The SARL-S (société à responsabilité limitée simplifiée, or simplified limited liability company) is a variant of the classic SARL. Thanks to simplified procedures and reduced set-up costs, it offers an attractive alternative especially to young entrepreneurs. However, it is not suitable for all profiles and requires compliance with certain rules. myLIFE answers five questions you might have about the simplified SARL.
Are you are considering starting your own company, but don’t yet know the various possibilities available to you? Besides the usual structures, such as the limited company (SA) or the limited liability company (SARL), have you heard of the “one-euro company” or SARL-S? What does this mean?
1. Who is the SARL-S intended for and what type of business is it?
The SARL-S (simplified limited liability company) is relatively new on the Luxembourg scene, as it has only been in existence since 16 January 2017. It’s aimed especially at young entrepreneurs and self-employed workers whose activity does not require large financial or capital investment.
This form of company is therefore particularly suitable for providing intellectual, coaching, consultancy, training or advisory services, etc.
However, a SARL-S can only be set up by natural persons and for businesses requiring a business permit (french) issued by the Ministry of the Economy (commercial, craft, industrial and certain liberal professions of an intellectual nature1). This type of trading company would therefore not be appropriate for certain businesses in finance or healthcare, for example.
It is quite possible to start your SARL-S with just EUR 1, hence its nickname of the “one-euro company”.
2. What are the main advantages of the SARL-S?
The SARL-S was introduced with the aim of simplifying the process of setting up a business. It offers several (in particular financial) advantages to those who are dipping their toes in the world of entrepreneurship.
- A minimum share capital of EUR 1. The minimum contribution for the creation of an SARL-S is between EUR 1 and EUR 12,000. This can be made in cash or in kind (goods). It is therefore quite possible to start your company with just EUR 1, hence its nickname of the “one-euro company”. As a reminder, the minimum share capital when setting up a traditional limited liability company (SARL) is EUR 12,000 and a minimum of EUR 30,000 is required for a public limited company (SA).
- Lower administrative expenses. While the administrative procedures are similar to those of an ordinary SARL, one of the special features of the SARL-S is that it can be incorporated by private deed without having to go through a notary. The choice is up to the entrepreneur. This flexibility makes it possible both to speed up the procedures and to reduce their cost.
- The same protections as a traditional SARL. The SARL-S offers the same advantages as a SARL, especially in terms of liability. The entrepreneur and any partners are only liable for the company’s debts in proportion to their participating interest in its capital. There is no confusion between private and professional assets as in the context of the management of a sole proprietorship (in own name), except in special cases2.
The SARL-S is not suitable for companies that require a large initial investment.
3. What are the disadvantages of an SARL-S?
While the SARL-S is intended to be more easily accessible than other corporate structures, it also has certain limitations that should be considered before getting started.
- A company structure that is not suitable for all profiles. The SARL-S is only intended for natural persons with a business permit, and from the outset excludes certain professions, but also legal entities3 who might wish to become partners in it. It is also unsuitable for companies that require a large initial investment or that have to assume major operating costs.
- Accounting and tax charges equivalent to those of a classic SARL. While some start-up costs are reduced, others are still payable by the SARL-S: registration fees, costs for obtaining the business permit, accounting expenses, account maintenance charges, VAT, taxes, etc.
- The obligation to create a reserve fund. In addition to the creation of a legal reserve, it is obligatory for at least 5% of the annual net profits of a SARL-S to be allocated to a reserve fund. This requirement is applicable until the fund, added to the initial capital, reaches EUR 12,000 (i.e. the minimum capital amount of the classic SARL). The articles of association can then be amended to change from SARL-S to SARL. Note that the law does not provide for any time limit for reaching the amount of EUR 12,000.
- A lack of credibility. Because of its limited capital, an SARL-S may suffer from a lack of credibility with banking institutions or with suppliers who may fear the company is not sufficiently robust. They may be more reluctant when it comes to making a commitment to it.
4. What are the main differences between SARL-S and SARL?
The SARL-S and the SARL are very similar and have many features in common. See how the SARL operates in Luxembourg.
However, the simplified version differs in several aspects, summarised in the table below.
|CAPITAL||Between EUR 1 and EUR 12,000||From EUR 12,000|
|INCORPORATION||Private or notarised deed (your choice)||Notarial deed|
|CORPORATE OBJECT||Restricted to activities requiring a business permit: crafts, commercial, industrial and some liberal professions 1||Any corporate object, with the exception of insurance, savings or investment activities|
|PARTNERS||Only natural persons can be partners in an SARL-S (not legal entities 3)||Natural persons or legal entities|
|You can only be a partner in one SARL-S (unless the partnership interest is transferred through inheritance) 2||/|
It is essential to choose your legal status carefully, taking into account the nature of your business activity, your financial needs and the degree of independence desired.
5. What are the main stages in setting up an SARL-S?
While certain incorporation procedures are simplified, the creation of a SARL-S must go through certain essential stages, much like other forms of commercial companies. You must therefore:
- obtain a business permit from the Ministry of the Economy and check whether other types of licences or authorisations are mandatory to carry out the activity;
- draw up the articles of association of the SARL-S by private deed or through a notary. Templates for articles of association are available on the Guichet.lu website;
- register the company in the Trade and Companies Register (RCS) on the Luxembourg Business Register portal;
- register with and make the mandatory declarations to the VAT authorities (AED) and tax authorities, social security, etc.
A useful tip you will need a LuxTrust product to identify yourself on Government sites and carry out the formalities.
Now you will have a clearer idea of the characteristics of the SARL-S, especially the ways it differs from a classic SARL. For more information, contact the Chamber of Commerce’s House Of Entrepreneurship or consult the Luxembourg government’s administrative portal: Guichet.lu.
Lastly, remember that starting a business is not a decision to be taken lightly and requires preparation. It is essential to choose your legal status carefully, taking into account the nature of your business activity, your financial needs and the degree of independence desired. Your choices will determine your obligations and influence the day-to-day management of your company.
You might also be interested in our article: Starting a company: limited liability company, or sole proprietorship?
1 The corporate object of the SARL-S must fall within the scope of the Law of 2 September 2011, as amended.
2 In principle, a person can only be a partner in one SARL-S. If a person becomes a partner in another SARL-S through inheritance, they become joint and several guarantor for the commitments of these other SARL-S that are undertaken after the person has become a partner.
3 A legal entity is a group of individuals united for a common purpose and possessing a legal personality (giving it rights and obligations). It can sometimes be made up of a single person. This can be, for example, a commercial company, an association, etc.