In France and other French-speaking countries, a (, abbreviated as SARL, S.à r.l. and roughly translatable in English as "private limited company") is a type of business corporation where the liability of the members does not extend beyond the capital already contributed. Because of its limited liability and separate legal personality, it is closely comparable to a private limited company.
The term SARL first arose out of a statute dated May 23, 1863, but at that time, it referred to a form of joint-stock company unrelated to the modern SARL.
The current SARL was developed in Germany as the Gesellschaft mit beschränkter Haftung by an 1892 Bill. The SARL has been a legally recognized corporate structure in France since 1925.
History and consequences of "limited liability" The concept of liability limitation and the promulgation thereof in 19th century law (see French Bills of May 1863 and July 1867, and the English Joint-Stock Company Acts of 1856 and 1862) is, according to Harari (2011), "one of humanity's most ingenious inventions":"Peugeot is a creation of our collective imagination. Lawyers refer to it as a legal fiction. Peugot belongs to a particular kind of legal fiction, that of the limited liability company. The idea behind these companies is among one of humanity's most ingenious inventions."— Harari, Harari, Y. N. (2022). Sapiens : Une brève histoire de l'humanité. Albin Michel.
Harari then explains the advantages of this type of structure:"If a car broke down, the buyer could sue Peugeot, but not Armand Peugeot. If the company borrowed millions before going bankrupt, Armand Peugeot wouldn't owe a single franc to the creditors. After all, the loan was given to Peugeot the company – not to Armand Peugeot, the homo sapiens shareholder."— Harari, Harari, Y. N. (2022). Sapiens : Une brève histoire de l'humanité. Albin Michel
Legal principles In French law, a SARL is governed by various provisions of the Code de commerce (Commercial Code):
articles L223-1 to L223-43, which concern the incorporation and operation thereof; and articles L241-1 to L241-9, which prescribe penal offences to which it is subject.
The key distinction between a SARL and the société anonyme (public limited company) lies in its governance structure, which is far simpler than that of a société anonyme. A SARL is led by a manager, who reports annually to a general meeting of the shareholders, whereas a société anonyme is led by a CEO, who reports to a board of directors whose members report, in turn, to the general meeting of shareholders.
Since a July 1985 Bill, there are two variants of the SARL, namely: the SARL pluripersonnelle (multi-person SARL), having at least two shareholders; and the entreprise unipersonnelle à responsabilité limitée (one-person limited liability company), having a single shareholder. Despite its name, a société d'exercice (professional practice company) is not a SARL, but instead a société d'exercice liberal (learned profession company). Today, there are over 2 million SARLs in France, close to 80,000 having been created in 2022 alone. The model is particularly well-suited for small- and medium-sized businesses.
A SARL can take on various forms depending on the business activity and the shareholders involved, offering tax advantages in particular. Examples include: the SARL à capital variable (variable capital SARL), the SARL de presse (media SARL) and the SARL de famille (family-owned SARL).
Legal characteristics
Capital The amount of capital of a SARL is to be determined by its by-laws, pursuant to article L223-2 of the Code de commerce. The minimum capital was originally set at 20,000 francs by a July 1967 Bill. It was raised to 50,000 by Bill 84-148 in March 1984, and later, with the transition to the euro, set at €7,500. Today, the minimum capital requirement has been abolished, such amount being freely determined at the time of incorporation.
Abolition of minimum capital The Loi pour l'initiative économique (Economic Initiative Act) of August 1, 2003 repealed the €7,500 threshold, so it is now possible to incorporate a SARL with merely 1 euro in capital. However, share capital serves as a sign of credibility for banks, lenders and creditors and a signal of financial health for shareholders, being only liable for loss up to amount of their contribution. Still, capital alone is an imperfect indicator of a SARL's health: its financial statements and balance sheets paint a clearer picture.
Capital is divided into shares, the distribution of which is recorded in the by-laws. This structure permits the organization of power within the company (majority versus minority shareholders), which is important for voting on decisions. All shares must be fully subscribed by the shareholders. Shares representing contributions in kind must be fully paid up forthwith.
Contributions in cash must be paid up to at least one-fifth of their value at time of incorporation. The remainder may be paid in installments, at the manager's decision, within five years of the SARL becoming registered in the commercial and corporate registry. However, the capital must be fully paid up before any new shares can be issued, which must be paid up to at least one-quarter of their value in cash (as per Bill 2012-387 of March 2012), or else the issuance thereof shall be void.
Contributions in kind (assets, stocks, receivables) must be made immediately.
Contributions in industry (skills, know-how, expertise) are not permitted, which, while not counting towards the share capital, do grant shareholder status or a right to share in profits. The by-laws may specify how such contributions are recognized and how shares in industry are allocated.
Shareholders (Natural or Legal Persons)
Minimum: 2 (article L223-1, Code de commerce). Maximum: 100.
