What are the conditions to create a limited liability company (SARL)?

A limited liability company (société à responsabilité limitée – SARL) is the most widely used form of company in Luxembourg. Around two thirds of the companies in the country have this legal status. The reason why this specific type of commercial company is so used lies in the fact that the SARL has many advantages.

A simple business structure and with limited risks

Firstly, the partners are liable up to the amount of their contributions to the share capital and are not obliged to make a significant initial contribution. The minimum share capital of an SARL is € 12,394.68. If the SARL has 100 partners – the maximum number permitted -, every partner will only pay € 123.95. If the SARL went bankrupt for one reason or another, every partner would only loose € 123.95 and nothing more!

Secondly, the company shares are freely transferable between partners but they can only be transferred between living persons to non-partners with the consent of the partners’ general meeting representing at least ¾ of the share capital. So the initial partners have a complete control over the circle of shareholders.

And last but not last, an SARL creates a relatively simple business structure and requires reduced administrative formalities. It is even possible to create a single-member SARL (SARL unipersonnelle) with a single partner. Many entrepreneurs choose this option because, in contrast to the sole proprietorship where the person carries out his activity in his own name, the personal assets cannot be taken in a single-member SARL.

The simplified limited liability company or SARL-S

Moreover, a new form of limited liability company will enter into force on 16 January 2017: the simplified SARL (SARL-S). The purpose of this innovation is in particular to make the company formation quicker and less costly for young entrepreneurs. The share capital can start at € 1 and a notarial deed is not compulsorily required, leaving room for the possibility of a private deed.  However, there are some limits and constraints. The SARL-S is open only to natural persons and not legal persons such as in an ordinary SARL.

Business permit application

Whatever the type of SARL concerned, some conditions are required. Commercial, craft and industrial activities, as well as certain liberal professions which are mainly intellectual in nature, are subject to a business permit (autorisation d’établissement or autorisation de commerce).  This business permit is granted only to the person responsible for the operation or management of the business.

Three conditions must be fulfilled in order to obtain a business permit. The business has a fixed physical installation in Luxembourg, that includes an infrastructure suitable for the nature and scale of the concerned activity. The so-called “letterbox companies” are forbidden.

The person responsible for managing the business as well the majority partner or shareholder and any person having significant influence on the operation or management of the business – the same person in the case of a single-member SARL – must satisfy the conditions of professional integrity. The General Directorate for SMEs and Entrepreneurship will verify the professional integrity at the time the business permit application is submitted. The non-resident applicants or applicants residing in Luxembourg for less than 10 years must proof their professional integrity by providing a sworn declaration concerning any management position held in businesses during the 3 years prior to the application, a declaration of non-bankruptcy before a notary and an extract from the police records or equivalent.

The applicants must proof their professional qualification in line with their activity by attaching to their business permit application a copy of their degrees or diplomas, a certificate of professional experience in the same branch of activity or a document certifying the successful completion of a training in management skills organised by the House of Training (co-founded by the Chamber of Commerce) or the Chamber of Craft Trades (Chambre des Métiers) if you are a craftsman.

In short, creating a SARL is not complicated. If you are still hesitating or have some more questions, the Chamber of Craft trades and the House of Entrepreneurship of the Chamber of Commerce can provide you support and assistance. Your banker too can give you some useful pieces of ad

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