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The LLC: what are its advantages and disadvantages?

In general, entrepreneurs opt for the SARL legal form when setting up their own business. The reason LLC’s are popular with business owners is that they offer a variety of benefits in different ways. It is not without some minor drawbacks. In this article, you will discover on the one hand the strengths of the SARL and, on the other hand, its weaknesses.

The advantages of forming an LLC

SARL is a simple acronym for Limited Liability Company. This definition already tells us about the advantages of this type of status.

The SARL limits the liability of the partners

This is one of the main advantages of the LLC. Many entrepreneurs opt for this legal status mainly for this reason. By limiting liability, corporate officers can keep their personal assets separate from the company’s creditors.

In the event of difficulties for the company, whatever the nature of these difficulties (fiscal, financial, etc.), the managers of the SARL are only responsible for the amount they have paid as a contribution to the capital of the company . Partners in an LLC are only liable for the loss of their initial capital investment.

Meeting of Sarl Managers

A statute regulated by law

The legal status of the SARL is governed by several articles of the Commercial Code. The management of the company and its structure are clearly defined by law. It is a guarantee of legal security. This is especially important for entrepreneurs who do not know anything about business law, as well as for minority directors of the SARL.

For example, any important decision related to the growth of the company (increase of share capital, incorporation of a partner; termination of a current partner; and/or modification of the statutes, etc.) must be taken after ‘a multi-party general. company shareholders meeting.

The conditions for voting on the decisions on the agenda are set by the French Commercial Code. The resolutions must be recorded in a report which is then sent to the registry of the commercial court.

Leaders can benefit from a stimulating social life

Depending on their status, the manager of a limited liability company has the possibility to choose between different options if he wants to get some remuneration. On the other hand, you can choose the system based on the non-salaried worker (TNS).

Your social security coverage is then covered by the Self-Employed Social Security (SSI). This means, for example, that social contributions are low and bureaucracy is reduced.

If, however, the shareholder is a minority, the partner is considered a worker and is covered by the social security system in general. It benefits from greater social coverage.

A tax regime to choose from

The tax structure of the SARL is very flexible compared to other legal forms. In fact, partners have the right to choose a tax through IS (Corporate Tax) or IR (Income Tax).

In reality, the SARL is in principle not subject to tax with the IS. However, depending on the agreement between the partners, the company may be taxed on the income. This occurs during the 5 years following the start of the activity.

Also consider the fact that an LLC is an ideal type of business if you want to do it as a couple or as a family. In the case of a family SARL, the company will automatically be taxed with IR. That, and that without a specific deadline.

The negative points of the LLC

Like everything, the LLC is not perfect. It also has some minor imperfections. This is the other side of the coin when choosing LLC status.

Management is not always easy.

The fact that an LLC is controlled by strict laws is both an advantage and a disadvantage of this type of business. This can be a problem as the rules can hinder the company’s operations.

For example, an LLC is a business entity where the accounting side must be meticulously maintained. This type of status is not ideal for small businesses. If the business grows significantly, the legal limits could still be problematic. It is recommended that you know how to protect your small business before making any decisions and any risks.

Executive compensation is contribution-based

Owners of an LLC receive dividends. However, it is important to note that dividends are subject to different social security contributions.

In addition, it should be noted that the manager or managers of an LLC must be natural persons. This type of management can be a problem for some entrepreneurs.

The steps to follow when creating a company

This may not be a problem for some contractors. However, in many cases, the processes of setting up a limited liability company remain a challenge for entrepreneurs.

In fact, the necessary steps for the creation of your company require several documents or administrative expenses. These costs can reach thousands of euros, if they are borne by an expert in the field of commercial law.

However, if these limitations of the SARL hinder you in your efforts to carry out your projects, you have the possibility to choose another legal status, such as the SA or the SAS or even the sole proprietor of a micro entrepreneur

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