How to create a SARL in France?

To create a SARL in France, it is necessary to satisfy certain conditions, and to accomplish certain formalities.

The conditions that must be fulfilled to create a SARL in France

The conditions that must be fulfilled to create a SARL in France relate to:

• the partners of the SARL

• the corporate purpose of the SARL

• the share capital of the SARL

• its corporate name, duration and affectio societatis

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1. Conditions relating to the partners of a SARL

a. Conditions relating to the number of partners of a SARL

Minimum number of partners of a SARL

In accordance with Article L 223-1, paragraph 1 of the Commercial Code, a SARL may be constituted with a single partner. This is then called a single-member SARL (EURL). This possibility, established to encourage individual entrepreneurship, facilitates the creation of companies while preserving the benefits of the SARL regime.

However, certain specific forms impose a higher number of partners:

• Artisan cooperative companies: at least two partners (C. artisanat art. L 134-7)

• Production cooperative companies: minimum two partners (Law 78-763 of July 19, 1978, art. 5)

Maximum number of partners of a SARL

A SARL may not have more than 100 partners (art. L 223-3). This ceiling aims to limit structures that are too dispersed, incompatible with the closed and family logic of the SARL.

What happens if this threshold is exceeded?

The company has a period of one year to regularize its situation by:

• reducing the number of partners to 100 or less;

• or by transforming into a joint stock company (generally into an SA or SAS).

Failing regularization, the automatic dissolution of the company is pronounced by the court at the request of any interested party.

b. Conditions relating to the consent of the partners in a SARL

All the partners must agree to be part of the SARL.

As in any company, the founding partners of a SARL must give their free, real and informed consent to the incorporation of the company. This means that the constitutive act must be free from defects of consent: mistake, fraud, violence or incapacity.

However, in French company law, a defect of consent or its absence does not automatically entail the nullity of the company. This rule aims to preserve the stability of relations between partners and legal security with regard to third parties.

The vitiated consent of a partner of a SARL therefore does not automatically entail the nullity of the SARL but may give rise to individual actions in liability.

c. Conditions relating to the legal capacity of the partners in a SARL

Partners who are natural persons of a SARL

Contrary to a common misconception, it is not necessary to have commercial capacity to become a partner of a SARL. This allows a large number of natural or legal persons to invest in a company. Likewise, minors and protected adults may subscribe social shares under certain conditions.

➤ Minors

• Emancipated minor: he may freely subscribe social shares, even if a mandate of future protection has been activated.

• Non-emancipated minor: may be a partner under certain conditions, in particular with the agreement of his legal representative. In case of a contribution in kind, it is recommended to have the contribution evaluated by a contributions auditor to avoid future disputes.

➤ Protected adults

Adults under judicial protection, guardianship, curatorship, family habilitation or an activated mandate of future protection may become partners of a SARL, provided that the acts of subscription are carried out in compliance with the rules of legal representation.

Partners who are legal persons of a SARL

French or foreign legal persons may be partners of a SARL, provided that this participation is in accordance with their corporate purpose and their legal capacity.
Example: a société civile immobilière (SCI) may invest in a SARL if its articles of association provide for it.

Partners who are foreign natural or legal persons of a SARL

Foreign natural or legal persons may freely become partners of a SARL in France, without residence permit obligation. There is no specific prohibition, except exceptions related to sensitive sectors of activity.

Nevertheless, certain foreign investments may be subject to prior control by the Ministry of the Economy (cf. rules on foreign investments in France – Articles R.151-1 and following of the Monetary and Financial Code).

d. Incompatibilities and prohibitions

No general prohibition limits access to a SARL. However, certain legal persons (associations, foundations, etc.) may be limited by their own articles of association.

Cross-participation between companies (e.g.: a SARL holding shares in an SA and vice versa) is regulated to avoid conflicts of interest or abuses of rights.

e. The status of the spouse, partner or cohabitant

The manager of a SARL whose spouse, PACS partner or cohabitant regularly participates in the activity of the company must declare the professional status of this person via the electronic single window:

• Spouse employee

• Spouse collaborator

• Spouse partner

If no declaration is made, the default status is that of spouse employee.

This status must be brought to the knowledge of the partners at the first general meeting following the registration. In practice, the spouse collaborator is not personally liable for the management acts that he carries out: these are deemed to be carried out on behalf of the manager.

2. The conditions relating to the corporate purpose of the SARL

The corporate purpose of a SARL is an essential condition. It is a statutory clause that defines the activities that may be carried out by the company. It must be sufficiently precise (thus, a clause such as “all activities authorized by law” could not validly define the corporate purpose of the company), and sufficiently broad, in order to encompass all related activities that may be connected to the envisaged activity of the company in the future.

