by Rémy Brachet, Altermès partner in charge of public accounting
Choosing the right legal structure (SAS or SARL) is an important step in setting up a business, and has a direct influence on the future of the structure, particularly in terms of :
- Corporate taxation
- The social security system for managers
- The company’s future development (arrival of partners or investors, etc.)
- How the company operates (business sector, partners, etc.)
SARL (limited liability company)
Benefits
- Possibility of creating a company with a single shareholder (EURL);
- Partners’ liability limited to contributions;
- Possibility of being taxed at IR under certain conditions (EURL or SARL de famille);
- The remuneration of the majority shareholder falls under the category of non-salaried workers (self-employed), which results in a lower rate of social security contributions than that of an employee (contribution rate of 40 – 45% vs. 75% – 80% for the director of an SAS);
Disadvantages
- By-laws and rules of governance governed by the French Commercial Code;
- The majority shareholder is classified as a self-employed worker, which means that his or her social security protection is inferior to that of an employee (old age/work accident);
- Minimum flat-rate social security contributions for the manager (TNS) despite the absence of remuneration (particularly during the start-up phase);
- The calculation of social security contributions is based on income n-2 or n-1, which means that there is a cash flow gap to be anticipated (particularly in the start-up phase);
- Dividends are partially subject to social security contributions, which means that the tax cost of dividends is higher than under the SAS system;
SAS (simplified joint-stock company)
Benefits
- Possibility of creating a company with a single shareholder (SASU);
- Partners’ liability limited to contributions;
- Great freedom in the drafting of bylaws (possibility of creating management bodies with specific rules according to management needs);
- Managers (Chairman, CEO, etc.) are treated as employees, which means that they enjoy a high level of social protection (old age/work accident);
- Possibility of paying dividends at the 30% tax rate;
- No minimum social security contributions in the absence of remuneration (particularly during the start-up phase);
- The tax system for the sale of SAS shares is more advantageous than that of the SARL;
Disadvantages
- Social security contributions on salaries are almost 2 times higher than those applied to self-employed workers;
- Possibility of being taxed on income tax for a limited period of 5 years;
Conclusion
In conclusion, the choice of legal structure depends essentially on the current and future personal and professional situation of the entrepreneur(s).
It’s an important choice that shouldn’t be overlooked.
👆 Altermès offers business start-up support to help you make the right choices!
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