EURL and SARL: what are the differences and how do you choose?

Setting up a company involves determining its status. There are two closely related options: the SARL (Société à Responsabilité Limitée) and theEURL (Entreprise Unipersonnelle à Responsabilité Limitée). Both are based on the same rules set out in the French Commercial Code, but vary in terms of the number of partners, the tax regime, liability and internal operations. Understanding these nuances will enable you to make an informed decision, tailored to your business and your situation. Goldwin Avocats, experts in company law in Paris, will explain the differences between these two types of company so that you can make the right decisions.

Key points to remember

• Number of partners: SARLs must have at least two partners, while EURLs have a single partner, which has a direct impact on governance and decision-making.
• Limited liability: in both cases, losses do not exceed the amount of the contributions, except in the case of mismanagement or guarantees given on an individual basis.
• Taxation: EURLs are subject to corporate income tax by default, with the option to opt for corporation tax (IS), while SARLs are normally subject to corporation tax (IS), with the corporate income tax option reserved for family-owned SARLs.
• Manager’s social security regime: in EURL, the manager is affiliated to the non-salaried worker regime; in SARL, the manager may be covered either by the TNS regime (majority shareholder) or by the assimilated employee regime (minority shareholder/equal shareholder).
• Flexibility versus security: the EURL is attractive because of its simplicity and responsiveness, while the SARL is more reassuring for partners and banks because of its legal framework and collective stability.

Definition and basic characteristics

What is an SARL?

An SARL is a commercial company. It brings together between 2 and 100 partners. The partners may be natural persons, including minors, or legal entities such as another company or an association.

It can carry on a wide variety of activities, with the exception of certain sectors subject to a specific regime, such as insurance, tobacco management or certain regulated liberal professions. Some activities are possible under a SARL/EURL, but require authorisations, approvals or diplomas (public transport, private security activities, real estate activities).

There is no minimum share capital required to set up a SARL: a single euro may be enough, but in practice the amount is often higher to boost the structure’s credibility with financial and commercial partners. The liability of the partners is limited to their contributions. However, the managing partner may be held liable in the event of negligence in the administration of the company, for example in the case of a late declaration of suspension of payments.

Like any other company, the creation of an SARL requires the drafting of articles of association, which set out the operating rules, the powers of the manager and the conditions for collective decision-making. This stage is essential for organising governance and anticipating any conflicts that may arise between partners.

What is a EURL?

AnEURL is a commercial company with a single shareholder(sometimes referred to as a SARL unipersonnelle). The partner may be an individual or a legal entity.
It may be set up directly by a sole founder or as a result of all the shares in an SARL being held by a single shareholder, for example following the withdrawal or death of a partner.

There is no minimum share capital required to set up an EURL: a symbolic euro is all that is needed. However, too little capital may limit the company’s credibility with third parties. In principle, partners’ liability is limited to the amount of their contribution, thereby protecting their personal assets. However, if the sole shareholder is also the managing partner and commits a management error (such as making a late declaration of suspension of payments), he or she may be required to bear some of the company’s debts.

Lastly, EURLs must be set up by drawing up articles of association, which must set out the operating rules and the powers of the manager. Model articles of association are freely available, but they remain generic. We strongly recommend that you adapt them to the specific features of your business and your development objectives. The assistance of a lawyer can help to ensure that the text is secure and to plan for possible changes, such as a subsequent conversion to an SARL (limited liability company) or the arrival of new partners.

Key legal differences between SARLs and EURLs

Number of partners and internal organisation

The first distinction is obvious: the SARL requires at least two partners, while the EURL allows onlyone. This difference has a direct impact on governance:

• in an SARL, major decisions are taken collectively at a general meeting;
• In a EURL, they are made bya single person, which allows for responsiveness but concentrates responsibilities.

Liability limited to capital contributions

In both cases, partners lose only the amount of their contribution in the event of difficulties(Article L223-1 of the Commercial Code). Their personal assets remain protected, except in the event of serious mismanagement or guarantees given on an individual basis. This principle is the very foundation of the limited liability partnership.

Management body and role of the managing partner

In SARLs, the manager may be a single person or a number of persons (co-management). He acts within the framework set by the Articles of Association and under the supervision of the partners.

In EURLs, the sole partner is usually also the managing partner.
The role of the spouse is also decisive: he or she may be a partner, co-manager or employee of the company. In a family limited liability company (SARL), spouses and descendants often work together, enabling governance to be adapted to the family context. This special status has implications for social security arrangements and the distribution of profits.

