The incorporation of an SARL is similar to that of an SA. The following steps usually take approximately two weeks, such figure being increased by approximately one month if capital contributions in kind are to be made:
1. the preparation of the Articles of Incorporation (statuts) (hereinafter referred to as “Articles”),
2. the subscription and payment for the shares of the SARL to be initially issued,
3. the execution of a lease or purchase agreement relating to the commercial property where the registered office of the SARL will be located,
4. the signature of the Articles,
5. the appointment of one or more Managing Directors (gérants),
6. the completion of the legal formalities of publication, and
7. the registration of the SARL in the Registre du Commerce et des Sociétés (hereinafter referred to as the “Register of Commerce and Companies”).
Thereafter, the company may withdraw the paid-in capital and commence commercial activities therewith.
The SARL is technically formed at the time of the signature of the Articles by all of the initial shareholders. It nevertheless does not acquire full legal existence and, as a consequence, cannot enter into contracts in its own name until such time as it is registered in the appropriate Register of Commerce and Companies (C.com., art. L.210-6). As soon as the completed registration application is filed, however, the clerk of the Commercial Court or the CFE issues a filing receipt (recepisse) stating “en attente d’immatriculation” (registration pending) receipt, valid for no more than one month, allows the SARL-in-formation to enter into certain contracts (e.g., electricity, telephone service) though it does not authorize withdrawals of paid-in capital (C.com., art. L.123-9-1).
PREPARATION OF THE ARTICLES.
The Articles may contain such provisions as the shareholders desire, but must, in all cases, contain the following (C.com., arts. L.210-2, L.223-7 and R.223-1).
– Declaration of Juridical Form.
– Declaration that the shareholders elect to associate themselves by forming an SARL.
– Name.
Designation of the name of the SARL, which name must always be accompanied by, but need not include, the words société à responsabilité limitée or the initials “SARL” and a statement of the company’s registered capital (C.com., art. L.223-1). In order to avoid possible infringement of, or confusion with, third parties’ trademarks or corporate names, 5 it is advisable to verify, at the outset, the availability of the proposed name of the SARL. 6
Duration.
Recital of the duration of the SARL, which duration cannot exceed ninety-nine years. 7
Registered Office.
Recital of the address of the registered office of the SARL.
Purpose.
Statement specifying the purpose of the SARL; mere reference to “any commercial, financial or industrial activity” is not sufficient and a more specific recital of the nature of the proposed corporate activity is required. 9
Registered Capital.
Declaration of the registered capital of the SARL; the amount of the registered capital is determined by the Articles and may be as low as 1 euro (C.com., art. L.223-2).
The capital of an SARL is divided into shares. An SARL does not have the right to issue negotiable share certificates (C.com., arts. L.223-11 and L.223-12); further, and as a consequence, an SARL is prohibited from making public offerings of its shares.
Statement of Shareholdings and the Payment of Subscription Price.
Enumeration of the identity and shareholdings of each shareholder (C.com., art. L.223-7). If stock is to be issued against capital contributions made in kind, an evaluation of such contributions must be set forth in the Articles (C.com., art. L.223-9).
In addition to the foregoing mandatory provisions, the Articles should contain all clauses necessary to assure the proper functioning of the SARL, such as the method of appointment of the Managing Director, the enumeration of the powers of the Managing Director (C.com., art. L.223-18), the rules governing the sale, transfer or assignment of shares, the rules governing the decisions of the shareholders and any super-majority provisions (C.com., art. L.223-29), the fixing of the fiscal year and the rules governing the liquidation of the SARL.
Finally, a recital of all contracts entered into and of the commitments and obligations assumed by the initial shareholders in the name of the company before the signature of the Articles must be annexed to the Articles. The initial shareholders who acted in the name of the SARL are personally jointly and severally liable for all such obligations until such time as the SARL is fully incorporated; such obligations are then considered as ratified and as having been entered into ab initio by the SARL (C.com., R.210-5). The aforesaid recital of obligations incurred by the initial shareholders must be annexed to the Articles in order to insure that the initial shareholders who acted on behalf of the SARL make full disclosure to the other shareholders of all such obligations before the Articles are signed. The ratification by the shareholders and the consequent release of the initial shareholders from personal liability applies only to obligations set forth in such recital. If, however, the aforesaid recital of obligations omits one or more obligations incurred by the initial shareholders, such obligations may be subsequently ratified by the shareholders (C.com., art. L.210-6).
The start-up of the company may require that certain acts be taken on behalf of the SARL-in-formation before the registration of the company in the Register of Commerce and Companies. Those shareholders who act on behalf of the company after the signature of the Articles but before the aforesaid registration are jointly and severally liable for all such actions unless:
1. such acts have been authorized in an annex to the Articles, in which case, once the SARL is duly registered, they are deemed to have been entered into ab initio by the SARL, or
2. the shareholders, after the registration of the SARL, specifically ratify same.
