The LLC:characteristics, advantages and disadvantages

A limited liability company, or SARL, is a company that consists of at least 2 partners. It is the most used legal form in France, because according to INSEE, it represents 40% of companies. The major attraction of the SARL is the flexible minimum contribution. Here's everything you need to know about the LLC along with the pros and cons.

Definition:what is an LLC?

An LLC is a limited liability company. The statute is intended for commercial companies. Its major advantage is that the partners can limit their liability to the amount of their contributions. A SARL is made up of a minimum of 2 partners and a maximum of 100 partners. A single person cannot create an LLC. In the event that there is only one partner, it is possible to move towards the one-person SARL or EURL.

Associates can be natural or legal persons. The contribution of share capital is mandatory but no minimum amount is set by law. It is divided into shares between the partners. Of course, the shares are proportional to the contribution. It is possible to carry out all types of activities in SARL. The limited liability company must be managed by at least one manager. This may or may not be a partner.

How to create an LLC?

The creation of an LLC is done in several steps.

• Drafting the articles of association makes it possible to organize the operation and organization of the company. All partners must participate in the drafting of the statutes. They must also sign them. The statutes of a limited liability company are regulated by law.
• The appointment of officers must be made at the time of signing or as soon as possible after the signing of the articles of association. The manager can be a partner or a person outside the company.
• The constitution of contributions is a key step. Each partner must contribute the sum on which he has committed. The contribution is paid in kind, that is to say in money or in goods. To best estimate a contribution, a commissioner can intervene.
• A notice of incorporation must be published in the legal announcements journal. This formality is mandatory!
• An application for registration of the SARL in the trade and companies register must be made. This is the last step in creating an LLC.

All about the managers of an LLC

All SARLs must have a manager or several managers. Their role is to legally represent the company. The manager(s) must be natural persons, associated or not. In both cases, the partners of the SARL must define together the functioning of the position of manager, namely:

• compensation, which may be composed of a fixed and a variable,
• the term of office, which may be fixed or indefinite,
• the powers of the manager and any limitations.

This last point is essential because important decisions may require the agreement of the partners and therefore involve an authorization procedure.

If the SARL manager(s) are partners, they are affiliated with the social security of the self-employed. This is also the case when the manager is a majority shareholder. If the manager(s) are not partners, they are affiliated to the general social security scheme.

The taxation of an LLC

The profits of an LLC are subject to corporation tax. However, if the partners choose the partnership regime, the taxation of profits is done in the name of each of the partners. In this case, there should be no more than 5 "exercises", unless it is a family LLC. If the partners have opted for the corporate tax system, they can distribute dividends in the event of so-called distributable profits. Majority managers will have to pay social security contributions on part of their dividends.

The role of partners in an LLC

SARL partners have different rights, namely:

• political rights that take the form of voting rights at meetings, for example,
• information rights,
• financial rights such as dividends.

In addition, the partners must take decisions collectively. These may in particular concern the modification of the company's articles of association, a capital increase or other changes. They also meet within 6 months of the end of each financial year to deliberate on the approval of the financial statements for the financial year and the allocation of the result. If a partner wishes to transfer his shares to a third party, he must obtain the agreement of the other partners.

The advantages of the SARL

If the SARL is the most common legal form in France, it is because it has many advantages. Here are its strengths.

• The operation of an LLC is perfectly and very broadly regulated by law. Thus, associates feel protected and their business is secure.
• The SARL is a legal form that allows partners to protect their personal assets. As a reminder, their liability is limited to the amount of their contribution when creating an LLC.
• Majority managers are affiliated to the social security of self-employed workers, which is a financial advantage because this scheme is less expensive than the general scheme.
• Taxation is free, the partners can choose corporate tax or direct taxation of profits in their name.
• As part of an LLC, it is possible to have the status of collaborating spouse. Social protection then has a reduced cost.
• An LLC can be family-owned and offer a special tax regime that is of course advantageous for family members.

The disadvantages of the SARL

Although the LLC has many advantages, it also has limitations that must be taken into consideration before getting started.

• Joining the self-employed workers scheme is less costly but also less advantageous in terms of social protection.
• The majority manager's dividends are subject to social charges.
• The operation of an LLC can be cumbersome. It is important to be well informed about the different legal forms and to opt for the most suitable one. Sometimes a micro-enterprise status is enough.