Main tax differences between EURL and SARL

Taxation of profits

The tax system varies depending on the structure:

• EURL: by default,income tax is applied to profits. If the sole shareholder is an individual, he or she declares the profits in his or her personal tax return. It is possible to opt forcorporation tax (IS), which is sometimes appropriate when profits exceed a certain amount or to optimise remuneration.
• SARL: the standard regime iscorporation tax. However, a family limited company may opt to pay income tax, which allows the profits to be included in the taxable income of the partners, who are often members of the same family (spouses, parents, children). This can reduce the household’s overall tax bill.

Here’sa concrete example: a family limited company owned by a married couple with two children as partners may opt for income tax. If the company generates profits of €100,000, these will be divided between the shares of each partner and included in their respective tax returns, making it possible in some cases to use the lower brackets of the income tax scale.

Social security scheme for company directors

The social security system depends on the status of the manager:

• in EURL, the sole managing partner is affiliated to the scheme for non-salaried workers(TNS). Their social security contributions are calculated on the basis of their remuneration and profits.
• for SARLs, the system is different:
  • majority manager = TNS,
  • minority or equal shareholding manager = assimilated employee, affiliated to the general social security scheme.

The case of the partner or manager’s spouse must be anticipated: he or she may be recognised as an associate, an employee or a full partner. This choice has a direct impact on their social security cover and pension rights.

Administrative management and accounting obligations

Formalities for setting up a business

The formalities are similar:

• filing a dossier with the electronic one-stop shop(INPI),
• drafting the articles of association,
• declaring the registered office,
• registration with the relevant commercial court .

The supporting documents (signed articles of association, certificate of capital deposit, proof of registered office) are then sent automatically to the registry of the court where the company’s registered office is located.

EURLs, however, benefit from simplerformalities because only one person is involved. Annualapproval of the accounts does not require ageneral meeting, but a document signed by the sole shareholder must be filed directly with the commercial court registry.

Accounting and legal obligations

SARLs and EURLs must draw up a balance sheet, an income statement and a management report. The obligation to file annual accounts with the Registrar is the same.
EURLs may sometimes benefit from a simplified accounting system, particularly if they are covered by the micro-enterprise system (subject to turnover conditions), which reduces the accounting formalities. In all cases, however, regular bookkeeping is still required.

Advantages and disadvantages of each status

The advantages and disadvantages of EURL

The EURL is attractive for its simplicity: centralised decision-making power, flexible management, the option of remaining under the income tax regime or opting for the corporation tax regime.
On the other hand, it exposes the entrepreneur to the risk of isolation and high social security charges if the sole shareholder is paid. It is often suitable for testing a business before bringing in new partners.

The advantages and disadvantages of the SARL

The SARL is popular for its stability, its strict legal framework and its serious image in the eyes of third parties (banks, business partners).
However, it can be more cumbersome: more complex formalities, the need to obtain votes at general meetings, sometimes restrictive majority voting procedures.

The comparative table below clearly highlights the advantages and disadvantages of the 2 types of company status:

When should you choose EURL or SARL?

Which type of project is best suited to a EURL?

The EURL is for entrepreneurs who want to remain in sole control of their business. This could be the case for a self-employed consultant, a self-employed professional or a craftsman starting out with a small capital contribution. This one-person framework simplifies management and means that the EURL can be converted into a SARL if new partners join.

What type of project is the SARL best suited to?

The SARL is designed for collective initiatives: family businesses, activities requiring several skills or the need to convince investors. It is reassuring because of its protective legal framework and clear rules of governance.
If the business is growing or diversifying, the limited liability company is better suited to ensuring its long-term future.

Still can’t decide?
Goldwin Avocats in Paris can help you analyse your situation and make your decisions more secure by assisting you in choosing and formalising your company’s articles of association.

Comparison with other legal forms

EURL vs SASU

A simplified joint-stock company with a single shareholder offers a great deal of freedom when it comes to drafting the company’s Articles of Association, enabling it to organise its operations on a tailor-made basis. The company’s director has greater scope for adapting the distribution of powers or preparing for a future change, such as opening up the company’s capital. This flexibility is particularly attractive to those who anticipate a rapid impact on their development or a possible sale in the medium term.

Conversely, the single-member company, which is governed by the law, sets out precise provisions, making its operation more secure and minimising uncertainty. The company director is the main decision-maker and must comply with a certain number of formalities, including filing the articles of association and keeping regular accounts. It is often subject to fewer financial constraints at the outset, but the administrative treatment remains governed by strict regulations.

