Are you thinking of starting a family business? The family SARL (SARL de famille), a limited liability company, could be a good solution. What is a family SARL, and what are its advantages and requirements? This article examines the specifics of the family SARL regime, a tax option available to families who want to establish a business together.

What’s in this article?

• What is a family SARL?
  
• What are the requirements for a family SARL?
  
• How is a family SARL taxed?
  
• How do I choose the family SARL regime?
  
• Advantages of a family SARL
  
• Disadvantages of a family SARL
  

What is a family SARL?

The family SARL is a tax option that lets SARLs owned by at least two members of the same family (up to 100) benefit from a favorable tax status. The family SARL is not a different legal form; it has almost all the characteristics of a traditional SARL, including activities governed by articles 1 to 43 of the French Commercial Code, while offering certain tax advantages.

Learn more about the SARL and the types of legal forms in France (such as the SAS and the SA) in our related articles.

What are the requirements for a family SARL?

To choose the family SARL regime, family members must be related by blood or through marriage. That is, a family SARL can be set up only between:

• Spouses, siblings, children, parents and grandparents, grandparents and grandchildren (as long as they are siblings)
  
• Spouses and partners in a civil partnership
  

Conversely, a family SARL cannot be formed between cousins, brothers- and sisters-in-law, uncles and aunts, and nephews and nieces.

In addition, the family SARL must be engaged in a commercial, craft, industrial, or agricultural activity. Professions such as law, medicine, and architecture are excluded, as are activities classified as noncommercial benefits (BNC, bénéfices non commerciaux).

How is a family SARL taxed?

A SARL is subject to corporate income tax (IS, impôt sur les sociétés) by default, but it can choose to pay income tax (IR, impôt sur le revenu). For a family SARL, the income tax option can be exercised for an unlimited period, providing a significant advantage for partners because:

• Profits are taxed based on each partner’s shareholding, enabling deficits to be deducted according to the progressive income tax scale.
  
• Partners avoid double taxation on profits: instead of being taxed at the business and personal levels when dividends are distributed, they are taxed only once.
  
• Partners can use the nonprofessional furnished rental scheme (LMNP, location meublée non professionnelle) to depreciate the value of their real estate, provided the family SARL meets certain conditions.
  

A traditional SARL can opt only for income tax for the first five years of its operation.

Another important point: partners in family SARLs might be exempt from capital gains tax on the sale of shares if all rights are sold and the buyer is a family member.

Manager’s social security system

The social security system for the manager of a family SARL is determined by the number of shares they own:

• Minority, equal, or nonpartner managers (holding no more than half of the business’s shares) are covered by the general social security system if they receive compensation.
  
• Managers who are majority partners (holding more than half of the shares) are covered by the social security scheme for self-employed persons.
  

How do I choose the family SARL regime?

Under Article 239 bis AA of the French General Tax Code (CGI), the choice of the family SARL regime and the choice of the corporate income tax regime require a collective decision, a unanimous approval, and a notification to the corporate tax authorities (SIE, Services des impôts des entreprises).

Existing businesses must notify the SIE before the beginning of the first financial year for which the option will apply, while new businesses must state in their deed of incorporation that they want to apply the option from the start of their activities.

The inclusion of a nonrelative will bring the SARL under the IS regime because the business would no longer qualify as a family SARL.

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Advantages of a family SARL

The family SARL offers several advantages for its partners, including:

• The option for income tax for an unlimited period
  
• Easy transfer of shares between family members
  
• Full exemption from capital gains tax on the sale of shares
  
• Possibility of opting for the LMNP (nonprofessional rental) regime
  
• Full social security coverage for minority, equal, or nonpartner managers under the general social security system
  
• Protection of family wealth and secure transfer of business between generations
  

Disadvantages of a family SARL

There are a few drawbacks:

• Liberal professions are excluded.
  
• The French Commercial Code regulates them strictly.
  
• If a nonrelative joins, the business can no longer use the family SARL regime.