What is a SARL? Definition
A Société à Responsabilité Limitée (SARL) is a very popular and versatile legal status, as it can be adapted to a wide range of business projects. It is the simplest, most practical and most comfortable form of company to manage for entrepreneurs wishing to set up a joint venture.
The SARL is a commercial company whose main feature is that the liability of its partners is limited to the amount of their contributions. It can be set up by two people or by a hundred. And if there's only one partner, it's called an Entreprise Unipersonnelle à Responsabilité Limitée (EURL). If you're undecided between the SARL and the EURL, read our dedicated article.
Almost any business can be run as an SARL, with the exception of certain regulated professions (pharmacy, chartered accountancy, notary, insurance, etc.) or incompatible activities such as tobacconists.
Legal requirements for an LLC
- A Société à Responsabilité Limitée (SARL) must be managed by one or more managers, who are responsible for the day-to-day running of the company, and in particular for organizing the Annual General Meeting to approve the accounts.
- The managers of an SARL must be natural persons, not legal entities, and may or may not be partners.
- Managers are obliged to hold an Annual General Meeting (AGM) and to convene all associates in accordance with the formalities laid down (often by registered letter or electronic notification, depending on the bylaws), in order to vote on decisions and approve the annual financial statements.
- A SARL (limited liability company) has a minimum of two partners and a maximum of one hundred (or a single partner in the case of a EURL).
- To sell shares, a partner must obtain the agreement of the other partners (not the managing partners). This approval is given by a vote representing at least half the share capital, unless otherwise stipulated in the Articles of Association. Without their prior agreement at a shareholders' meeting, it is impossible to proceed with this operation. The other partners may then buy back the shares in question, or have them bought back by a third party.
- Le share capital is freely determined by the partners, with no minimum required: it can start at a symbolic 1 euro. Cash contributions must be at least 20% paid up on incorporation. For contributions in kind, a valuation may be required.
- Partners' liability is limited to their capital contributions. Thus, in the event of company debts, creditors cannot seize partners' personal assets.
- The SARL's articles of association must clearly specify the distribution of shares, as well as the contributions of each shareholder and the amount of share capital deposited in cash.
- The share capital held by the partners determines the distribution of decision-making powers and voting rights within the SARL.
- By default, SARLs are subject to corporate income tax (Impôt sur les Sociétés - IS), but they may be subject to income tax (Impôt sur le Revenu - IR) for 5 years, under certain conditions.
Good to know: the death of a manager does not automatically result in the dissolution of an SARL.
The SARL tax system
As we have just seen, the limited liability company (SARL) is in principle subject to corporation tax (Impôt sur les Sociétés- IS).
However, family-owned SARLs and EURLs can opt for income tax (impôt sur le revenu - IR) as a temporary tax regime, for up to five years, in certain specific cases. This option is irrevocable for 5 years, after which the SARL automatically reverts to corporate income tax.
This option is reserved for SARLs less than 5 years old, including :
- the activity is industrial, artisanal, commercial or liberal,
- sales of less than €10 million,
- the number of employees is less than 50,
- over 50% of voting rights are held by individuals, including a minimum of 34% by management.
Note that this option must be decided collectively by the partners and notified to the tax authorities. If the SARL chooses to be taxed under the IR system, the partners must meet and opt for this new tax regime by a majority vote.
What are the advantages of the SARL?
The advantages of the SARL are manifold. Let's take a closer look at all the advantages that make it so attractive to today's entrepreneurs.
Protecting the liability of associates
The major advantage of the limited liability company (SARL) is that it limits the liability of the partners. Indeed, partners' liability is limited to the amount of their capital contributions in the company.
In other words, the personal assets of the manager and partners are protected: in the event of financial difficulties, the professional assets of the SARL's manager and partners will be dissociated from their personal assets. Only the share capital and contributions can be used to pay debts.
Good to know The only condition binding on the manager's assets is mismanagement.
Easy to set up and manage
Setting up a SARL is simpler than ever. There is no minimum share capital, the drafting of the articles of association is regulated, and the manager's social security status is clearly defined according to whether he or she is a majority shareholder (TNS) or a minority shareholder (assimilated employee).
We'll take a step-by-step look at how to set up your SARL later on, but here's the first thing that shows how easy it is to set up: the share capital is free. In fact, the partners can choose to set the amount of their share capital without any minimum requirement, to be determined according to the size of the company and its activity (not forgetting any capital requirements).
