In this article we will be looking into the creation of a SARL business and why it is beneficial, or not, for entrepreneurs in Luxembourg in 2024. Sarl is only one of the business forms you can choose from, so we will mention other forms in comparison as well, but the main goal is to weigh the advantages and disadvantages of this specific business and see if it is the right one for you and your business.
What is a SARL business
The limited liability company (SARL= société à responsabilité limitée) is a special type of commercial company and the most common form of company today in Luxembourg, mostly because it applies in most types of business and it is easy to set up without requesting a tremendous amount of capital. It shares characteristics from both a limited company and those of a partnership. Two thirds of Luxembourgish companies choose this type. Simply put, a SARL can protect shareholders’ personal assets from potential company debts as their liability is limited to the amount of capital they initially invested.
A SARL may have between 2 and 100 members and requires a minimum share of 12,000 euros.
There are also two sub-forms of the classic SARL, one called ‘single-member’ SARL, which is an exception to the company law, allowing one single shareholder to set up a sarl, and SARL-s, which is practically a simplified version of the traditional SARL, with minimum initial investment one euro - that is why it is also called ‘SARL for a euro’.
All SARLs are subject to corporate taxes, much like any company, but the details of tax obligations heavily depend on the size of the company. They can be run by multiple managers who don’t have to be shareholders, but there must be an approval from most or all shareholders in order to transfer shares.
Short definitions of forms of business in Luxembourg, including SARL
Before deciding if a SARL business is actually for you, it is worth looking into all different forms of business available in Luxembourg today.
1. Capital Companies:
There are three main types of capital companies: Limited Liability Company (SARL): Offers limited liability with a minimum capital requirement of €12,000. Public Limited Company (SA): Suitable for larger businesses, requiring a minimum capital of €31,000. Simplified Limited Liability Company (SARL-S): Less requirements than a normal SARL.
2. Cooperative company (Société coopérative – SCOP):
Ideal for mutual benefit and flexible structures. Owned and run by employees without minimum share capital requirement. There are two different types though, much like in other company groups: Civil company (Société civile – SC): A specific type of company, created to mainly manage immovable assets or intellectual professions. Societal impact company (Société d’impact sociétal – SIS): Again kind of specific, mainly focused on a social cause, for example inclusion, gender equality, sustainability etc.
3. Partnerships:
An expansion of self-employment with the crucial difference that there can be more than 1 owner equally responsible for handling business issues. There are three main kinds of partnerships: General partnership (SENC): An agreement between two or more owners. Limited partnership (SCS): One partner at least has limited liability. That means, their liability only extends to their investment in the company. Special limited partnership (SCSp): Ideal for investment funds, with the difference that it does not have a ‘legal personality’.
4. European company (SE):
Suitable for large MNCs with a minimum shareholder capital of €120,000.
Steps to open a SARL in Luxembourg
- Check your eligibility first
- Business idea and structure
- Choose form of business depending on your company’s needsMarket research and planning
- Apply online for business permit here
- After you get your permit, register your company here by providing business name, proof of identity and address, potential notarized documents
- Look into possible necessary licenses depending on your company’s specific business activities
- Ensure company compliance with industry rules and regulations
- Draft association documentation
- Publish a notice of incorporation
- Register for declaring income tax at the Luxembourg Inland Revenue
- Social security registration in Luxembourg for both employees and self-employed entities is done through CCSS
- Look into potential financial aids - Luxembourg, both privately and the State, offers quite a few options
- Open a business bank account
- Develop GDPR policies
- Quite a few more steps in case your company has employees, such as adherence to local employment laws, contracts, salaries, work permits and more. It is worth hiring a lawyer, an accountant and maybe an employer of record as well, for those parts of setting up the business.
- If you need a physical office, one of the latest steps would be to find a home for your company, taking into consideration not only the rental price, but other costs, lease terms, workplace safety and more.
Pros and cons of opening a SARL in Luxembourg
The SARL form of business is specifically designed to make a new business easily accessible at minimal cost and processes. The limited liability protection is the number one advantage of a SARL business and the set up process being very straightforward and easy makes this type of business especially attractive to small business owners. However, its capital is restricted which means it limits access to larger partnerships and its business activities are limited as well, preventing the business from growing. Let’s see those pros and cons though more in detail, on the table below:
| Advantages | Disadvantages |
| Limited liability It can protect shareholders’ personal assets from potential company debts as their liability is limited to the amount of capital they initially invested. | Restrictions on share transfers Since the approval of the majority of shareholders is required, even though it generally indicates stability and it’s also an advantage, it can cause confusion between partners. |
| Flexible management Usually one or more managers, either shareholders or not - they don’t have to be. | Strict regulations Even though, the smaller the company the less regulations, SARLs still have a strict code. |
| Tax haven All businesses in Luxembourg admittedly enjoy a great tax system. | Extra legal and administrative fees Even though a SARL is fairly easy and relatively cheap to set up, there are some legal and administrative fees to take into consideration. |
| Low set up cost The initial set up cost is less than 12,000 euros therefore ideal especially for small businesses. | No room for larger investments A SARL can have a maximum of 100 shareholders, which may block potential investments. |
| Stability There is restriction on share transfers which provides stability and protects the interests of existing shareholders. The approval of the majority of shareholders is required for share transfers. | Minimum attractiveness to external investors Because of its generally closed structure, a SARL may be less attractive to external investors or those who would like to sell shares. |
Why choose to open a SARL
The final decision of opening a SARL in Luxembourg heavily depends on the type, size and conditions of your business. Starting a business is never an easy decision and it requires a lot of research and preparation in advance, so it is great to have a good understanding of the advantages and disadvantages of this type of company to be able to make an informed decision. A SARL can definitely be a great option for a new business set-up, if it matches your specific requirements and financial needs.