Subscription and Payment for the Registered Capital.
The registered capital must be subscribed for in its entirety (C.com., art. L.223-7). In the event that payment is made in cash, one-fifth of the registered capital must be paid in at the time of incorporation; the remaining subscription price for the shares must be paid in no later than five years from the date of the registration of the SARL (C.com., art. L.223-7). Payment in cash for stock subscribed for must be made either to the Caisse des dépôts et consignations, to a notaire, to a bank account opened in the name of the SARL-in-formation or, as is more frequently the case, to one of the persons overseeing the incorporation of the SARL who is in turn obliged to remit same within eight days to one of the three foregoing depositaries (C.com., art. R.223-3). Such funds may not be withdrawn by the SARL until the incorporation process is completed (C.com., art. L.223-8). In the event that payment is made in kind, the capital must be fully paid in at the time of incorporation and an evaluation thereof must be made and incorporated into the Articles (C.com., art. L.223-9). While such evaluation must be the subject of a report by an expert appraiser (commissaire aux apports) appointed by the shareholders, which report must be annexed to the Articles, such report is not binding and the shareholders may assign a different value to such contributions in kind. If the SARL has only one shareholder, no expert appraiser need be appointed. Nor need an expert appraiser be appointed if all of the shareholders so agree, if the aggregate value of all contributions in kind which are not the subject of a report of an expert appraiser does not exceed one half of the SARL’s registered capital, and no single contribution in kind exceeds 7,500 euros (C.com. art. L.223-9). If a third party is harmed as a result of an overvaluation of contributions made in kind, the shareholders may be personally subject to civil and penal sanctions where there was no expert appraiser appointed or where the value assigned to the contribution in kind is different from that proposed by the expert appraiser (C.com., arts. L.223-9 and L.241-3). Unlike the case with an SA, the shareholders may also make contributions in the form of services (apports en industrie), although such contributions may not constitute part of the registered capital of the SARL (C.com., art. L.223-7).
Leasing or Purchasing a Registered Office.
Inasmuch as mention must be made in the Articles of the location of the registered office of the SARL, it is necessary to either execute a lease agreement relating to or to purchase commercial property where the corporation will maintain such office. Furthermore, inasmuch as proof of the SARL’s lease or purchase of commercial property is needed to register the company, such agreement, as a practical matter, must be made before the SARL is incorporated. When selecting such office, the initial shareholders must bear in mind the land-use restrictions prohibiting the use of certain premises for commercial purposes.
Under certain circumstances, the registered office of the SARL may be established at the residence of its legal representative, or in office premises shared with other companies (C.com., arts. L.123-11-1 and L.123-11). 14
Signature of the Articles.
The Articles must be in writing and may be signed either sous seing privé 15 or before a notaire. The signature of the Articles before a notaire is mandatory when contributions in kind in the form of rights to real property are made.
Within one month of the signature of the Articles, the SARL must file same with the Corporate Formalities Center (Centre de Formalités des Entreprises).
Appointment of Managing Director(s).
After the signature of the Articles, the shareholders must appoint one or more Managing Directors (gérants) if such appointment has not been made in the Articles. 18 At this juncture, the appointment of the Managing Director(s) is necessary to carry out the formalities of publication, filing and registration needed to complete the incorporation process; indeed, such appointment does not become fully effective, and the ability of the Managing Director to act for the SARL does not mature, until such time as the SARL acquires full legal existence.
Formalities of Publication.
The incorporation process of an SARL is completed by the accomplishment of the appropriate formalities of publication which are similar to those required for the incorporation of the SA, except for the EURL. 19 Hereinafter, all such legal formalities will, from time to time, be collectively referred to as “appropriate formalities of publication.”
Withdrawal of Paid-In Capital.
As is the case with the SA, only after the registration of the SARL in the Register of Commerce and Companies may the paid-in capital of the SARL be withdrawn by the Managing Director (C.com., art. L.223-8). In order to make this withdrawal, a certificate issued by the clerk of the Tribunal de commerce (hereinafter referred to as the “Commercial Court”) 20 attesting to the due registration of the SARL must be supplied to the depositary bank or notaire holding the corporate funds (C.com., art. R.223-4).
Immediately after the registration of the corporation in the Register of Commerce and Companies, the SARL must set up the same accounting books as an SA; 22 it is not required, however, to set up similar corporate books. Instead, only a minute book (registre des procès-verbaux) for the minutes of the shareholders meetings on special numbered paper, stamped by one of the judges of the Commercial Court or certain other enumerated officials, must be set up and maintained (C.com., arts. R.223-24 and R. 221-3).