What is an SARL/EURL$9

1. General overview of the SARL

In France, more than 40% of companies created each year are sociétés à responsabilité limitée (SARL, or LLC). It is therefore a common social form, chosen by artisans, tradesmen, industrialists and certain liberal professions.

An SARL does not require a high capital deposit from the outset, which can be freely set by the shareholders. As the name suggests, shareholder liability is limited to the amount of their contributions.

2. Main characteristics of the SARL

The SARL consists of at least 2 shareholders (if there is a single partner, the company is a EURL), the number of partners can not exceed 100. The partners of the SARL may be individuals or companies.

SARL shareholders divide the profits in proportion to their shares in the capital, unless a different distribution regime is provided for in the statutes. They are all entitled to the distribution of dividends of the company, respecting the framework defined by the general meeting.

The status of SARL is open to a very wide range of activities, but it excludes legal, judicial or health professions (except pharmacists), as well as insurance, capitalization and savings activities. What matters most is the statutory object, (as defined in the SARL's statutes).

No minimum capital is required: € 1 may be enough! The capital consists of contributions in cash, in kind or in sweat equity. Here are the subscription and release rules:

  • Contributions in kind: full release upon subscription of the units;
  • Contribution in cash: release of at least 20% from the subscription of the shares, the rest to be released within 5 years of incorporation ;
  • Sweat equity: only possible if provided for in the SARL's statutes. Not counted towards the calculation of the company's capital.
    The SARL's statutes must mention the valuations of the contributions in kind, made by a pre-appointed auditor.

SARLs are subject to corporation tax, but it is possible, under certain conditions, to be instead subject to the income tax system: the company must be a family SARL and other conditions regarding the number of employees, activity and turnover must be satisfied.

The social regime of the head of the SARL who manages its day-to-day operations, depends on his position (majority, minority or egalitarian).

3. Mode of operation of the SARL

Stewardship is an important aspect of the operation of the SARL. The manager of SARL is an individual, who can be a shareholder, but not necessarily so. The majority shareholders may appoint him/her in the bylaws, otherwise he/she will be during a general meeting by a majority of more than half of the shareholders: this establishes the distinction between the statutory manager and the non-statutory manager.

The manager may sign an employment contract, which is then considered a regulated agreement. If, however, his management functions are different from the technical functions performed under the employment contract, these technical functions are performed in a position of subordination vis-à-vis the company and if a salary is well paid for the exercise of these technical functions.

The manager may be dismissed, but if the dismissal is decided without just cause, damages may become due.

The company statutes determine the powers of the managers who, by default, are responsible for providing managerial oversight in the best interests of the company. This is all the more important when the company is administered, according to the by-laws, by several managers: so that they do not confuse their roles and end up with several managers acting as if they were acting alone. It is therefore more prudent to define in the statutes the scope of the powers of each manager.

The manager is the legal representative of the company. Only he/she can bind the company to third parties, even for acts which falls outside the company's scope of activity, unless the company provides evidence that the third party was aware of the breach of the corporate purpose, or could not ignore this overtaking.

As far as decision-making is concerned, it is the partners who participate in collective decisions. In principle, the manager must convene a general meeting within six months of the end of the financial year to vote on the parent company financial statements. The shareholders may also call a meeting if they represent at least half of the capital or one-tenth of the shareholders.

4. What is the difference between the SARL and EURL$10

The EURL (Entreprise Individuelle à Responsabilité Limitée) is a form of SARL with one shareholder. It is therefore subject to the same rules (fiscal, legal, etc) as the SARL.

The alf experts are available on our website to discuss with you the creation of your SARL in France.