Secondly, the operation of a SARL is highly regulated by law. Unlike a Société Anonyme (SA), a Société par Actions Simplifiées (SAS), or a Société par Actions Simplifiées Unipersonnelles (SASU), certain clauses in the articles of association of a SARL cannot be modified, notably liability and distribution among the partners, opening of share capital, transfer of shares, etc.
A SARL also makes it easy to control the manager's social benefits. Depending on whether he is a majority or minority shareholder, he may be :
- self-employed (with more than 50% of shares),
- assimilated employee (with less than 50% of shares).
Good to know The manager's spouse can even claim the status of collaborating spouse.
Finally, day-to-day management is also streamlined: accounting and legal obligations are less onerous than in a SAS or SA, even if rigorous bookkeeping remains mandatory.
A flexible tax system
The SARL offers a degree of fiscal flexibility : corporate tax or income tax for 5 years, the possibility of remunerating the manager or paying dividends to the partners, etc.
You can therefore choose your tax regime, as we saw earlier, depending on the business, your wishes, and what is best for the manager and his associates.
What's more, social security contributions for SARL managers are calculated and deducted from their remuneration, rather than from the company's profits (the opposite is true for sole proprietorships), giving them real room for maneuver and more efficient managementof their business.
Why choose a SARL over a SAS?
The two legal forms SARL and SAS are very similar and are identical in the following respects:
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drafting of by-laws,
- the quality of the associates,
- the company's lifetime,
- the scope of activities that can be carried out,
- share capital contributions,
- corporate income tax,
- online creation procedures.
Although SARLs and SASs share many common features, they differ in several respects:
- In SARLs, the rules governing the transfer of shares are more restrictive: approval by the partners is required. In SAS, the rules are freer.
- The SARL has a more rigid management structure (compulsory manager), while the SAS can freely provide for any organization in its articles of association.
- In SARL, the majority shareholder is affiliated to Sécurité Sociale des Indépendants (SSI), which is less costly but offers less protection. In SAS, the chairman is treated as an employee, with better coverage.
- In SARL, contributions of a common asset by a married partner require the agreement of the spouse. Not for SAS.
The disadvantages of the SARL
Although the SARL is a secure, simple, flexible and well-supervised legal form, it also has a number of significant drawbacks.
The disadvantages of the SARL are as follows:
- the social status of the managing director (TNS), which implies a less protective social regime than the general Social Security regime, with weaker coverage in the event of sick leave, for example;
- the rigidity of its rather formal operation, which can slow down developments and decision-making;
- administrative formalities and legal obligations which, even if simplified, remain somewhat cumbersome (annual AGMs, articles of association to be drawn up or amended, transfer of shares, etc.);
- the difficulties of bringing an investor into this structure (unlike the SAS), particularly for startups.
The SARL is the ideal choice for a stable, structured project, but not for a changing business environment.
Let's take a look at how to set up your LLC step by step, in the most optimal way to launch your company and its business on the market.
1. Appoint one or more managers
First and foremost, the partners must appoint one or more managers for the SARL, either in the articles of association or by separate deed. Appointing a single manager makes management decisions easier and faster: he or she is the company's legal representative and has the main decision-making authority.
2. Evaluate contributions to share capital
Inputs can be :
- in cash,
- in kind (equipment, vehicle, etc.),
- in industry (know-how, not capitalizable).
A contribution auditor is required for contributions in kind exceeding €30,000 or representing more than half the capital, unless otherwise stipulated.
3. Draft the articles of association
The articles of association are the company's roadmap, and are an essential formality. The Articles of Association govern the operation of the SARL and must include :
- the identity of the SARL (corporate name),
- corporate purpose,
- the duration of the company (max. 99 years),
- the amount of share capital,
- the contributions of each partner,
- the distribution of shares,
- share transfer procedures,
- Decision-making procedures,
- Manager's powers,
- appropriation of earnings,
- operating rules.
It is also in the articles of association that you can add clauses to provide for what happens in the event of a partner's departure, death or transfer of shares . Adapt the articles of association to the specific situation of your SARL and its partners.
Don't hesitate to enlist the help of a legal professional (notary, lawyer, chartered accountant, etc.) to help you avoid mistakes and unpleasant surprises. Poorly drafted or incomplete articles of association could lead to blockages or disputes later on.
Once signed by all partners and certified by the company's representative, your SARL's articles of association must be kept for at least ten years as an official document.
A shareholders' agreement is optional, but strongly recommended for SARLs, as a complement to the articles of association.
