Limited liability company

What is a limited liability company?

A limited liability company (LLC or SRL in French) is a legal form of company, often deemed to be the most appopriate for a small or medium-sized business. It is the former SPRL (private limited liability company). 

Characteristics

Founders

A single shareholder is sufficient to create an SRL. This may be a natural person or a legal entity (e.g. a company).

MINIMUM CAPITAL

The incorporation of an SRL no longer requires a minimum capital, but the founders must provide sufficient initial assets for the business the company intends to develop.

The abolition of the minimum capital requirement is also offset by the strengthening of rules concerning the financial plan at the time of incorporation and the founder's liability. Each dividend distribution to shareholders is subject to a "double distribution test" consisting of a balance sheet or solvency test and a liquidity test.

Contribution in kind

Before the company is incorporated, the founders must ask an auditor to describe in detail each asset that will be given as a contribution in kind, and to draw up a report on how the asset will be valued. They auditor must also specify the consideration to be given to the founder in exchange for the asset the founder has contributed.

A contribution in industry or expertise is treated in the same way as a contribution in kind (same valuation rules) and is also reviewed by the auditor.

Financial plan

The founders of an SRL must draw up a financial plan and, after signing it, submit it to a notary on the day of the incorporation deed. This is a forecast of the company's needs and resources for the first two tax years.

Securities

The SRL may issue any type of security, unless prohibited by law. However, an SRL may only issue shares in exchange for a contribution, and may only grant voting rights to shares.

Share register

As soon as a company whose capital is represented by registered shares is incorporated, shareholders must complete a share register, which they must then update regularly.

DEED

A notarial deed is essential for an SRL. The deed of incorporation will contain the company's articles of association. The articles of association contain the clauses that will determine the rules of the company and govern relations with persons outside the company, relations between the shareholders themselves, and the powers of its representatives, all of which must obviously comply with the provisions laid down by law.

TRANSFER OF SHARES

In an SRL, shareholders may sell their shares freely, whereas previously the agreement of the joint partners was required. Limited liability companies wishing to prevent unexpected sales of shares may include restrictions on the transfer of shares in their articles of association.

Company shares are transferred simply by means of a declaration of transfer entered in the share register, dated and signed by the transferor (the person transferring the shares) and the transferee (the new owner). This transfer often follows a transfer agreement, which may set out all the terms and conditions of the transfer (date of transfer of the rights attached to the shares, number of shares, price, etc.).

ADMINISTRATION

The SRL is managed by an administrator or a board of directors. It is possible to appoint a director for day-to-day management.

The liability of directors is restricted by law depending on the size, turnover and balance sheet total of the company concerned.

Unless otherwise stipulated in the Articles of Association, the General Meeting may terminate a director's term of office at any time and without giving any reason.

AUDIT

A company auditor is engaged if the company exceeds at least two of the following three criteria: 50 employees, turnover: €9,000,000, balance sheet total: €4,500,000.