There are numerous types of company structures provided by French law, but the main trading companies take one of the following forms.
- For SMEs :
- Société par actions simplifiée (SAS) simplified company limited by shares ; or
- Société à responsabilité limitée (SARL) private limited company.
- Large businesses: société anonyme (SA) public limited company.
These three types of business structures are created for trading purposes and provide shareholders with limited liability protection up to the amount of their shareholding.
SAS
In a simplified company limited by shares or SAS, the founding partners freely determine in the articles of association the share capital and the rules for organising the company, in particular the appointment and dismissal of directors and the procedures for adopting collective decisions: quorum and majority conditions, right of veto, etc.
Contributions may be in cash or in kind. At least half of the amount of the cash contribution must be paid up at the time of incorporation, the rest within 5 years.
Certain decisions must nevertheless be taken collectively, such as approval of the accounts and distribution of profits, share capital modification, merger, dissolution of the company, appointment of auditors, etc. The law requires the designation of a president, who represents the SAS vis-à-vis third parties.
The appointment of an auditor in SAS is not mandatory except in special cases.
Advantages of the SAS :
- Contractual flexibility: partners are free to determine the rules of operation and transmission of shares
- liability of the partners limited to their contributions
- evolving structure facilitating partnership
- possibility of setting up an SAS with a single partner (and therefore of creating a wholly owned subsidiary)
- possibility of granting share subscription or purchase options to the company’s managers and/or employees
- credibility with partners (bankers, customers, suppliers)
The SAS nevertheless requires :
- costs and formalism in setting up the company
- great rigour in drafting the articles of association
Drafting the articles of association can be complex due to their flexibility and often requires the support of an adviser.
Statutory auditors must be designated when at least one of the following criteria is met:
- The SAS controls / is controlled by one or several companies.
- Two of the following thresholds are reached:
- the SAS has 50 employees.
- the total balance sheet of the SAS exceeds EUR4 million; and
- the turnover of the SAS (excluding VAT) is superior to EUR8 million.
- One or several shareholders representing 10% of the share capital request the appointment of a statutory auditor before a court.
The SAS must be incorporated with the Commercial and Companies Registry (Registre de commerce et des sociétés) and is subject to accounting and tax reporting requirements.
SARL
A SARL is a company with a minimum of two and a maximum of 100 partners, managed by a natural person. The status can be chosen by craftsmen, traders, industrialists and liberal professions, but it cannot be used for the legal, judicial or healthcare professions, with the exception of pharmacists. The Commercial code precisely defines and regulates its functioning.
The SARL is a frequently chosen company structure because of its many advantages:
- It can be set up easily and with little capital: The partners freely determine the amount of share capital.
- The liability of the partners is limited to the amount of their contribution.
- It allows for the family-owned nature of the company to be promoted, if appropriate.
However, the legal framework of the SARL is strict, rendering it unsuitable for businesses with an external growth strategy. Public offerings by an SARL are prohibited, and the shares cannot be admitted to a regulated market.
Shareholders have the right to: receive dividends, vote at shareholders’ meetings and are granted access to corporate information.
Transfers of shares are restricted and subject to the agreement of the majority of the shareholders representing at least 50% of the shares. The articles can require a greater majority.
It is mandatory to appoint statutory auditors when at least one of the following criteria is met:
- Two of the following three thresholds are reached:
- the SARL has 50 employees;
- the total balance sheet of the SARL exceeds EUR8 million;
- the turnover of the SARL (not including VAT) exceeds EUR4 million.
- One or several shareholders representing 10% of the share capital request the appointment of a statutory auditor before a court.
The SARL must be incorporated with the Commercial and Companies Registry and is subject to accounting and tax reporting requirements.
SA (Société anonyme)
An SA is a capital company. It brings together shareholders who invest in the company’s capital.
The SA must have a minimum of 2 shareholders, or 7 if it is listed on the stock exchange. There is no maximum threshold of shareholders.
It can be managed by a board of directors comprising between 3 and 18 members, with a chairman and CEO appointed from among its members, or by a supervisory board with a management board.
A minimum capital of €37,000 is required for its creation. It should be noted that contributions in technical skills and knowledge, know-how or work, etc. are not permitted (apport en industrie).
The shareholders meet at least once a year in an ordinary general meeting (AGM). These meetings allow for the annual approval of the accounts as well as the taking of ordinary decisions by majority vote.
Extraordinary general meetings (EGMs) are meetings to amend the company’s articles of association. The amendment of the articles of association requires the agreement of 2/3 of the shareholders.
This type of business vehicle is most suitable for large businesses, including companies listed on the stock exchange. This form is designed to facilitate fundraising through the entrance of new investors in the share capital.
SAs are heavily regulated by the law. However, due to its strict obligations, the SA is a business form that often reassures investors and trading partners.
Shareholders have the right to: receive dividends, vote at shareholders’ meetings and are granted access to corporate information.
An SA must be incorporated with the Commercial and Companies Registry and is subject to accounting and tax reporting requirements.