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SAS or SARL?

25 Mar 2012

Most companies are incorporated in France under the form of a SAS ("société par actions simplifiée", or a limited liability company by shares) or a SARL ("société à responsabilité limitée" or a limited liability company). The minimum share capital required for the incorporation of both types of companies is 1€.

The main differences, advantages and disadvantages of these company forms are as follows:

Payment of the share capital

The share capital of a SAS must be paid up by no less than 50% on its incorporation, whereas the share capital of a SARL may be paid up to 20% only. With respect to both companies, the share capital which has not been paid on incorporation must be paid up within a maximum period of 5 years.

Company Directors

A SARL is managed by one or two directors (“gérants”), who have identical powers. A panel of directors (“collège de gérants”) may also be created.

In a SAS, the only person authorized to act on behalf of the company is its President. A SAS may not have two Presidents, however, a Director General (“directeur general”) may be appointed and granted powers similar to those of the President.

Corporate Governance

The only governing bodies of a SARL are its directors (“gérants”) and shareholders’ assembly.

A SAS may have ad hoc corporate bodies, such as a supervisory board, an oversight committee, an audit committee, etc. The roles and powers of these corporate bodies can be freely defined in the bylaws, subject however to certain mandatory provisions regarding the powers of the President and those of the shareholders’ assembly.

Obligation to appoint a statutory auditor

A SARL must appoint an auditor if it exceeds, at the close of a financial year, two of the three following thresholds: €1.550.000 of total assets, €3.100.000 of turnover, 50 employees.

A SAS must appoint an auditor if it exceeds, at the close of a financial year, two of the three following thresholds: €1,000,000 of total assets, €2,000,000 of turnover, 20 employees. Moreover, even if the above thresholds are not reached, a SAS must appoint an auditor if it is controlled by a company or if it controls one or more companies. The concept of control in this case is assessed within the meaning of Article L. 233-16 of the French Commercial Code (exclusive or joint control, including where the company has the right to appoint the majority of the corporate officers or the right to exercise a dominant influence over the company under any contractual or statutory provisions).

Corporate finance

Pursuant to French law, only shareholders who own 5% or more of the capital of the company may grant loans in the form of a shareholder’s account. Therefore, in order for a company to be able to borrow from third parties who are not shareholders, it may need to structure such borrowings in the form of bonds.

A SAS can issue bonds at any time and without any condition. A commissioner for the verification of its assets and liabilities must however be appointed if the company does not yet have two balance sheets approved by the shareholders.

A SARL can not issue bonds unless it has reached the thresholds for the appointment of an auditor and if it has three balance sheets approved by the shareholders.

A SAS may issue preferred shares, warrants, convertible bonds and other types of financial instruments, whereas a SARL cannot.

Shareholders rights and obligations

Subject to certain mandatory provisions, the rights and obligations of the shareholders of a SAS can be freely determined in the by-laws (including, pre-emption rights, tag-along and drag-along rights, exit and exclusion rights, etc.). By contrast, most legal provisions regarding the relationship between shareholders in a SARL are mandatory, and may be customized to a much lesser extent that in a SAS.

A SAS can issue preferred shares, with multiple voting rights, preferential dividend rights and/or veto rights. A SARL may issue ordinary shares only which give the same voting and dividend rights.

Transfer of shares

The transfer of shares of a SARL is subject to the mandatory approval of the remaining shareholders at a super-majority vote provided for by the law. By contrast, in a SAS, the bylaws may determine whether the transfer of shares may be freely effected, or subject to a right of approval (which may be granted by the President of the company, by the shareholders at the majority specified in the bylaws, or by any other competent corporate body), or to other restrictions which may be specified in the by-laws.

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