Starting a Business: Choosing the Right Legal Structure
Legal and Administrative Information Department (Prime Minister’s Office)
When starting a business, selecting the appropriate legal structure is crucial. This decision depends on several factors, including the number of partners, capital investment, tax and social security obligations, and the extent of liability.
Comparison of Business Structures
Business Type | Capital Requirement | Number of Partners | Liability | Taxation |
Sole Proprietorship (EI) | Not required | Not applicable | Limited to business assets | Income tax (IR) with an option for corporate tax (IS) |
Single-Member Limited Liability Company (EURL) | Free | 1 | Limited to contributions | Income tax (IR) with an option for corporate tax (IS) |
Limited Liability Company (SARL) | Free | 2 to 100 | Limited to contributions | Corporate tax (IS), option for income tax (IR) |
Single-Member Simplified Joint-Stock Company (SASU) | Free | 1 | Limited to contributions | Corporate tax (IS), option for income tax (IR) |
Simplified Joint-Stock Company (SAS) | Free | Minimum 2 | Limited to contributions | Corporate tax (IS), option for income tax (IR) |
Public Limited Company (SA) | €37,000 | Minimum 2 (private), 7 (public) | Limited to contributions | Corporate tax (IS), option for income tax (IR) |
General Partnership (SNC) | Free | Minimum 2 | Partners are jointly and severally liable for company debts | Income tax (IR) |
Limited Partnership (SCS) | Free | Minimum 2 (at least one general partner and one limited partner) | General partners: unlimited liability; Limited partners: limited to contributions | Income tax (IR), option for corporate tax (IS) |
Partnership Limited by Shares (SCA) | €37,000 (€225,000 if public offering) | Minimum 4 (at least one general partner and three limited partners) | General partners: unlimited liability; Limited partners: limited to contributions | Corporate tax (IS) |
Sole Proprietorship (EI)
For individuals wanting to start a business alone, a sole proprietorship is a simple and accessible option. No formal structure, statutes, or capital formation is required.
Liability A sole proprietor’s personal and business assets are separate, protecting personal property (e.g., savings, secondary residences) from business debts.
Taxation Profits are taxed under personal income tax (IR). The entrepreneur determines their own salary based on business income after taxes, social contributions, and expenses.
Social Security Sole proprietors are classified as self-employed workers, with social contributions amounting to around 45% of income.
Single-Member Limited Liability Company (EURL)
This structure suits individuals seeking limited liability for business debts.
Number of Partners One (individual or corporate entity).
Capital Requirement No minimum capital. Contributions can be cash, assets, or industry expertise.
Liability Limited to contributions unless mismanagement or personal guarantees are involved.
Taxation Default taxation is personal income tax (IR), but corporate tax (IS) is an option.
Social Security for the Manager
- Sole partner-managers are self-employed.
- Non-partner managers are considered salaried employees.
- Taxation varies depending on whether the income is classified under business or employment income.
Limited Liability Company (SARL)
Ideal for commercial, industrial, or professional activities.
Number of Partners Minimum 2, maximum 100 (individuals or entities).
Capital Requirement No minimum capital, consisting of cash, assets, or industry expertise.
Liability Limited to contributions unless personal guarantees are given.
Taxation SARLs pay corporate tax (IS), but family-owned SARLs and new companies (under five years) may opt for income tax (IR) under specific conditions.
Social Security for the Manager
- Minority or equal shareholders fall under the general social security system if salaried.
- Majority shareholders (50%+1) are classified as self-employed.
Taxation for the Manager
- Salaries are taxed under employment income with a 10% standard deduction or actual expenses.
- Dividends are taxed under capital gains at a flat rate of 30%.
Single-Member Simplified Joint-Stock Company (SASU)
Suitable for any business sector.
Number of Partners One (individual or entity).
Capital Requirement Minimum €1, with cash or asset contributions. Industry contributions are allowed but not included in capital.
Liability Limited to contributions unless mismanagement occurs.
Taxation Default taxation is corporate tax (IS), with a temporary income tax (IR) option for five years if certain conditions are met.
Social Security for the President
- Presidents are covered by general social security.
- No social contributions apply if no salary is taken.
Taxation for the President
- Salaries are taxed under employment income unless the company opts for IR.
Choosing the Right Business Structure
Each legal form offers distinct advantages and constraints based on liability, taxation, and administrative complexity. Entrepreneurs should consider their long-term business goals when selecting a structure.
