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What is a limited liability company?

May 14, 2021

A SARL is defined as a company whose managers' liability is limited to their contributions, even if the shares held in the capital are not freely transferable without the agreement of all or some of the partners.

A SARL is defined as a company whose managers' liability is limited to their contributions, even if the shares held in the capital are not freely transferable without the agreement of all or some of the partners.

Partnership or corporation?

The LLC does not need a minimum capital to be formed. It can issue bonds, which are a feature of corporations.

The SARL is therefore a hybrid company whose characteristics will depend to a large extent on the will of the partners and the activity of the company.

1) Incorporation of the LLC

  • Conditions relating to the partners :

Number of partners: between 2 and 100 maximum.

The one-man limited liability company (EURL): it has only one partner, but remains a limited liability company, subject to the legal regime of the limited liability company. The regulations are simply adapted to the single partner. Therefore, only the single partner draws up the articles of association, signs them and registers the company.

The EURL is intended to become a multi-person company: if the creator of the EURL is married under the community regime, and uses common assets to create his company, his spouse may claim the status of partner, the company will then become multi-person.

Sanction: if the maximum number of partners is exceeded, the company is automatically dissolved within one year.
However, in order to avoid the sanction, it is possible within this period to transform the company into a form of company which does not impose a maximum limit on the number of partners.

  • Specific conditions relating to the corporate purpose :

The partners are free to determine the object of their company, but some activities are regulated because of their nature or the size of the LLC.

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

Banking, insurance or investment activities are prohibited for the LLC, as they are considered financially burdensome,

Activities reserved for limited liability companies: pharmacy, chartered accountancy, or certified accountancy.

2) Share capital

  • Amount of share capital

It is fixed by the articles of association and is divided into equal shares.

The minimum capital requirement has been dropped in order to encourage business creation (it is therefore 0).

  • Inputs

Contributions in kind: these must be subject to a valuation procedure.

Two possible hypotheses:

  • the partners shall value their contributions in the light of a report drawn up by a contribution auditor appointed unanimously by the partners or by the sole partner. If they retain the value determined by the auditor, they shall not incur any liability. If they retain a value different from that proposed by the auditor, they will be held jointly and severally liable for the value of the contribution vis-à-vis third parties for 5 years.

  • If the value of a contribution does not exceed 7500 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 and severally liable for this valuation for 5 years.

Cash contributions: 1/5th of the capital must be paid up immediately and the remainder within 5 years on appeal by the management. Beyond the deadline, the penalty is the payment of damages and negligent managers may be called to order by a judicial injunction to do so under penalty.

Contributions in kind: these may be allowed if they are provided for in the articles of association. Thus, a limited liability company can be made up exclusively of contributions in kind, since there is no longer a capital requirement. The shares representing industrial contributions give the right to profit and voting rights in a proportion determined by the articles of association, and these rights are non-transferable.

  • The shares representing the contributions

The capital is divided into shares, all of which have the same value, but this value is freely determined in the articles of association.

The abandonment of the minimum capital requirement implies that the SARL can use other means of financing, in particular through borrowing (bank loan, shareholder current account, equity loan)

The LLC can now also be financed by a mandatory loan, subject to issue conditions:

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

  • a balance sheet total of more than EUR 1 550 000,
  • a turnover excluding tax of more than EUR 3 100 000,
  • a number of employees greater than 50.

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

3rd condition: registered issue. The LLC may not carry out a mandatory public issue.

The issuance regime requires a decision of the partners in a general meeting and an obligation to make available to subscribers a notice containing the conditions of the issuance and an information document.

The distribution of shares is subject to the principle of statutory freedom; otherwise, the distribution of shares is proportional to the contributions made. This distribution must be specified in the articles of association, even if the transfer of shares does not modify the articles of association.

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