One Euro Companies in Luxembourg: A Smart Start for Entrepreneurs? Pros and cons of the Société à Responsabilité Limitée Simplifiée (SARL-S)

The Simplified Limited Liability Company (SARL-S) was introduced in Luxembourg in 2016 to encourage entrepreneurship by making business formation easier and more affordable. This legal structure allows individuals to launch a company with minimal capital requirements and fewer administrative hurdles. However, this attractive option for new business owners also comes with certain constraints that may impact long-term growth and investment opportunities. Understanding both the benefits and limitations of a SARL-S is crucial before making a decision.

Key Advantages of a SARL-S

One of the most compelling reasons to choose a SARL-S is the low minimum capital requirement. Unlike a traditional Limited Liability Company (SARL), which requires at least €12,000, or a public limited company (SA) with a €30,000 minimum share capital, a SARL-S can be established with as little as €1. This makes it an accessible option for entrepreneurs who may not have significant financial resources upfront. Small-scale businesses such as digital services, consulting, and handmade goods production can particularly benefit from this cost-effective structure.

Another major advantage is the simplified incorporation process. Unlike most of the commonly used legal entities (SARL or S.A) that require a notarial deed, a SARL-S can be formed through a private agreement, eliminating notary fees and reducing legal costs.

These benefits come together with the same limited liability protections as a standard SARL: shareholders are only responsible for the company’s debts up to the amount of their capital contribution, safeguarding their personal assets.

Potential Drawbacks to Consider

Despite its advantages, the SARL-S comes with financial and operational constraints that entrepreneurs should be aware of. One notable limitation is the maximum share capital of €11,999, which can make the business appear less financially stable to banks, suppliers, and potential partners. Securing loans or high-value contracts can therefore be more challenging for SARL-S compared to those with larger capital reserves.

The ownership structure constitutes another significant limitation. Only individuals can be shareholders or managers of a SARL-S, meaning that companies or corporate investors cannot hold shares in the business. This restriction makes it difficult to integrate a SARL-S into a larger corporate structure or attract venture capital funding. Moreover, individuals are not allowed to be shareholders in more than one SARL-S simultaneously, unless they inherit shares. Intentionally doing so exposes these shareholders to unlimited and joint liability for the debts of all the SARL-S they would hold.

The SARL-S must in addition be managed by a daily manager who holds a business permit within the meaning of the law on establishment: this renders the incorporation process less efficient, as this parallel procedure must be made with the ministry of economy.

Business activity restrictions also apply to SARL-S entities. While they can operate in commercial, industrial, craft, and certain liberal professions, they are prohibited from engaging in financial services (e.g. holding activities), real estate investments, or healthcare-related businesses.

Is a SARL-S the Right Choice for You?

The SARL-S presents a great opportunity for first-time entrepreneurs to establish a business in Luxembourg with minimal investment. However, the limitations in capital structure, ownership, and permissible business activities may pose challenges for those with long-term growth ambitions. Before choosing this structure, entrepreneurs should assess their business goals and determine whether the SARL-S aligns with their vision.

For those looking to start small and gradually expand, the SARL-S offers a practical stepping stone into the business world. However, for companies with plans to scale quickly or attract external investment, a different legal structure may be a better fit. Some entrepreneurs  may also consider starting with a SARL-S, and then converting into another form, which is allowed by the law. By carefully considering these factors, aspiring business owners can make an informed decision and lay the groundwork for a successful venture in Luxembourg.