subject to CSSF regulation unless it qualifies as an AIF under the AIFM Law.
  • If it exceeds certain AUM thresholds, an AIFM (Alternative Investment Fund Manager) must be appointed.
  • No mandatory financial reporting, making it attractive for private investors and closed-ended funds.

• SCA:

  • Governed by the 1915 Law on Commercial Companies, requiring financial reporting and corporate disclosures.
  • If classified as an AIF, an AIFM may be required depending on fund size and investor base.
  • More structured reporting obligations, making it less flexible but more transparent.

Tax Treatment

Tax efficiency is a major factor in fund structuring. The SCSp enjoys tax transparency, allowing profits to be taxed at the investor level, whereas the SCA is a taxable entity subject to corporate taxes.

• SCSp:

  • Considered tax-transparent, meaning no corporate income tax (CIT), net wealth tax (NWT), or municipal business tax (MBT).
  • Investors are taxed according to their respective jurisdictions, offering fiscal neutrality.
  • Commonly used for private equity, real estate, and infrastructure investments.

• SCA:

  • Taxable as a corporate entity, subject to:
    
    • Corporate Income Tax (CIT)
    • Net Wealth Tax (NWT)
    • Municipal Business Tax (MBT)
  • May benefit from double tax treaties, making it attractive for certain international investors.
  • Dividends may be subject to withholding tax (WHT) unless exemptions apply.

Investment Flexibility & Confidentiality

Fund managers often seek structures that provide investment flexibility while ensuring confidentiality. SCSp offers greater discretion, whereas SCA follows more standardized corporate governance.

• SCSp:

  • Offers maximum flexibility in structuring capital commitments, distributions, and exit strategies.
  • Confidentiality is preserved, as it does not require public financial statements or shareholder disclosures.
  • Frequently used for private equity, venture capital, and hedge funds due to tailored investment strategies.

• SCA:

  • More rigid investment framework, as it must comply with corporate law.
  • Financial statements and corporate governance details must be publicly disclosed.
  • Preferred by institutional investors who prioritize corporate oversight and reporting.

Suitability for AIFs

Both structures are widely used for Alternative Investment Funds (AIFs), but SCSp is generally preferred for private funds due to its flexibility and tax efficiency, while SCA is more appropriate for corporate-style investment vehicles.

• SCSp:

  • Ideal for private equity, venture capital, real estate, private debt, and infrastructure funds.
  • Preferred by fund managers who seek flexibility in profit distribution and governance.
  • Commonly used by closed-ended and limited-life funds.

• SCA:

  • Suitable for funds requiring structured governance, such as institutional investment vehicles.
  • Attractive for listed investment funds that require transparency and regulatory compliance.
  • More appropriate for funds planning to issue shares to a broader investor base.

Conclusion

• SCSp is the preferred choice for most unregulated AIFs, offering:

  • High flexibility in governance and profit-sharing.
  • Minimal regulatory obligations and no financial reporting requirements.
  • Confidentiality and tax transparency, avoiding double taxation.
  • Ideal for private equity, venture capital, and closed-ended investment strategies.

• SCA is suitable when:

  • The fund requires a corporate governance model with shareholder oversight.
  • Institutional investors prefer structured reporting and regulatory compliance.
  • The fund seeks eligibility for double tax treaties and international tax benefits.

Would you like additional insights into tax structuring or legal documentation for these fund types, contact with Fundequate for indepth analysis of your business model and overall support in Luxembourg.