MAIN CHARACTERISTICS OF A LIMITED LIABILITY COMPANY (SOCIETE A RESPONSABILITE LIMITEE)
The main characteristics of an SARL are the following :
A limited liability company is a "company formed by one or more persons who bear losses only to the extent of their contributions". It is formed by the subscription for the entire amount of the capital and the adoption of by-laws by a minimum of two and a maximum of fifty partners (associés).
The limited liability company comes into legal existence upon its registration in the Commercial Register.
2. Company name
Any name may be chosen that does not conflict with names of existing companies or with trademarks that are registered. This name must always be preceded or followed on the letterheads, invoices, announcements and all other documents emanating from the company by the mention of the form of the company as a "société à responsabilité limitée" or "S.A.R.L.".
The By-laws of an SARL must state the form of company chosen, the company name, the registered office, the corporate purpose, the amount of the corporate capital as well as the amount contributed by the respective partners, the valuation of any contributions in kind and the duration of the company. The duration may not exceed 99 years but may be extended by an extraordinary meeting of the partners.
i.e. FF. 50,000) Contributions may be either in cash or in kind. The capital is divided into shares (parts sociales) that are of equal value. At least 20% of the par value of each share issued for cash must be paid in at the time of the subscription. The remainder must be paid in within five years. Shares issued in return for a contribution in kind must be fully paid up at the time of issuance.
5. Taxation of an s.a.r.l.
SARLs profits are subject to the standard rates of corporate income tax : 33.33%. Furthermore, a 6% contribution calculated on the tax owed, will have to be paid by all corporations submitted to corporate tax (such 6% rate will be reduce to 3% as from January 1st 2002.
A limited liability company must have more than two but no more than fifty partners. Should it acquire more than fifty, the company may be transformed into a corporation within two years. Otherwise, unless the number of partners is reduced to fifty within this two year period, the company will be dissolved.
The shares of the partners may not be represented by negotiable certificates, nor may the company issue transferable securities.
Generally, the partners are free to transfer their shares to each other or to their spouses and heirs, although such transfer may be subject to special conditions stated in the by-laws. Shares may be transferred to third parties on approval of a majority of the partners representing at least three-fourths of the capital. If the company does not answer the request for approval within a certain time, or if it does not repurchase the shares within a certain time, the transfer may take place.
Shares are transferred by written agreement signed by the transferor and the transferee and served on the SARL or accepted by it in a notarial document. Any transfer of share triggers registration taxes at a rate of 4,80% on the price on actual value of the shares if higher.
An SARL is managed by one or more managers "gérants" who must be individuals but need not be partners. The manager may be designated in the by-laws or by the partners. Unless the by-laws provide otherwise, his term of office is the life of the company. A manager may be dismissed by partners representing more than one-half of the capital. This dismissal of a manager without good cause may give rise to a claim for damages.
The managers have full powers in dealings with third parties to represent the company within the scope of the company's purpose. Any limitations of these powers in the by-laws are not binding against third parties. The managers (or statutory auditors, if any) must draw a report to the partners concerning any agreements entered into directly or indirectly through a nominee between the company and one of its managers or partners (or any company in which one of the managers or partners is a partner, manager, member of the board of directors, directorate, or supervisory board, or a general manager).
8. Partners' meetings
Generally, all decisions of the partners must be taken at formal meeting; The by-laws may, however, provide that some or all decisions of the partners may be taken by written consultation. An annual formal meeting of the partners, during which the accounts and operations related to the previous year are approved, must be held within six months of the close of the fiscal year. At this meeting the partners also vote on the dividends, which must be set aside for distribution no later than nine months after the close of the fiscal year.
Ordinarily, meetings of the partners are called by the manager. A partner may be represented at a meeting by his spouse or by another partner ; he may be represented by a third party if the by-laws provide for it.
Every partner has the right to participate to decisions and has a number of votes equal to the number of shares he owns.
All decisions of partners other than those requiring an amendment of the by-laws are taken by ordinary decisions. Ordinary decisions are taken by the affirmative vote of one or more partners representing more that one-half of the capital. If this majority is not obtained, the partners convened or consulted a second time, take decisions by a majority of the votes cast regardless of the amount of capital represented, unless the by-laws provide otherwise.
Extraordinary decisions of the partners are required for any amendment of the by-laws. An extraordinary decision is taken by partners representing at least three-fourths of the capital, but a decision to change the nationality of the company must be unanimous.
9. Statutory auditors
Statutory auditors must be selected from a special list, and are appointed for a term of six fiscal years. In order to assure their impartiality, statutory auditors may not be (1) managers (nor may their spouses), (2) contributors in kind, (3) persons receiving special preferences or remuneration from the company. Statutory auditors or partners of a firm of auditors may not become managers of companies that they have audited in the last five years, nor may they become managers of companies owning ten percent of the capital of a company they have audited or of which the audited company owns ten percent of the capital.
Statutory auditors of limited liability companies generally have the same powers, duties, obligations, and liability as statutory auditors of corporations.
10. Disclosure requirements
The partners have a right to obtain, at any time, a copy of the by-laws, including a list of the managers and statutory auditors, if any, at a nominal charge. They may, also have access to the inventory. They have the further right to receive annual reports, annual accounts and minutes of prior meetings of the last three years.
The partners have a right to examine the annual accounts, the managers' report, the statutory auditors' report and any proposed resolutions that will come before the meeting. These documents must be sent to the partners by the gérant fifteen days, at the most, before the annual meeting.
The partners have the right to submit written questions to the managers concerning these documents. The answer to these questions must be given by the managers at the meeting.
12. Merger and split-up
A limited liability company may, like a corporation, be acquired by another company or merge with another company to form a new company. It may also contribute its assets to existing companies or participate with them in the organization of new companies, or it may contribute its assets to new companies.
Proposed agreements to merge or split up must be filed with the clerk of the commercial court and are subject to publicity requirements. The statutory auditor, if, any, must be informed of the proposed merger or split-up, and they must then prepare a report for the meeting of the partners that will consider the proposal.
The dissolution of an SARL occurs upon the expiration of the duration of the company as set forth in the by-laws or by decision of an extraordinary general meeting of the partners. The company may also be dissolved by court order following the loss of one-half of the capital, will be dissolved if it acquires more than fifty partners and has not within two years either reduced this number to fifty (or less) or been transformed into a corporation.
The death of a partner will not result in the dissolution of an SARL unless the by-laws provide otherwise nor does dissolution follow if one of the partners should become insolvent or incapacitated.
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