FRANCE

COMPANY FORMATION
SARL COMPANY

SOCIÉTÉ À RESPONSABILITÉ LIMITÉE

SOCIÉTÉ À RESPONSABILITÉ LIMITÉE (SARL)
The SARL is the most widely utilized form of corporation in France, mainly because, like the SAS, it has many advantages for small companies, such as low stated capital requirements and simple rules and regulations by which the shareholders must abide. There is a special type of SARL with one shareholder only (see 3.6 below). To some extent, it resembles a close corporation in the U.S. or a private limited company in the UK.

1 General Structure

A SARL must have at least two and no more that one hundred shareholders. They may be French or foreign citizens, natural persons or legal entities. A SARL may not be listed on a stock exchange.

The stated capital of a SARL may be as low as 1 € and shareholders’ contributions may be made in cash or in kind, such as tangible assets or intellectual property . As for the SA, an expert appraiser (Commissaire aux apports) must be appointed to issue a report regarding the value of said contributions. At least one-fifth of the monetary contributions must be paid on the date of the shares subscription, the rest being paid off within five years of the date of incorporation. Contributions in the form of services or know-how (apports en industrie) are possible but any shares issued therefore are subject to special rules, and they are not taken into account to determine the stated capital of the company.


2 General Management

A SARL differs from a SA, inter alia, since it is ran by one or several managers (gérants), the number of which being set forth in the articles of incorporation. They may be third parties, shareholders, or salaried employees if they do not own the majority of shares, but they must be natural persons (no corporate management). A manager may be a French or foreign national. He or she is initially appointed by the articles of incorporation and, subsequently, by one or more shareholders holding more than one-half of the shares. His or her compensation is set likewise. A Manager may be revoked by the partners of the SARL or by a court decision for just cause. He is entitled to damages in the event of a revocation without just cause. Unless a shorter term is specified in the articles of incorporation, a manager is appointed for life in the company.

The manager has the widest-ranging powers to deal with third parties on behalf of the corporation. Moreover, like in a SA or SAS, the corporation is bound even by actions that are outside the corporate purpose unless the third party knew or should have known so, given the circumstances. The articles of incorporation may limit the authority of the manager with respect to shareholders. In the absence of a limitation of power, the manager may engage the SARL in any activity in the interest of the corporation.

A manager may be held civilly and criminally liable for breach of the articles of incorporation or of laws and regulations applicable to the SARL, and for mismanagement. Salaried employees, shareholders and even third parties may sue the manager in case of personal injury. The shareholders have also standing to sue the manager where injury is caused to the corporation. Criminal liability is incurred for infractions committed in the incorporation, administration, or management of the company.


3 Shareholders’ Rights

The way the shareholders of a SARL take their decisions is close to the one in a SA, except that the articles of incorporation may allow their consultation by correspondence or the adoption of decisions by unanimous written consent of the partners, which is not possible in a SA.

Voting depends on categories of decisions taken in a SARL:

3.1. Ordinary decisions such as approval of accounts, appointment and revocation of the manager, and other decisions which do not imply a modification of the articles of incorporation: upon the first vote, a majority of the stated capital is required, if a majority is not obtained, a decision is made by a majority of shareholders who participated in the vote, regardless of the number of shareholders having participated in the vote but a higher majority may be required by the articles of incorporation;

3.2. Extraordinary decisions including modification of articles of incorporation, increase or decrease in the stated capital, merger, dissolution, etc… : decisions must be approved by holders of shares representing at least 50 % of the stated capital;

3.3. Unanimous decisions are required for a change of the place of the incorporation, transformation into an SAS, SNC, SCS or SCA, etc.

Shares are freely transferable between the shareholders, but approval of a majority of the shareholders holding at least half of the shares is required in case of transfer to a third party (unless the articles of incorporation require a larger majority). The articles of incorporation may provide that a transfer to a spouse, a parent, or a child may be the subject to an agreement. The articles of incorporation may also subject the transfer of shares of a shareholder upon death to approval. In order to transfer shares, a written agreement must be entered into and the transaction is subject to a registration tax of 4.8 % of transfer price. This tax is, however, subject to a tax relief equal to the ratio between 23,000 Euros and the total number of shares in the corporation.


4 Statutory Auditor

A statutory auditor is only necessary if 2 of the 3 following thresholds are met: (i) total assets of 1,550,000 €; (ii) sales (net of taxes) of 3,100,000 €; or (iii) an average number of employees exceeding 50. The appointment of a statutory auditor may also be requested from the commercial court by shareholders representing at least one-tenth of the stated capital of the SARL.

If a statutory auditor is appointed, the same rules as those applicable in the case of a SA apply with respect to the performance of his duties.


5 Entreprise Unipersonnelle à Responsabilité Limitée (EURL)

A EURL is a SARL with one partner only, which situation may result from a decision made at its creation or from the acquisition of all the shares by one shareholder.

The basic regime of the EURL is the same as that of the SARL, with a few differences. The sole shareholder may be a corporation or a natural person, but not another EURL.

The sole shareholder may be the manager or may appoint a third party as manager.

The rules relating to the notice of General Meetings of shareholders are not applicable, but the decisions of the sole shareholder must be recorded in the corporate minute book of the company.

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