Limited Liability Company (LLC): What you need to know
Verified 24 January 2024 - Directorate for Legal and Administrative Information (Prime Minister)
SARL is a commercial business in which the partners' liability is limited to the amount of their contributions. It shall consist of at least two members, not more than 100, legal persons or natural persons. It can be chosen by craftsmen, traders, industrialists and unregulated liberal professions. It is suitable for family projects.
The Limited Liability Company (LLC) is a commercial business that must count at least 2 partners, and up to 100 associates.
Associates of SARL may be natural persons (adults or minor) or legal persons (for example, another business, an association).
There's no no minimum share capital required when creating the business.
SARL allows you to limit liability partners in the amount of their contributions. However, the manager may be liable in excess of the amount of the contributions in the event of mismanagement. For example, if it performs a declaration of cessation of payments late, i.e. without respecting the deadline, he may be ordered to pay part of the debts of the SARL.
The creation of a SARL requires the drafting of statutes.
Please note
You are considering create a SARL ? We explain how build a step-by-step business.
To be associate of an SARL, you must perform a contribution to share capital business in return for the remission of shares. No minimum social capital is required by law.
The share capital is composed ofcash contributions (silver) and/orcontributions in kind (for example, a computer, a car).
The cash contributions shall be paid as follows:
- 20% input when creating the business.
- The balance within 5 years after the registration of the SARL.
Contributions in kind are made by transferring ownership of the property to business. Their evaluation by a commissioner for contributions is mandatory when 2 conditions the following are combined:
- A contribution in kind has a value greater than €30,000,
- And the total value of the contributions represents more than half of the equity capital.
In return for his contribution to the capital of SARL, the person becomes a partner by receiving a number of shares which give him the following rights:
- Participate actively in the life of the company at the general meetings of the partners (AGO: titleContent , AGE: titleContent
- Collect a share of profits carried out by the business
Management bodies
The SARL must be administered by one or more managers.
This manager is necessarily a natural person which may or may not be associated with SARL.
The manager is appointed by the partners in the statutes or by a separate document in the course of a AGO: titleContent.
The manager must do everything management act. Thus, he can, on behalf of the SARL, sign contracts, hire employees, take legal action, etc. All its decisions must be in the business’s social interest, i.e. they must be useful to it. Decisions of the manager which have no interest in the business may be classified as mismanagement and thus involve the manager’s responsibility.
In some cases, the powers of the manager are limited by the articles of association. For example, they specify that prior authorization of the members is necessary to adopt a decision.
The manager is prohibited from performing the following acts:
- Borrowings from SARL
- To be granted by the SARL an overdraft in current account
- To be guaranteed by the SARL the commitments to third parties: the SARL cannot guarantee commitments of the manager to third parties.
Decision-making
The manager(s) shall convene the general meeting of the shareholders to take any decision affecting the life of the business.
There are 2 types of general meetings:
- Ordinary General Meeting (AGO) decide on the annual approval of accounts, appointment, dismissal and remuneration of the manager. Decisions shall be taken by a majority of members representing at least half of the shares.
- Extraordinary General Meeting (AGE) is reconvened when the statutes of the business need to be amended. It may be the transfer of registered office, the change of name, the increase in share capital. Decisions must be taken by a majority of the members representing at least 3/4 of the shares.
The partners are summoned 15 days at least before the meeting by the manager(s).
Warning
The relocation of the registered office on french territory can be decided by the manager(s) provided that the decision is validated by the partners.
A distinction must be made between the tax system of SARL, the tax system of its partners and the manager.
Tax regime of SARL
SARL is subject to principle business tax (IS). Partners may opt for income tax (IR) conditions when the LLC is under 5 years of age or when it is a family LLC.
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SARL subject to IS
L'business tax (IS) is a tax on the company's profits.
The normal rate is 25% for all companies.
A reduced rate of 15% shall apply on the share of profits up to €42,500 where the business:
- Turnover HT: titleContent less than €10 million
- At least 75% share capital is held by natural persons
Sarl Submitted to IR
The SARL option for income tax (IR) is available for SARLs under 5 years of age and for "family SARLs".
SARL less than 5 years old
SARL can opt for income tax (IR) if it completes all conditions following:
- It is principally engaged in commercial, craft, agricultural or liberal activities.
- It is not publicly traded.
- She employs less than 50 employees.
- She's doing a annual turnover or has a total balance sheet less than €10 million.
- It must have been created since then under 5 years at the time of the option request.
- The voting rights must be held at at least 50% by one or more natural persons.
- The voting rights must be held at at least 34% by one or more of the following persons: chairman, managing director, chairman of the supervisory board, member of the executive board or manager and the members of their tax household.
This option is valid for 5 accounting years (5 years) and may not be renewed.
When the option for income tax is taken, it is not the business that pays the taxes, but each of the partners according to their share of the profits.
Family SARL
The regime of the "family SARL" is a tax option which applies unlimited duration LLCs formed between members of the same family: parents in a direct line (children, parents, grandparents), siblings, spouses, persons bound by a Civil partnership (civil solidarity pact).
This tax option must be decided by all partners and corresponds to the businesses of persons regime. This means that the partners are directly taxed on profits in proportion to their share in the capital of the business ( shares).
