There are many different legal forms for businesses in France: SA, SAS, SASU, SARL, and so on. It’s important to understand the various forms these businesses can take. This article explains the main aspects of a “société à responsabilité limitée” (SARL, or “limited liability company”) including its definition, share capital, tax rules, and how to set one up.

You can learn more about the “société anonyme” (SA, or “public limited company”), the “société par actions simplifiée” (SAS, or “simplified joint-stock company”), and the “société par actions simplifiée unipersonnelle” (SASU, or “single-shareholder simplified joint-stock company”) in our articles on these other types of businesses.

What’s in this article?

• What is a SARL?
  
• How does a SARL work?
  
• What tax regime does a SARL fall under?
  
• What is the manager’s social security status?
  
• What are the pros and cons of a SARL?
  
• How do you set up a SARL?
  
• Transferring a SARL
  
• What are the differences between a SAS and a SARL?
  

What is a SARL?

A SARL is a type of business entity that can be established by at least 2 and up to 100 partners, as specified in Article L223-3 of the French Commercial Code. Partners can be individuals or legal entities.

The SARL is suitable for a wide range of activities, including commercial, craft, and industrial businesses, as well as unregulated liberal professions. It’s a popular type of company in France.

SARL share capital

Partners are free to determine the amount of the share capital. It might consist of cash contributions, contributions in kind, or a combination of the two. The partners’ liability is limited to the amount they contribute, except for the managing partner, who could be liable for more.

When the business is formed, at least 20% of the cash contributions must be deposited into the SARL’s bank account. The balance must be paid within five years. If a contribution in kind is worth more than €30,000, or if all the contributions in kind make up more than half of the share capital, you must appoint a contribution auditor.

Partners receive shares in the company based on their contribution. These shares give them the right to information, to vote at the general meeting, and to receive any profits made by the SARL – in particular, as dividends.

How does a SARL work?

SARLs operate according to Articles 1 to 43 of the French Commercial Code.

The manager

The SARL is handled by a manager who must be an individual. The manager acts on behalf of the SARL with third parties and handles all management tasks, such as signing contracts, hiring employees, and overseeing legal formalities. They must make decisions in the best interest of the business, and their powers could be limited by the company’s articles of association.

Article L223-21 of the French Commercial Code forbids a SARL from lending money to its manager, giving them an overdraft, or guaranteeing their personal obligations to third parties. Note that a SARL can have one or more managers.

General meetings

There are two types of general meetings that help the manager with their duties.

• The annual general meeting (AGO, or “assemblée générale ordinaire”) must be held once a year, at which time the annual financial statements are approved, appointments or dismissals of the manager are made, and the manager’s pay is established.
  
• The extraordinary general meeting (AGE, or “assemblée générale extraordinaire”), which amends the articles of association.
  

What tax regime does a SARL fall under?

By default, SARLs pay corporate income tax at the standard rate of 25%. It might qualify for a reduced rate of 15% on the first €42,500 of profits if its sales, excluding tax, are under €10 million and at least 75% of its share capital is owned by individuals.

However, SARLs can choose the income tax (IR) system if they meet specific criteria. This option is exclusively available to family-owned SARLs or those formed within the last five years. To find out more, see this article from the French tax authorities on transitioning from corporate income tax (IS) to income tax (IR).

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Partners’ tax regime

The partners’ tax status depends on the SARL’s tax status. If the company pays corporate income tax, dividends received by shareholders are treated as income from movable capital (RCM, or “revenus de capitaux mobiliers”) and are subject to a 30% flat-rate withholding tax (PFU, or “prélèvement forfaitaire unique”). However, partners can choose the progressive income tax rate instead.

When the SARL is taxed under the income tax system, dividends are also taxed as income and follow the progressive income tax scale.

Manager’s tax regime

The manager’s tax status also depends on the company’s tax status. When the SARL is taxed under the corporate income tax system, the manager’s salary is classified as wages and salaries. In this scenario, they can either deduct actual business expenses or opt for a flat-rate deduction of 10%. As a company, the SARL can also deduct the manager’s salary from its profits for corporation tax purposes.

If the SARL pays corporate income tax, the manager can claim a flat-rate 10% deduction for professional expenses. Their pay is categorised as wages and salaries.

What is the manager’s social security status?

The manager’s social security status is determined by the number of shares they hold.

• If the manager is a minority, equal, or non equity partner (holding no more than half the shares), they are covered by the general social security system when they are paid.
  
• If the managing partner holds more than half of the company’s shares, they are covered by the social security system for self-employed workers.
  

What are the pros and cons of a SARL?

A SARL offers several advantages for partners:

• Secure legal framework since the French Commercial Code regulates its operation
  
• Financial liability is limited to the amount of contributions
  
• Choice of corporate income tax or personal income tax
  
• Legal form that’s a good fit for family projects
  
• Co-manager may be appointed
  

But it also has some disadvantages:

• Transfer of shares is subject to strict approval (see the section entitled “Transferring a SARL” for more information)
  
• Operations are regulated by the French Commercial Code and are therefore less flexible in terms of management
  
• Complex formalities for a small business
  

How do you set up a SARL?

The first step to forming a SARL is to draft the company’s articles of association, a mandatory document that outlines how it will operate.

Next, choose the registered office for the SARL. The share capital must be created and deposited in the company’s business bank account.

After depositing the share capital, the SARL must publish a notice of incorporation in a legal gazette (JAL, or “journal d’annonces légales”). To find out more, see the French government article on the publication of the legal announcement.

Finally, you must register the SARL online via the business formalities portal. Further information on registration can be found on the French government website.

Setup costs

There are several costs involved in setting up a SARL:

• Drafting the articles of association: Between €1,500 and €2,000 for legal advice
  
• Hiring a contribution auditor, if required: Between €500 and €3,000
  
• Publishing the legal announcement: €144
  
• Registration: €37.45 for a commercial activity, plus €15 for a craft activity
  
• Declaring the beneficial owners: €21.41
  
• Domiciling the business: Costs vary
  

Transferring a SARL

Generally, there are no restrictions on transferring shares to a family member or partner. However, the transfer of shares to a third party requires the approval of the majority of the partners. To transfer to a third party, you must:

• Obtain a signed or notarised share transfer deed
  
• Register the deed with the tax authority
  
• Amend the articles of association and file them online with the business formalities portal
  

All purchasers must also pay registration duty to the tax authorities. For SARLs, this tax is 3% of the transfer price, minus a €23,000 allowance, multiplied by the number of shares transferred, and then divided by the total number of shares in the SARL.

[Transfer Price - (23,000 × Number of Shares Transferred ÷ Total Number of Shares)] × 3%

For example, you decide to sell 100 shares to a third party for €100,000. The SARL’s share capital is divided into 500 shares. The registration fee is, therefore:

[100,000 - (23,000 × 100 ÷ 500)] × 0.03 = €2,862

What are the differences between SAS and SARL?

Both the SAS and the SARL are legal forms that allow for multiple partners. However, they differ in several ways, including the number of partners, the type of shares, and the status of the manager. Here is a summary of the main differences between these entities:

SAS vs. SARL features