sas-sarlWhy do we need to make a comparison between an SA and an SARL? Because the two most common business vehicles in France are the société anonyme (“SA”) and the société à responsabilité limitée (“SARL”) and the foreign investor, when deciding how to structure his investment, often narrows down his choice to one or the other of these two vehicles.

The purpose of this section is to examine the salient distinguishing features of each form in an effort to assist the foreign investor in selecting the most appropriate business vehicle. While there are numerous other vehicles available, which vehicles will be examined below,  they are not generally appropriate for many forms of foreign investment inasmuch as they have been legislatively created to respond to specific business needs or purposes.  Still other vehicles exist which provide light structures usually used for activities limited in time or in scope.

The first factor to be considered in deciding between an SA and an SARL as the vehicle for an investment in France is the extent of operations to be carried out. The SARL is better suited for small and medium size investments because it is easier to incorporate, manage and operate. Furthermore, the relatively simple procedure of transformation of an SARL into an SA  permits the investor, once his business operations in France have developed to the point where such transformation becomes necessary or appropriate, to adopt the form of an SA without undue expense or complications.



The registered capital required for the incorporation of an SARL is fixed by the Articles and may be as low as 1 euro; the minimum registered capital for the incorporation of an SA is 37,000 euros. While one-fifth of the registered capital of an SARL must be paid in at the time of incorporation, one-half of the registered capital of an SA issued against cash contributions need be paid in at such time. In conclusion, the SARL is generally a more appropriate form for those investors who wish to minimize their initial capital investment in France.

The minimum number of shareholders required to incorporate an SARL is one; the minimum number required for an SA is seven. While the maximum number of shareholders permissible in an SARL is one-hundred, there is no maximum number of shareholders for an SA.



Status of Management.

The SA is managed either by a Board of Directors or a Supervisory Board and a Directorate; the members of management of an SA, with the exception of members of the Directorate, the General Manager, and the Assistant General Manager(s) must be shareholders. An SARL, on the other hand, may be managed by only one Managing Director, who need not be a shareholder. The Directors and the President of an SA managed by a Board of Directors may be removed at any time with or without cause; while the Managing Director of an SARL may similarly be removed with or without cause, his removal without cause may make the company subject to substantial liability. It is therefore common practice to appoint the Managing Director(s) of an SARL for a limited period of time so as to avoid the necessity of removing him(them) and the consequent risk of having to pay damages resulting from a removal without cause. While there are limitations on the number of similar posts that the members of the Directorate, the President and the General Manager of an SA may simultaneously hold in SAs having their registered office in Metropolitan France, there is no restriction on the number of posts as Managing Director of SARLs one individual may hold.

The status of the management of an SA or an SARL under applicable social security legislation is also often considered in determining which investment vehicle to use. Social security contributions borne by an employer range from thirty to forty-five percent of the gross salary; those contributions borne by the employee are approximately ten to twenty-five percent of his gross salary. The President, General Manager and Assistant General Managers and members of the Directorate are, by definition, entitled to all social security benefits, with the exception of unemployment coverage, and thus social security contributions must be paid by the employer and the employee; the Managing Directors of an SARL are covered by social security legislation only if they are not deemed majority shareholders of the SARL. If a Managing Director is deemed a majority shareholder, he must secure and personally pay for special social security coverage applicable to independent workers.



The SARL is more easily managed inasmuch as shareholder action, except for the annual approval of the financial statements of the SARL, may be taken either at an actual meeting or, if the Articles so provide, by written consultation; where the SARL has only one shareholder, the decision-making process is simpler still and all that need be done is to keep a special register in which the sole shareholder’s decisions are evidenced.  Decisions of the shareholders of an SA must always be taken at an actual meeting. Moreover, meetings of the Board of Directors or Supervisory Board of an SA may only be held if half of their members are present; the Articles may not provide otherwise. An SARL, on the other hand, may be managed by only one Managing Director, and, in the event that an SARL has several Managing Directors, there is no statutory provision which requires them to hold formal meetings.



A Statutory Auditor (commissaire aux comptes) must be appointed for a term of six years by each SA; two Statutory Auditors must be appointed for SAs which are obligated to publish consolidated financial statements. An SARL, however, need not appoint a Statutory Auditor unless its total net worth, pre-tax turnover and/or number of employees exceeds certain thresholds.



As is the case with an SA, the Articles of an SARL and any amendments thereof must be filed with the Commercial Court; unlike the case with an SA, however, the contract of sale must be filed with the Commercial Court. Third parties may therefore learn, at any time, the identity and shareholdings of the shareholders of an SARL.



The shares of an SA are negotiable either by the execution of a stock transfer power if the shares are in nominative form or by simple transfer if the shares are in bearer form. The shares of an SARL are not negotiable and their transfer must be made by a written contract of sale, a copy of which must be served on the SARL by a process server; formal public disclosure of such transfer must also be made. Furthermore, the shares of an SARL may normally not be transferred to third parties without the prior consent given by the affirmative vote of a numerical majority of the shareholders representing at least one-half of the capital of the SARL; absent contrary provision in the Articles, no similar restriction exists on the transfer of the shares of an SA.

The transfer of shares of an SA is always subject to a registration tax of 3 percent as limited by a 5,000 euros ceiling. The transfer of shares of an SARL is always subject to the same registration tax of 3 percent, but the amount on which the 3 percent registration tax is imposed is subject to a reduction (abattement) of 23,000 euros which is prorated in proportion to the percentage of shares transferred.



As is the case with an SA, SARLs with more than one shareholder or with one shareholder (associé unique) that is a legal entity, are subject to corporate income tax. However, provided certain conditions are met, SAs and SARLs may elect to be transparent for tax purposes. Thus, the shareholders are subject to income tax, in lieu of the SA/SARL, on the SA/SARL’s net taxable income, whether or not such income is actually distributed. Similarly, the shareholders may deduct the SARL’s losses from their taxable revenue.

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