Shareholder responsibility is limited to amount of each's contributions.
Collective Decisions
Decisions which amend the by-laws are called "special collective decisions". Decisions which do not amend the by-laws are called "regular collective decisions". Collective decisions are generally made at general meetings.
For SARLs incorporated before August 4, 2005
Regular meetings: No quorum required. First Call: Majority of share capital. Second Call: Majority of votes cast by shareholders present or proxied. Special meetings: No quorum required. Three-fourths majority of the share capital.
Any clause in the by-laws inconsistent therewith is void.
For SARLs incorporated after August 4, 2005
Regular meetings: No quorum required. First Call: Majority of share capital. Second Call: Majority of votes cast by shareholders present or proxied. Special meetings: First call: one-fourth of the share capital. Second call: One-fifth of share capital. Two-thirds majority of the share capital held by shareholders present or proxied.
Any clause in the by-laws inconsistent therewith is void.
Other restrictions Unanimous decision is required for:
transformation of a SARL into a société en nom collectif (general partnership), société en commandite par actions (limited partnership) société en commandite simple (simplified limited partnership) or société par actions simplifiée (joint-stock company); changing the company's nationality; or increasing shareholder obligations.
Double majority (by number and capital) is required for:
transfer of shares.
Simply majority (half of share capital) is required for:
capital increase by incorporated reserves; or transformation into a société anonyme if the company's equity exceeds €750,000 in the latest balance sheet.
Incorporation of a SARL
By-laws
General contractual elements Consent: Subject to general contract law. Legal capacity: For associés non commerçants (non-trading individuals), legal capacity is sufficient to become a shareholder. Emancipated minors, protected adults, two spouses, foreign nationals or bodies corporate may become shareholders. Neither incompatibility nor prohibition limits access to a SARL, but individuals cannot have had their civil rights suspected, and certificate of non-conviction is required, pursuant to Article 128-1 of the Code de commerce, which was relaxed by the Loi de modernisation de l'économie (Economic Modernization Act) of August 2008. Business activity: Must be commercial in nature, regardless of type of activity. Certain types of businesses are prohibited from becoming SARLs, including insurance companies, capitalization companies, banks and tobacco shops. Entertainment companies have been allowed to become SARLs since 1988. Some activities are reserved for other corporate forms, e.g., securities portfolio management and investment companies. Some activities are exclusive to SARLs, e.g., real estate management companies. Some activities may be effected under SARL status but with certain conditions thereon, e.g., accounting firms. Specific contractual elements: There must be between 2 and 100 shareholders. If the number falls to 1, the SARL becomes an entreprise unipersonnelle à responsabilité limitée. If it exceeds 100, the SARL has one year to reduce the number; otherwise, it will be dissolved or converted into a public limited company. Capital is freely set in the by-laws (there previously being a minimum of €7,500). It can be fully or partially paid out over a maximum of five years. Capital can be increased after incorporation.
Capital contributions There are three types of SARL contributions:
Contributions in cash: At least one-fifth must be paid at time of incorporation. The remainder can be paid in one or more installments within five years, as decided by the manager. Funds must be deposited within eight days with a notary, bank or the Caisse des dépôts et consignations (Deposit and Consignment Office). If the company is not incorporated within six months, the funds may be reclaimed. Contributions in kind: Must be evaluated and detailed in the by-laws. A Contributions Auditor is appointed unanimously by future shareholders or by court order. The Auditor's report is annexed to the by-laws. However, this requirement is waived if no individual contribution exceeds €30,000 and the total in-kind contributions are less than half the capital. If no Auditor is appointed or if the value used exceeds the Auditor's recommendation, shareholders are jointly liable to third parties. Contributions in industry: Allowed since 2001 under the Loi relative aux nouvelles régulations économiques (New Economic Regulations Act). Do not count toward share capital but grant shareholder status and profit-sharing rights. The by-laws define the terms of compensation. If not specified, the contributor receives a share of profits and losses equal to that of the shareholder with the fewest shares.
Share Capital and Shares
Subscription and full payment of shares must occur at the time of incorporation (i.e., when the by-laws are signed). The distribution of shares must be recorded in the by-laws. Profit and loss sharing does not have to be proportional to shareholding, but loss participation cannot exceed the value of the shares held. Other essential elements of the company contract include profit-sharing, affectio societatis (mutual intent to form a company), company name and duration.
Formalities and Public Disclosure Requirements
By-laws: Must be ratified, written (either as a private agreement or by notarial deed) and signed by all shareholders. In addition to the standard clauses required for any company, SARL by-laws must include: a valuation of contributions in kind, the appointment of managers and the distribution of powers, rules for the transfer of shares, ways of consulting shareholders, and method of profit distribution. Appendices thereto should include: the Contributions Auditor's report, and a list of actions taken on behalf of the company during its formation.