In practice, the first form attracts those looking for flexibility and freedom, while the second offers reassurance through a clear framework, with less scope for adaptation but greater security for thesole shareholder and his partners.

EURL vs sole proprietorship (EI)

A sole proprietorship allows you to get started quickly, with greater flexibility and less administration. However, the fact that there is no separation between the assets of the individual and those used for the business means that there is greater risk: in the event of a debt, creditors can take action against all the assets.

On the other hand, , the form governed by law, requires a full dossier to be submitted when the company is set up and fewer formalities to be completed each year, but it ensures a clear separation and better protects the interests of the sole shareholder. This configuration reassures banking institutions and partners, who have official information at their disposal via the filing of accounts.

The first solution is therefore suitable for initiatives that require speed and simplicity, while the second, more secure solution, reduces the personal impact and makes it easier to prepare for a future change, such as a conversion to a simplified joint stock company (SAS) or a transfer of shares.

Before committing yourself, ask a professional for personalised advice. Goldwin Avocats, experts in business law , can answer all your questions and help you decide which legal status to choose.

Conclusion

As you will have realised, the distinction between SARLs and EURLs is based primarily on the number of partners, but there are also significant differences in terms of taxation, social security arrangements and management. The EURL offers flexibility and autonomy, while the SARL offers structure and collective security.
Before committing yourself, assess your situation, your development objectives and your social protection needs.

To secure your articles of association and benefit from comprehensive support, call on Goldwin Avocats in Paris, which assists many people in their professional structuring.

FREQUENTLY ASKED QUESTIONS about SARLs and EURLs

Can a EURL be converted into a SARL?

Yes, it is possible and frequently done. All you need to do is bring in a new partner by selling a share or increasing the capital. This operation entails amending the Articles of Association and updating them with the Registrar of the Commercial Court. Transformation allows you to move from a one-person structure to a collective company without creating a new entity.

How much does it cost to set up a company?

The costs depend on the structure. For a EURL, you need to allow around €250 to €400 for registration (registry fees and legal notice). For a SARL, the costs are similar but may increase if legal advisers are involved in drawing up the articles of association and organising the first general meeting.

Added to this are any accountant’s or lawyer’s fees. In all cases, it is important toanticipate these costs in the initial budget to avoid cash-flow problems.

Which tax regime should I choose (personal income tax or corporation tax)?

In the case of a EURL, income tax is automatically payable if the sole shareholder is an individual, but you can opt to pay corporation tax. SARLs are subject to corporation tax by default, except for family SARLs, which may opt for personal income tax. The choice depends on the level of profits, the partner’s marginaltax rate and the remuneration strategy (dividends or salary).

What is the manager’s social security regime?

The social security system varies according to the status of the manager.

In a EURL, the sole managing partner is affiliated to the scheme for non-salaried workers (TNS), with contributions proportional to his income.

In a SARL, a majority manager is also a TNS, while a minority or equal manager is treated as an employee, affiliated to the general social security scheme. The latter enjoys better social protection, but with higher charges.

The choice between TNS and assimilated employee therefore depends on whether or not social security cover is required and on the level of remuneration envisaged.

Is it possible to open an SARL on your own?

No, you need at least two partners to set up an SARL. If you want to set up on your own, you should use the EURL (single-member company) form. However, you can convert to an SARL at a later date as soon as a second partner joins the business. This flexibility means that you can start on your own and then evolve towards a collective structure.

What is the minimum capital for an EURL?

A symbolic euro is all that is needed to set up an EURL, but in practice, too little capital can damage your credibility with banks or business partners. The amount should reflect the practical requirements of the business: premises, equipment, cash flow.

For example, a consultant might start with €1,000, whereas a retailer might need €10,000 or more.

The share capital is also a sign of seriousness and can be reinforced by contributions in kind (computer, business vehicle). It is possible to increase the capital during the life of the company if these requirements change.

Can a minor be a partner in a company?

Yes, a minor can be a partner in a company, including a SARL or EURL, but with certain limitations. An emancipated minor has the legal capacity to hold company shares and fully exercise his or her rights as a partner. On the other hand, an unemancipated minor may also become a partner, but cannot participate directly in the management of the company: their rights are then exercised by their legal representatives (parents or guardian).

In addition, the child’s liability remains limited to the value of his or her contributions. This mechanism is sometimes used in a family context, for example when setting up a family limited liability company (SARL de famille), to organise a gradual transfer of assets while complying with the legal provisions for the protection of minors.