The corporate purpose must meet three cumulative criteria:

• Be defined in the articles of association

• Be lawful, that is to say, in conformity with public policy and the law

• Be possible, therefore achievable

Any SARL created with an unlawful purpose or carried on in a prohibited activity may be annulled.

a. Activities prohibited for SARLs

Certain activities may not be carried out under the form of a SARL. This is the case in particular of:

• Insurance, capitalization or savings companies (cf. Insurance Code)

• The operation of medical biology laboratories (cf. Public Health Code, art. L.6223-1)

• Certain regulated professions, exclusively reserved for other forms of companies (SA, SELARL, etc.)

In these cases, the company created could be struck with nullity for unlawful purpose.

b. Regulated activities: conditions to be respected

Many activities in France are said to be regulated. This means that their exercise is conditioned by:

• The possession of a diploma or professional title

• Registration with a professional order

• Specific administrative authorizations

Examples of activities concerned:

• Pharmacy

• Chartered accountancy

• Architecture

• Security agencies

• Lawyer

• Transport of persons and goods

The founders of a SARL must imperatively verify the compatibility of their project with the applicable regulation.

3. The conditions relating to the share capital of the SARL

a. Amount freely set

Article L 223-2 of the Commercial Code specifies that the share capital is freely determined by the articles of association. There is therefore no legal minimum capital, except contrary sectoral provision. In practice, the amount is set according to:

• the financing needs of the activity;

• the credibility with respect to partners and banks;

• the development ambitions in the medium term.

⚠️ Warning: Too low a capital may harm your image of solvency.

b. Variable capital

The SARL may be constituted with variable capital. In this case, the provisions of Articles L 231-1 and following of the Commercial Code apply. The articles of association must then specify:

• the amount of the floor capital and the ceiling capital;

• the conditions of admission and withdrawal of the partners.

Constituting a SARL with variable capital has the advantage of allowing an easy evolution of the shareholding without complex statutory modification.

c. Publicity of the capital

Article L 210-2 of the Commercial Code requires that the amount of the capital appear in the articles of association and on all external documents: invoices, letters, announcements, etc. Unlike SAs, it is not possible to round down to the lower euro amounts containing decimals.

In case of failure to comply with this obligation, a judicial injunction may be ordered at the request of the public prosecutor or of any interested party (art. L 238-3).

d. Cash contributions to the SARL

The share capital may be composed of cash contributions (money). Article L.223-7 of the Commercial Code specifies that each partner must release at least one fifth of his cash contributions at the incorporation of the company. The rest may be released within a period of five years, by decision of the manager.

In case of insolvency proceedings, the release of the balance may be required immediately by the judicial representative.

The funds paid must be deposited with:

• an approved French bank;

• the Caisse des dépôts et consignations;

• the CARPA;

• or a notary.

This obligation is imperative, and non-compliance exposes to criminal sanctions.

e. Unavailability and withdrawal of funds

The funds coming from cash contributions are unavailable until the registration of the company with the RCS. They cannot be subject to set-off or seizure by the creditors of the partners.
If the company is not registered within six months following the deposit, the contributors may:

• withdraw their contributions with judicial authorization;

• or appoint a common representative who will take charge of the withdrawal.

f. Contributions in kind

The share capital of a SARL may also result, in whole or in part, from contributions in kind.

Any tangible or intangible asset may be contributed to a SARL: real estate, equipment, patent, business, etc. Each contribution must be subject to an evaluation specified in the articles of association.

A contributions auditor is required unless:

• no asset exceeds €30,000;

• and if all the contributions in kind do not exceed half of the share capital.

If these two conditions are fulfilled, the partners may, unanimously, waive the appointment of the auditor.

g. Contributions in industry

The partners may also make contributions in industry: know-how, working time, technical expertise… These contributions do not enter into the formation of the share capital but give right to social shares.

The articles of association must detail:

• the nature and the duration of the services;

• the number of social shares allocated;

• the rights in the profits;

• a possible non-competition clause.

e. Regime of the social shares resulting from the contributions

The capital of a SARL is divided into social shares equal in nominal value. There is no requirement of minimum amount.

The articles of association must specify:

• the nominal value of each share;

• the distribution of the capital among the partners;

• the terms of release according to the nature of the contribution.

4. The conditions relating to the corporate name, affectio societatis and duration of the SARL

a. Corporate name

The SARL must have a corporate name preceded or followed by the mention “société à responsabilité limitée” or “SARL”. The share capital must also be indicated.

These mentions must appear on all documents intended for third parties: contracts, invoices, correspondence…

b. Affectio societatis

Like any company, the SARL is based on the affectio societatis: the common will of the partners to collaborate in a shared interest. This principle underpins the legitimacy of the collective enterprise.

The absence of affectio societatis may lead to a challenge to the validity of the company or of corporate decisions.

c. Duration of the SARL

The maximum authorized duration is 99 years from the registration with the RCS. It must be specified in the articles of association.

It may be extended before expiration, or be subject to early dissolution if the partners so decide.