The Family SARL: A Transparent Tax Regime for Close Relatives

1. Definition and Legal Foundation

The “SARL de famille” is a form of limited liability company (SARL) whose partners are members of the same family and who opt for taxation under the partnership regime. This option replaces the default corporate income tax (IS) with income tax (IR), allowing profits and losses to be directly attributed to the partners.

This system is based on Article 239 bis AA of the French General Tax Code (CGI) and constitutes an exception to the general rule that all SARLs are subject to IS. The family SARL remains a commercial company governed by Articles L.223-1 et seq. of the Commercial Code, but its tax regime is governed by the law of partnerships.

To qualify, the company must meet two conditions:

1. It must carry on a commercial, industrial, artisanal, or agricultural activity.

2. Its partners must all be related within the meaning of Article 239 bis AA of the CGI.

If one of these two conditions ceases to be met, the company automatically reverts to the corporate income tax regime.

2. Activities Eligible for the Family SARL Regime

Only companies carrying out commercial, industrial, artisanal, or agricultural activities are eligible for the family SARL regime.

This includes:

• Trade and distribution activities (retail, wholesale, e-commerce);
• Manufacturing and transformation operations;
• Artisanal and craft-based production;
• Farming and winegrowing enterprises.

In contrast, liberal or purely civil activities are excluded, unless they are ancillary and inseparable from the main commercial activity. The Conseil d’État has ruled that a company carrying out both commercial and civil operations remains eligible if the civil component is incidental to the core business.

The family SARL regime has also been accepted for furnished rental activities, provided each partner’s status as a professional or non-professional lessor is assessed individually.

Pharmacists operating through a SELARL (société d’exercice libéral à responsabilité limitée) may also benefit, given that their activity is legally recognized as commercial for tax purposes.

3. The Family Connection Requirement

The essence of the family SARL lies in the family relationship among partners. The law requires that all partners be connected by direct lineage or sibling relationship, or be spouses or PACS partners.

3.1 Relationships Allowed

The regime applies to companies formed exclusively:

• Between spouses;
• Between parents and children;
• Between a parent, his or her children, and their respective spouses;
• Between two brothers or sisters and their spouses;
• Between a grandparent and grandchildren, if the grandchildren are siblings;
• Between a father-in-law and son-in-law, under certain circumstances.

The partnership must consist only of persons linked by one of these degrees of kinship. Each partner must be directly connected to the others, either through bloodline (up to the second degree) or by marriage or civil partnership.

3.2 Relationships Excluded

The following combinations are excluded:

• Two brothers and the son of one of them;
• Two brothers-in-law;
• Cohabiting partners (concubins), even with common children;
• An uncle and nephew;
• A wife, her own children, and her husband’s children from a previous marriage.

If a non-relative joins the company, even by acquiring a small number of shares, the SARL immediately loses eligibility for the family regime and becomes subject to corporate income tax (IS).

3.3 Shares Held Under a Community Property Regime

When shares are acquired under a community of property regime, both spouses must be recognized as partners if they wish to be considered within the family group.
The non-acquiring spouse must expressly notify the company of the intention to become a partner. Failing that, the link between the two is not recognized for purposes of the family SARL option.

4. How to Exercise the Option for the Partnership Regime

The option for the family SARL regime must be formally notified to the tax office before the opening of the financial year for which it is intended to apply.

It requires the unanimous consent of all partners, expressed in writing and attached to the notification.

For new companies, the option can take immediate effect if it is declared in the formation deed, which must specify the family links between the partners.

The same applies in cases of:

• Transformation of a pre-existing partnership into a SARL;
• Transfer of shares from a sole partner to family members (resulting in the formation of a family SARL);
• Conversion of an EURL into a multi-partner SARL within the same family.

A copy of the deed recording the option must be transmitted to the tax office within one month of its signature.

5. Duration and Revocation of the Option

Once exercised, the family SARL option remains valid indefinitely, unless:

• The company revokes it (by unanimous decision of the partners);
• It changes its activity (e.g., shifts from commercial to civil);
• A partner outside the permitted family circle enters the company.

The regime ceases automatically in these situations, even without any formal notification to the tax authorities.

5.1 Death or Transfer of Shares

If a partner dies, the company may retain the family regime provided that:

• The shares pass to relatives meeting the legal kinship criteria; or
• The shares are transferred to eligible family members within six months of death.

However, if the shares are transferred to unrelated persons by gift or partition, the family regime is lost immediately, as such transfers are voluntary and do not fall within the exceptions admitted by case law.

5.2 Divorce or Dissolution of a PACS

In case of divorce or dissolution of a PACS, the company can maintain the regime if the shares are transferred within six months to another qualifying family member.

If the former partners marry, the company remains eligible, as marriage is an accepted familial bond under the law.

6. Legal Consequences of the Option

The choice of the partnership regime transforms the company’s tax position without altering its legal structure.

