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What is a limited liability company?

A French limited company is called an SARL and is defined as being a company whose directors' liability is limited to contributions, even if the shares held in the capital are not freely transferable without the agreement of all or part of the partners.


The SARL explained by Blendy digital accountant

Partnership or capital company?

The SARL does not need a minimum capital to be formed. It can issue bonds, which are a characteristic of capital companies.


The SARL is therefore a hybrid company whose characteristics will depend largely on the wishes of the partners and the activity of the company.

 

1) Constitution of the SARL


  • Conditions relating to associates:

Number of associates: between 2 and 100 maximum.


The single-member company with limited liability (EURL): it has only one partner, but remains an SARL, subject to the legal regime of an SARL. The regulations are simply adapted to the uniqueness of associate. Therefore, only the sole shareholder draws up the statutes, signs them, and registers them.


The EURL is intended to become multi-personal: if the creator of the EURL is married under the community regime, and he uses common property to create his company, his spouse will be able to claim the status of partner, the society will then become multi-personal.

 

Sanction: in the event of exceeding the maximum number of partners,  the automatic dissolution of the company is pronounced within one year. However, to avoid the sanction, it is possible in this case deadline, to transform the company into a form of company which does not impose a maximum ceiling on the number of partners.

 

  • Specific conditions relating to the corporate purpose:

The partners have the freedom to determine the corporate purpose of their company, but certain activities are regulated due to their nature or the size of the SARL.

Activities prohibited in the SARL : independent commercial professions (e.g. broker) but the exercise of a regulated liberal profession is today possible within the framework of the SARL.


Banking, insurance or investment activities are prohibited for the SARL, because they are considered financially burdensome activities,

 

Activities reserved for the SARL : pharmacy, accounting expertise, or approved accounting.

2) Share capital 


  • Amount of share capital

It is set by the statutes and is divided into equal shares.

The minimum capital requirement was abandoned in order to encourage business creation (it is therefore 0).

 

  • Contributions  

Contributions in kind: they must be subject to an evaluation procedure.

 

 Two possible hypotheses:

  • the partners evaluate their contributions on the basis of a report drawn up by a contributions commissioner appointed unanimously by the partners or by the sole partner. If they retain the value determined by the commissioner, they do not incur any liability. If they choose a value different from that proposed by the commissioner, they will be held jointly and severally liable for the value of the contribution towards third parties for 5 years.

 

  • If the value of a contribution does not exceed 7,500 euros and if the total value of the contributions in kind does not exceed half of the capital, the partners freely determine the value of the contributions in kind; they are jointly responsible for this evaluation for 5 years.

 

Cash contributions : 1/5th of the capital must be released immediately and the rest within 5 years upon appeal by management. Beyond the deadline, the sanction incurred is the payment of damages and negligent managers can be called to order by a judicial injunction to act under penalty.

 

Contributions to industry : they can be admitted if they are provided for in the statutes. Thus, an SARL can be made up of industrial contributions exclusively, since there is no longer a capital requirement. The shares representing industrial contributions give the right to profit and to vote in a proportion which is determined by the statutes, and these rights are non-transferable.

 

  • The shares representing the contributions

The capital is divided into shares all having the same value, but this value is freely fixed in the statutes.

 

The abandonment  of the requirement of a minimum capital supposes that the SARL to finance itself can have recourse to other methods of financing, in particular by borrowing (the bank loan, account associated current, participatory loan)

From now on, the SARL can also be financed by a compulsory loan, subject to issuance conditions:

 

1st condition : option open to SARLs required to appoint an auditor, i.e. to SARLs exceeding 2 of the following 3 thresholds:

  • a balance sheet total greater than 1,550,000 euros,

  • a turnover excluding tax of more than 3,100,000 euros,

  • a number of employees greater than 50.

 

2nd condition : the accounts for the last three financial years must have been regularly approved, in order to guarantee the importance and seriousness of the SARL.

 

3rd condition : registered issue. The SARL cannot carry out a compulsory issue by public offering.

 

The issue regime requires a decision of the shareholders in AGM and an obligation to make available to subscribers a notice containing the conditions of the issue and an information document.

 

The distribution of shares obeys the principle of statutory freedom; failing this, the distribution of shares is proportional to the contributions made. This distribution must be specified in the statutes, even if the transfer of shares does not modify the statutes.

 


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