Tax treatment of members
The taxation of members is different depending on whether the SARL is subject to income tax (IR) or business tax (SI).
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SARL subject to IS
When the partners have decided to distribute dividends, the share accruing to each member is subject to income tax (IR) in the category of income from movable capital (RCM).
RCMs are automatically subject to the single lump sum levy (PFU) which is 30%. If the partner so wishes, he can opt for taxation at the progressive scale of income tax.
SARL subject to IR
The partners, natural persons, are personally liable to tax income tax (IR) when they collect dividends.
The profit or loss of the SARL is taxable at the level of the partner.
It is in addition to other income of the partner's tax household in the BIC: titleContent or NBC: titleContent.
All its income is taxed at the IR according to the application of the progressive schedule of income tax (IR).
Tax treatment of the manager
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SARL subject to IS
The remuneration of the manager is taxed in the category of salaries and wages. The manager has the choice between a lump-sum allowance of 10% for professional expenses or to deduct from his income his actual and justified professional expenses.
The dividends collected are taxable in the category of income from movable capital (RCM) which are automatically subject to the flat-rate levy (PFU) which is 30%. If the partner so wishes, he can opt for the taxation of the progressive schedule of income tax (IR).
FYI
The remuneration of the manager is deductible from the profits of the business.
SARL subject to IR
The manager may receive remuneration and a portion of the profit of SARL if he is a partner.
His remuneration is taxed in the category of salaries and wages and benefits from a flat-rate allowance of 10% for business expenses.
For the part of the profits due according to his share in the share capital, the manager is taxed to the IR in the category BIC: titleContent or NBC: titleContent.
FYI
The remuneration of the manager is not tax deductible for SARL.
The social security scheme of the managing partner depends on the number of shares he holds in the business.
To determine the minority, egalitarian or majority nature of the stewardship, the following elements must be taken into account:
- Number of shares held personally by the manager
- Number of shares held by his spouse (irrespective of the matrimonial regime) or partner bound by a Civil partnerships: titleContent
- Number of shares held by her minor children non-emancipated
FYI
The manager's social security scheme unassociated (which has no shares) is identical to that of the minority or egalitarian associate manager. This implies that he receives remuneration for his social mandate.
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Unassociated Manager
The manager's social security scheme unassociated (who does not have shares) The manager (minority or egalitarian) is responsible to the general social security scheme if he is paid.
Associate minority or egalitarian manager
The manager is minority if he holds less than half of the shares in the business. He is egalitarian where he holds half the shares in the company.
The manager (minority or egalitarian) reports to the general social security scheme if he is paid.
Majority Associate Manager
The majority manager holds more than half of the shares, i.e 50% + 1 social share.
The majority managing partner is affiliated with the social security scheme for the self-employed. Social security contributions are calculated on his professional income.
Warning
The majority manager who does not receive remuneration must pay minimum social contributions.
The sale of shares follows different rules depending on the type of buyer (family member, partner or third party):
- The transfer of shares to a family member or to a associate is free. The transferor is not required to obtain the consent of the other partners in order to dispose of its securities. However, the statutes of the SARL may require an approval procedure (i.e. the agreement of the members by a majority, or by unanimity).
- Disposal of shares to a third party (e.g. former partner, employee, non-partner manager) is subject to the approval of members : the agreement of the majority of members representing at least half of the shares is required. On the other hand, the statutes may provide for a larger majority.
In either case, the transfer of shares gives rise to the payment of a registration fee to the tax administration.
This duty shall be fixed at 3% the sale price less a reduction equal to €23,000 and returned to percentage of the number of shares transferred in social capital.
Example :
You own 50 shares of a SARL whose capital is divided into 400 shares. You sell your shares to the buyer for a value of €50,000.
The amount of registration fees payable by the purchaser shall be calculated as follows: Transfer price - (23,000 x Number of shares sold ÷ Total shares in the business) x 3% .
This would result in: 50 000 - (23 000 × 50 ÷ 400) = 47 125 × 3% = €1,414 registration fees.
SARL | LOCK | |
|---|---|---|
Number of partners | 1 to 100 | 1 to unlimited |
Leader | Manager (one or more) | President (and one or more Directors-General) |
Share capital | Free | Free |
Release of cash contributions | At least 1/5 from creation | At least 1/2 from creation |
Taxation of profits | Business tax (IS). Possible option for IR | Business tax (IS). Possible option for IR |
Tax treatment of the director | Income tax (IR) in the Salaries and Wages category. | Income tax (IR) in the Salaries and Wages category. |
Social security of the director |
| General social security scheme |
Corporate securities | Shares | Actions |
Transmission of securities | Authorization of members | Free (possible approval clause) |
Registration fees | 3% of the sale price after a reduction of €23,000 | 0.1% of the transfer price |
Share capital and shares (Articles L223-1 to L223-9)
Cash contribution
Assessment of a contribution in kind
Evaluation of a contribution in kind by an auditor (CAC)
Appointment and power of managers
Acts prohibited to the manager
Voting rules in LLCs
Tax system of the SARL de famille
Tax treatment of LLCs that have opted for IR
Registration fees