Many freelancers use the legal status of being “self-employed” (indépendents). This makes sense for some specific activities, especially in the early stages of an activity as creating a company requires capital and triggers costs.
However, carrying out business under the corporate veil of a company with limited liability has several advantages, one of the main ones being, the limited liability of the shareholders and the lack of personal liability of the managers.
Indeed, save for some exceptions, shareholders (and to some extent, the company’s managers) (1) are usually not held accountable for liabilities incurred by a limited liability company. Generally speaking, “only” the share capital is at stake and up for grabs for creditors.
Until 2016, a company with limited liability required a minimum share capital of at least 12.400 EUR (and since 2016 of 12.000 EUR). At that time, the Luxembourgish legislator understood the need for a new kind of limited liability company, adapted to entrepreneurs who desired to start a business without financially risking everything they had. Thus, the Luxembourgish legislator introduced a law in 23 July 2016 that created a simplified private limited liability company (the S.A.R.L.-s.) (2), which is also regularly called the “1-Euro S.A. R.L.” – requiring a share capital of only one euro.
Is my liability really limited?
In principle, yes. However, on top of the above-mentioned gross mistake and other exceptions where the corporate veil is pierced, a bank is unlikely to grant a loan of several thousand euro if the only asset or security is one euro share capital. In those cases, banks tend to ask for a personal guarantee provided by the shareholder, thus partly removing the limited liability aspect. Nonetheless, most suppliers or clients will probably not require such a guarantee, consequently leaving the limited liability advantage intact.
As manager of the company, one is not personally liable as long one manages the company in accordance with the law and the articles of association.
Can I incorporate a S.A R.L.-s.?
Creating a company which only requires one euro of share capital sounds enticing. Additionally, the incorporation does not require the intervention of a notary, hence reducing the fees even further. Yet, legal counsel, be it a notary or a lawyer, remains recommended.
Several conditions need to be met regarding the shareholders, the business permits, etc. which can be can be verified in full detail here.
Do I have to pay additional taxes?
The S.A R.L.-s. follows the tax (and legal) regime of a “traditional” S.A R.L.: it pays, in Luxembourg-City, corporate income taxes at 24.94% on its taxable income. On top of that, and contrary to the self-employed entrepreneur, it is subject to a net wealth tax, which is set at a minimum of EUR 535 and assessed on 1 January of a given year. Depending on the set-up, the entrepreneur will receive either (i) a fully taxable salary (tax-deductible in the accounts of the company), (ii) partly exempt dividends (not deductible at company level) or (iii) some other kind of fully taxable remuneration (e.g. under a services agreement, which usually also constitutes a tax deductible item at company level).
Should I incorporate a S.A R.L.-s.?
Assuming the legal conditions are met, this is a valid question. Unfortunately, as quite often with legal options, the answer remains the same – it depends. You should factor in:
- your current situation;
- your expected business development; and
- your activity (and the risk linked to it – a logo designer may encounter less risk than a plumber).