4. Open a business bank account
A business bank account mustbe opened to deposit the capital. It will then be used for the SARL's receipts and payments, which must be managed on a dedicated business account devoted solely to the company.
You must therefore open this business account, and deposit the share capital in cash as manager. A certificate of deposit will be required for online registration, the final step in setting up your company.
The capital will be blocked, as will the business account, until the company is registered.
5. Publish a legal notice
The notice of incorporation of your SARL can be considered the company's birth certificate. It formalizes the company's launch and existence on the market and in the eyes of third parties. All important information must therefore be included.
L’annonce doit être publiée dans un Journal d’Annonces Légales (JAL) habilité de votre département, vous pouvez en faire la demande directement en ligne via le site officiel de l'INPI.
6. Register your company online
To finalize the formation of the SARL, the legal representative must apply for registration of the SARL.
Since 2023, all formalities (creation, modification and cessation) have been handled by the online one-stop shop for businesses (which now replaces the Centre de Formalité des Entreprises), managed by INPI: formalites.entreprises.gouv.fr.
You fill in the M0 form, add the necessary attachments (articles of association, identity document, certificate of registration, etc.), and INPI will forward your file to the relevant departments (Registrar's Office, INSEE, URSSAF, etc.) You will then be notified by these departments and by the French Treasury of your registration, both online and by post.
Procedures for modifying an LLC
During the life of an SARL, a number of events can lead to a change in the articles of association: change of manager, change of registered office, arrival or departure of a partner...
There is also a procedure to follow in order to properly inform authorities and third parties:
1. Holding an EGM
An Extraordinary General Meeting (EGM) must be convened when amending the articles of association, as in most cases a quorum and majority of associates are required to reach a decision.
Minutes must be drawn up following this EGM.
2. Updating the articles of association
Updating involves inserting new information about the SARL into the articles of association. The minutes of the meeting and the updated articles of association will then need to be registered with the SIE.
3. Publication in a JAL
You need to publish a notice of modification, in the Journal d'Annonces Légales (JAL) approved for your département, preferably the one that published the notice of incorporation of your SARL, indicating the old and new modified elements.
4. One-stop online filing
The formalities are carried out online via the INPI's one-stop shop, using the Cerfa form adapted to each type of modification, as well as the necessary supporting documents.
How much does it cost to set up a limited liability company?
The cost of setting up a SARL, whether the activity is commercial or artisanal, is roughly the same:
- publication of legal notice in an approved JAL: approximately €200
- registration with the Registre du Commerce et des Sociétés (RCS): €45
- register of Beneficiaries (RBE): €25
Estimated total: €270
The manager's remuneration is set by the Annual General Meeting.
It can be :
- fixed,
- variable (e.g. percentage of sales or EBITDA),
- mixed.
The manager may also receive benefits in kind (car, accommodation, etc.).
Associates may also receive dividends based on distributable profits at the end of the financial year.
What is the social security system for the manager of a SARL?
If the managing director has a majority shareholding, i.e. holds more than 50% of the capital, he or she is affiliated to the Sécurité Sociale des Indépendants (SSI). Social security contributions are lower, but social security coverage is unfortunately also more limited.
When calculating majority, shares held alone or jointly with a spouse, PACS partner or minor child(ren) are taken into account.
If the manager is a minority or equal shareholder, i.e. holds half or less of the capital, he or she is treated as an employee, and remains affiliated to the general Social Security scheme, like all employees.
How can you set up your limited liability company?
There are several schemes to help you get started:
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ACRE (Aide aux Créateurs et aux Repreneurs d'Entreprises) partial exemption from social security contributions for 12 months, available from francetravail.fr.
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l'Aide à la Reprise et à la Création d'Entreprise (ARCE): lump-sum payment of 45% of remaining unemployment benefit (if you have opted for ACRE).
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Regional assistance: some regional councils and local authorities offer loans, subsidies or specific support for business start-ups.
Closing a SARL: dissolution / liquidation
An SARL may voluntarily cease trading, following a decision by the partners, at the end of its term or in the event of difficulties.
Voluntary dissolution
At an EGM, the partners vote to dissolve the company and appoint a liquidator to sell off assets, repay debts and close the accounts.
Liquidation of the SARL
Once dissolution has taken place, the partners must liquidate the SARL. To do this, they continue with the EGM with the following orders:
- approve the liquidation accounts,
- give discharge to the liquidator (approve the management and discharge the liquidator),
- record the close of operations.
All procedures are carried out via the online one-stop-shop for companies, as for modifications.
