As a business owner, you have the ability to change your company’s legal structure as it evolves. This is called a business transformation, and it is a process that involves meeting certain mandatory requirements. In this article, we’ll discuss the process of transforming a société à responsabilité limitée (SARL) into a société par actions simplifiée (SAS).

What’s in this article?

• What is the advantage of transitioning a SARL to an SAS?
  
• What are the conditions for transitioning a SARL to an SAS?
  
• What is the process for transitioning a SARL to an SAS?
  
• What are the consequences of a business transformation?
  
• What are the costs involved in a business transformation?
  
• Is it possible to transition an SAS to a SARL?
  

What is the advantage of transitioning a SARL to an SAS?

An SAS is the most common legal form in France. In 2022, it represented 65% of new company formations. An SAS offers several advantages over a SARL, including:

• Easy addition of new partners and investors: Conversely, with a SARL, adding new partners requires the consent of all existing partners.
  
• Free transfer of shares to third parties: An SAS also has lower registration fees (0.1% of the transfer price) when compared to a SARL (3% of the transfer price).
  
• High degree of flexibility in operation and organization: A SARL, on the other hand, is strictly regulated by law.
  
• Unlimited number of shareholders: Whereas a SARL is limited to 100 shareholders.
  
• Managers can be legal persons (i.e., legal entities treated as persons): The manager of a SARL, conversely, must be a natural person (i.e., an actual person).
  
• Advantageous social security status for the manager: An SAS manager is considered an assimilated employee (assimilé salarié), whereas in a SARL, the manager is classified as an unsalaried worker (travailleur non salarié or TNS).
  

What are the conditions for transitioning a SARL to an SAS?

To convert a SARL into an SAS, a company must have at least two shareholders. It also must have at least 50% of its share capital deposited in its bank account. For context, this is significantly higher than the amount needed to create a SARL: only 20% of the share capital needs to be paid in at the time of incorporation.

What is the process for transitioning a SARL to an SAS?

Converting a SARL into an SAS involves several required actions, including:

• Appointing a transformation auditor
  
• Holding an extraordinary general meeting (EGM) to approve the transformation and amend the articles of association
  
• Publishing a notice of transformation in a French legal gazette (JAL)
  
• Submitting the transformation to the business formalities portal
  

Appointing a transformation auditor

A transformation auditor must be appointed to prepare a report on the financial status of the transitioning company. The transformation auditor is appointed either unanimously by the company’s shareholders or upon application by the commercial court. The auditor is responsible for assessing the value of assets and special benefits to ensure that the company’s equity is at least equal to the required share capital.

Note that in a company with a statutory auditor, the statutory auditor assumes the role of transformation auditor.

The auditor’s report must be submitted to a clerk of the commercial court at least eight days before the extraordinary general meeting scheduled to approve the company’s transformation.

Holding an extraordinary general meeting (EGM) to approve the transformation and amend the articles of association

The decision to convert a SARL into an SAS must be reached unanimously by the shareholders at an extraordinary general meeting (EGM) convened to approve the transformation.

The transformation of the company also requires an amendment to its articles of association by the shareholders. The amendment must include the new legal form of the company, an appointed president, designated management bodies and decision-making procedures, and revisions to any clauses that are no longer necessary.

A copy of the meeting’s minutes must be submitted to the corporate tax office (service des impôts des entreprises or SIE) within one month.

Publishing a notice of transformation in a French legal gazette (JAL)

Once a transformation has been approved and the articles of association have been amended, a company must publish a transformation notice in a French legal gazette (JAL) to inform third parties of the change in legal form. The business will receive a certificate of publication from the JAL, which can be used as proof when registering the company transformation in the business formalities portal.

Submitting the transformation to the business formalities portal

The final step of converting a SARL to an SAS is to submit the complete business transformation file to the business formalities portal. The transformation file must include copies of the following documents:

• Minutes for the shareholders’ meeting approving the transformation
  
• Updated articles of association signed by the company’s legal representative
  
• Publication certificate for the transformation notice in a French legal gazette
  
• Transformation auditor’s report
  

It’s important to note that if the former majority shareholder of the SARL does not become the president of the SAS, a copy of the identity card for the new president must be submitted. The company should include this together with a declaration of nonconviction (i.e., a sworn statement that the president doesn’t have a criminal history). In addition, any change in the beneficial owner (i.e., the natural persons who control the company) must be declared.

What are the consequences of a business transformation?

The transformation of a SARL into an SAS does not involve the creation of a new legal entity. The former majority manager of a SARL can assume the role of president of the SAS, and existing assets, contracts, and management actions can remain unaffected.

However, the transformation of a SARL into an SAS entails a change in social security status for the manager of the company: the majority manager of a SARL, previously covered by the social security system for self-employed workers, must become an assimilated employee manager under the general social security system. As a result, the SAS manager will have access to more comprehensive social security coverage.

For SARLs that pay income tax (IR), the transformation into an SAS might lead to the taxation of latent capital gains once the company is subject to corporate income tax (IS).

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What are the costs involved in a business transformation?

The transformation from a SARL to an SAS is usually an expensive process. You can usually expect to pay at least €1,200 for a transformation auditor and between €1,500 and €2,000 if you hire a lawyer to amend your company’s articles of association. Alternatively, you can amend the articles of association yourself to minimize costs.

Publication of the transformation announcement will cost €193. If your SAS is subject to income tax (IR), you will have to pay a fixed registration fee of €125. Additionally, the business formalities portal submission process costs €207.87.

Is it possible to transition an SAS to a SARL?

It is possible to convert an SAS into a SARL, but this is a much less common transformation. To convert an SAS into a SARL, the number of partners must be fewer than 100, and the company must not be a credit, investment, insurance, or savings company.