Legal Structure Options for Setting Up a Company in France: Which is Best for Your Business?

Key Legal Structures in France

French law offers several distinct legal structures for businesses. The two most common forms chosen by foreign investors are the Société à Responsabilité Limitée (SARL) and the Société par Actions Simplifiée (SAS). The SAS has become the most incorporated form of company in France due to its flexibility.

Société à Responsabilité Limitée (SARL)

The SARL is a limited liability company traditionally designed for family businesses and smaller ventures. Consequently, it is a highly regulated corporate form in all aspects. Key characteristics of a SARL include:

• Limited Liability: The liability of the shareholders (associés) is generally limited to the amount of their capital contributions.

• Number of Shareholders: A SARL can have between one (in which case it is called an EURL – Entreprise Unipersonnelle à Responsabilité Limitée) and one hundred shareholders.

• Management: A SARL is managed by one or more natural persons (individuals) called gérants. A corporate entity cannot act as a gérant of a SARL. The rules regarding the appointment, dismissal, and powers of the gérant, as well as shareholders’ decisions, are strictly defined in the French Commercial Code.

• Capital Requirements: The minimum share capital required to establish a SARL is symbolic (currently €1), providing flexibility for new ventures.

• Administrative Burden: The administrative and accounting requirements for a SARL are similar to those of an SAS. In certain aspects, such as share transfer, the SARL can be more complex, and the sale of shares is subject to a higher rate of taxation.

• Social Security Regime: The gérants who hold more than 50% of the share capital are generally subject to the social security regime for the self-employed (Travailleurs Non-Salariés - TNS).

• Share Transfer: The transfer of shares in a SARL is regulated and, in any case, requires a shareholders’ decision to update the articles of association and to perform the related formalities at the company registrar. Furthermore, the shareholding in a SARL is public and not confidential, and the approval of new shareholders is mandatory. The sale of shares in a SARL is also subject to a higher rate of taxation compared to the SAS.

• Governance: The governance of a SARL is largely dictated by legal provisions, offering less flexibility compared to an SAS.

  
  

Société par Actions Simplifiée (SAS)

The SAS is a more flexible, contract-based corporate form that offers significant freedom in its organization. The law imposes minimal mandatory requirements, with the primary obligation being the appointment of a president (or chairman in English). Key characteristics of an SAS include:

• Limited Liability: Similar to the SARL, the liability of the shareholders (associés) is generally limited to the amount of their capital contributions.

• Number of Shareholders: An SAS can have one or more shareholders. A single-member SAS is referred to as a SASU (Société par Actions Simplifiée Unipersonnelle).

• Management: An SAS must have at least one president (président), who can be either a natural person (an individual) or a legal entity (a company). This allows foreign companies to directly appoint their parent company as the president of their French subsidiary, streamlining the management structure and removing the need to find a local individual for this role. Further management bodies and their powers are freely determined by the shareholders in the company's articles of association (statuts).

• Capital Requirements: Similar to the SARL, the minimum share capital required to establish an SAS is symbolic (€1).

• Administrative Burden: While offering greater flexibility, the initial drafting of the bylaws for an SAS requires careful attention to detail. Ongoing administrative and accounting requirements are generally similar to or slightly more involved than those of a SARL.

• Social Security Regime: The président and any other executive officers of an SAS are generally considered employees (assimilés salariés) for social security purposes, offering a broader scope of social protection.

• Share Transfer: Unless otherwise stipulated in the articles of association, the transfer of shares in an SAS is generally less regulated than in a SARL, offering greater liquidity.

• Governance: The governance structure of an SAS is largely determined by the shareholders in the articles of association, allowing for tailored rules regarding shareholder rights, decision-making processes, and the appointment and removal of management.

  
  

Other Legal Structures

While the SARL and SAS are the most common choices, other legal structures exist in France, including the Société Anonyme (SA) for larger public companies and various forms of partnerships. These structures may be suitable depending on the specific nature and scale of your business activities.

Key Considerations

When deciding on the most suitable legal structure for your business in France, several factors should be carefully considered:

• Liability: Understanding the extent of personal liability for the company's debts is paramount. Both the SARL and SAS offer limited liability, protecting the personal assets of the shareholders.

• Management Structure: The desired level of flexibility in the management structure is a crucial factor. The SAS offers significantly more flexibility, notably by allowing a corporate entity to act as president, a common practice for foreign companies establishing a presence in France. In contrast, the SARL requires an individual as the gérant.

• Social Security Implications: The social security regime applicable to the company's management will impact costs and benefits. The SAS generally offers a more comprehensive social security coverage for its executive officers.

• Taxation: Both the SARL and SAS are typically subject to corporate income tax in France. However, there can be options for certain shareholders to be taxed under the personal income tax regime under specific conditions.

• Administrative Burden: Consider the ongoing administrative and accounting obligations associated with each structure. While both require compliance, the initial drafting of the bylaws for an SAS requires particular attention due to its contractual nature.

• Future Growth and Investment: If you anticipate significant growth or future rounds of investment, the SAS structure is generally preferred by investors due to its flexibility in structuring shareholder rights and facilitating capital increases.

• Share Transfer and Governance: For family-owned businesses seeking more control over share transfers and a legally defined governance framework, the SARL might be considered. However, for businesses prioritizing flexibility and tailored governance, the SAS offers greater advantages.

  
  

Conclusion

Choosing the appropriate legal structure is a critical decision when establishing a business in France. While both the SARL and SAS offer the benefit of limited liability, they differ significantly in their flexibility, particularly regarding management and governance. The SAS, being the most incorporated form in France, offers great liberty in tailoring its organization through its articles of association. However, this very flexibility underscores the critical importance of carefully drafting these bylaws. We have encountered cases where a locally appointed president has prepared articles of association that prioritize their own interests over those of the shareholders. Therefore, we strongly recommend that you seek professional legal advice to discuss your specific circumstances and ensure that your articles of association are drafted to protect your interests and align with your business strategy in France.

Our team of experienced lawyers is available to provide comprehensive guidance and support throughout the company formation process.