SARL S: making it (a little) easier to do business in Luxembourg
Tempted to set up in business? For a few years now, Luxembourg has brought in a simplified company statute called the SARL S. While this new statute means a company can now be set up with capital of only €1, all the other legal obligations nevertheless remain. The details.
The post-pandemic has changed our relationship to work. More and more people are tempted by the idea of setting up in business, whether to see an idea come to fruition, to invent their own pace of life or to find more meaningful work. But, this path is sometimes paved with obstacles. That is why the House of Entrepreneurship’s* mission is to steer you through your business venture. Today, Marie-Sultana, lawyer, and Guylaine, business manager, address some of the most common questions and mistakes of business creators.
Sole proprietorship or company?
Once the business plan is ready, the next step is to decide on the legal form. If you are selling your services, you have the choice of setting up in business as a sole proprietorship or as a company.
“The sole proprietorship is still widely used by entrepreneurs,” explains Marie-Sultana. “But this statute doesn’t protect their personal property in the event of bankruptcy”.
To separate your professional from your personal finances, you need to create a company, that is to say a legal entity.
This statute offers greater protection, but also implies a heavier administrative burden. “You have to document the decisions, publish your accounts and therefore, theoretically, call on the services of an accountant,” says the lawyer.
Also note that a sole proprietorship isn’t taxed in the same way as a company. Basically, in the first case, you are taxed on what enters your account, namely on your turnover. In the second case, it is the company that is taxed and you will need an additional mechanism (receipt of dividends and/or payment of remuneration by the company) to pay you income, on which you will also be taxed personally.
One is not necessarily better than the other. It all depends on your business. However, once you overshoot a certain expenditure threshold, such as renting a workspace or using subcontractors, the company tax system makes more sense in terms of taxation.
To guide you in your first steps as entrepreneurs, and in particular the choice of legal form, the House of Entrepreneurship organizes a webinar each week in English and French, followed by a Q&A session. Here is the link to register.
Thinking of setting up a SARL S? Here are some valuable tips.
SARL S: the company for €1 to get you up and running
For those who decide to create a company, and thus separate their professional activities from their personal wealth, there are several choices. Among the most widespread are: the public limited company (SA), the limited liability company (SARL) or SARL S whose “s” means “simplified”.
What are the advantages of a simplified SARL compared to conventional SARL?
The amount of capital. You can create a SARL S with capital of only €1 (and a maximum of €11,999). Another advantage, you can complete the incorporation formalities yourself, and therefore save on solicitor’s fees.
Who stands to gain from a SARL S?
Setting up a low-capital company is particularly suitable for people who sell expertise: consultant, accountant, graphic designer… when it does not require a particular investment.
On the contrary, if your activity requires acquiring equipment and stock, then SARL S is not appropriate. Let's say you're launching a food truck for example. You will have to invest in a truck, fit it out, buy an oven, etc. However, this amount will be much higher than the maximum capital of a SARL S, which must remain less than 12,000 euros. You will then have to turn to another form of society, for example the SARL. In addition to necessarily larger capital, you will also be more credible if you wish to apply for funding afterwards.
What are the most common questions for business creators?
🧐 Can I create a company while being an employee?
“As an employee, you have a duty of loyalty to your employer. This means that you can’t create a competing business,” explains Marie-Sultana.
It is also necessary to check whether your employment contract contains limiting clauses.
🧐 Can I manage or be a partner in 2 companies?
You can be a manager, i.e. have a signing authority, in several SARL S. but, but you can’t be a partner in several SARL S. On the other hand, you can be a partner/shareholder of several other types of companies (be a partner in several SARL or SA for example).
🧐 Can I create a company in Luxembourg regardless of my nationality?
Yes. EU residents can set up their company in Luxembourg. However, to do this, you need real premises and not just a domiciliation or mailbox. For non-EU nationals, a residence permit will be required to be present regularly in the territory to manage your activities.
🧐 Can I establish my company's headquarters in a rented apartment or a flatshare?
It’s not that simple. To obtain your authorization of establishment, you must prove your company’s permanent establishment. If you set up in business at your home and you are a tenant, you must ask your owner and the municipality for permission.
🧐 Do I have the right to continue my business from Luxembourg if I have created a company in another European country?
If your activity in Luxembourg remains occasional, and is not subject to specific regulations, this is authorised. On the other hand, if the core of your activities takes place in Luxembourg, it will be necessary to create a new company. According to the House of Entrepreneurship, it can sometimes be less legally complex to create a new company in Luxembourg, rather than trying to transfer an existing company to another country. More information here.
What are the most common misconceptions about SARL S?
🤦♂️The statutes:
You don’t necessarily need a solicitor to create a SARL S. You can manage the creation of your legal entity alone. But that means drafting statutes. To do so, you will find free templates on guichet.lu.
However, it is important to understand what you are committing to.
“I often see people who don’t make any distinction between the role of manager or partner” regrets the lawyer. But “by creating a legal structure, you also create obligations for yourself. It’s important to be aware of them,” she says.
This is why Marie-Sultana recommends using a solicitor or legal counsel to draft the statutes if you can afford to do so. Alternatively, you can turn to the House of Entrepreneurship with any specific question.
🤦♂Costs:
Publishing accounts and other legal obligations continue to run even if you no longer carry on in business and no longer generate turnover. Keeping the accounts of a SARL S will cost at least €2,000 a year.
To stop your activity, and relieve yourself of these obligations, you have to wind up the company, which again leads to administrative red tape.
🤦♂️Investments in the social capital:
“It is essential to estimate an investment amount that is consistent with your project” recommends Marie-Sultana. To do this, you must first draw up a sound business plan and anticipate your expenses.
“While the SARL S allows a company to be set up for €1, on an entrepreneurial level, in many cases, it doesn’t work,” she explains.
The steps in the creation of a SARL S
- Define your entrepreneurial project and choose its legal form
- Apply for authorization of establishment from the Ministry of Economy
- Register the SARL S with the Trade and Companies Register and the Beneficial Owners Register, in order to receive the final authorization (after receipt of a provisional authorization by the Ministry of Economy),
- Register with the VAT, social security and tax administrations.
💡 All these steps can be done online. To do this, consider applying for a LuxTrust* product on a professional basis as soon as you have obtained the authorization of establishment.
*Name of the secure authentication system in Luxembourg.
How to get help to create a SARL S?
- Attend the House of Entrepreneurship webinar
- Check out this article on the subject
- Still have a few questions? Visit one of the House of Entrepreneurship’s 3 Info Desks in Esch, Kirchberg, Mondorf or contact their Helpline.
How to insure your SARL S?
Professional insurance is also something you need to factor in when creating a company.
What insurance will you need? Think about your premises, your tools, your stock, your equipment... Not to mention your civil liability. What about your employees? And your pension plan as a self-employed worker?
All that’s left to say is that we wish you lots of success with your project!
*The House of Entrepreneurship is a project headed up by the Luxembourg Chamber of Commerce, with the support of many actors, including the Ministry of Economy and the Chamber of Trades.