6.1 Fiscal Transparency

The family SARL is no longer taxed on its profits. Instead:

• Each partner is personally taxed on the share of profits corresponding to his or her rights;
• The company becomes “fiscally transparent.”

Partners are taxed under income tax (IR) in the category corresponding to the company’s activity:

• BIC (industrial or commercial profits);
• BA (agricultural profits);
• BNC (non-commercial profits, in rare cases).

This taxation applies even if the profits are not distributed. Conversely, losses are deductible from the partners’ income, depending on their participation in the business.

6.2 Partners Actively Involved in the Company

Partners who work within the company are considered professionals for tax purposes. Their shares in the company’s results, as well as their remuneration, are treated as professional income and taxed as such.

Expenses incurred for acquiring or maintaining their shares may be deducted from their taxable share of profits.
Likewise, employer social contributions paid by the company on their behalf are deductible at the company level, while employee contributions are deductible from their personal income.

This distinction between tax and social treatment reflects the hybrid nature of the family SARL — a commercial company taxed as a partnership.

7. Advantages and Limitations of the Family SARL

7.1 Main Advantages

• Immediate taxation transparency: Profits and losses pass directly to the partners without double taxation.
• Loss offset: Losses incurred during the early years can be deducted from the global income of individual partners, reducing their overall tax burden.
• Succession planning: The structure facilitates gradual transfer of ownership within the family.
• Flexibility: Partners can later opt for IS if this becomes more favorable.

7.2 Limitations

• Restricted circle of partners: Only close relatives can hold shares.
• Continuous compliance requirement: Any breach of the kinship condition ends the benefit.
• Immediate taxation of profits: All income is taxable, even if not distributed, which may create cash flow issues.

Loss of confidentiality: Partners’ personal tax situations are impacted by company results.

8. Interaction with the Corporate Tax Regime (IS)

The family SARL is free to renounce the partnership regime at any time and become subject to corporate income tax (IS).
This switch may be advantageous when profits become significant and reinvestment is prioritized.

However, such a change constitutes a cessation of business for tax purposes and triggers immediate taxation of latent capital gains and reserves, except where certain reliefs apply.

9. Transformation, Death, or Entry of a New Partner

Any structural or ownership change must be carefully analyzed to avoid loss of eligibility.
For instance:

• If a third party acquires even bare ownership of shares, the option ceases to apply.
• Upon a partner’s death, shares inherited by non-relatives must be transferred to relatives within six months.
• Transforming the SARL into a different company form automatically terminates the option.

Legal and tax audits are essential before any modification of shareholding or form.

10. Taxation of Partners’ Income

Under the partnership regime:

• Each partner includes his or her share of profits in personal taxable income;
• Remuneration is treated as a profit distribution method, not as deductible salary;
• Social security contributions are split between employer and employee portions, depending on the partner’s social status.

Partners may deduct professional expenses and certain interest charges related to acquiring their shares, if the company’s activity is their main occupation.

11. Succession and Gift Planning through the Family SARL

The family SARL offers a powerful tool for intergenerational business transmission.
It allows parents to gradually transfer shares to their children while maintaining management control.
However, any transfer must respect kinship and shareholding rules to preserve the tax transparency benefit.

Gifts or partitions to non-qualifying individuals immediately terminate the option, leading to reinstatement of corporate tax. Estate planning within the family SARL must therefore be supervised by both legal and tax counsel.

12. Practical Compliance and Administrative Obligations

Even though it is fiscally transparent, the family SARL remains subject to all corporate obligations:

• Annual accounts preparation and filing;
• General meetings and approval of accounts;
• Accounting in commercial form (balance sheet, income statement, annex).

The company must also file an information return (form 2031 or equivalent) specifying the allocation of profits among partners, who must themselves declare their share on their personal tax returns.

13. Strategic Use Cases

The family SARL is particularly well suited for:

• Family-run retail or craft businesses;
• Small-scale real estate activities with a commercial component (e.g., furnished rentals);
• Agricultural or viticultural ventures operated by family members;
• Transitional structures before incorporation under IS.

Its success depends on strict compliance with eligibility conditions and accurate anticipation of family succession or share transfers.

14. Revocation and Return to Corporate Income Tax (IS)

Revocation of the partnership regime may be decided by unanimous consent.
Once revoked, the option cannot generally be exercised again.
The company then becomes subject to IS on its profits and must comply with all related obligations (corporate returns, accounting restatements, etc.).

A thorough comparative analysis between IR and IS should be performed before opting out of the family regime.

15. Conclusion

The family SARL regime offers a flexible and transparent tax mechanism adapted to family-owned businesses that wish to consolidate activity while maintaining simplicity and control.
It requires careful management of shareholding structure and strict respect of the legal and fiscal framework.

Choosing between the partnership regime and IS must always result from a detailed examination of the company’s objectives, profitability, and family structure. A specialized lawyer can structure this choice securely, avoiding tax and legal pitfalls.