The top 5 reasons for adopting the “SAS” (or “simplified joint-stock company”) corporate structure
Among the hundreds of decisions that a company founder must take, one of the first is choosing the most suitable corporate structure. From the many types that exist, the one that is the most often selected in France is the “société par actions simplifiée” (also known as an SAS, or simplified joint-stock company in English, similar to a limited company). Here’s why.
# 1 – The protection of founders’ personal wealth
An SAS is a capital company with limited liability. The partners do not commit their personal wealth in the company. Their only risk is to lose their initial investments, and any other investments made. As there is no minimum social capital imposed under law, such initial investment can be just one euro. That being said, founders are usually asked to invest part of their wealth in the company to ensure its initial financing needs or to comfort investors and creditors.
# 2 – The freedom of creating a company that meets the needs of the company
With no strict regulations, the SAS makes it possible to:
- Set up a company alone (we would then speak of a “société par actions unipersonnelle”, or SASU, simplified single shareholder company) or with other founders;
- Make cash, in-kind or industrial contributions in it;
- Be the only person able to sign for the company, or on the contrary delegate this power to other people (partners or third parties), the only obligation being that the SAS must have a chairperson (“Président”) capable of representing the company to third parties. The chairperson can be assisted of one or more managing directors, who may or may not have the same powers;
- Implement a collegial body to define the company’s strategy and/or its operation (strategic committee);
- Regulate capital movements in the company’s articles of association (provide for an approval clause, a pre-emption clause or an inalienability clause for shares for ten years at most etc.); and
- Define the conditions in which partners must take collective decisions.
In short, this corporate structure is flexible and can be suited to the needs of the company being set up.
# 3 – A corporate struture that will adapt to future corporate developments
It is possible to adapt the SAS to the growth of the company. For instance, an SAS allows (except where it is controlled by a corporate entity or if it has one or more subsidiaries) for no external auditor before the company reaches a certain size (SAS for which 2 of the following 3 thresholds are exceeded: balance sheet total over 1 million euros, turnover exc. VAT over 2 million euros and 20 employees on average). Additionally, it is possible to change its governance, i.e. create or dissolve committees, have different rules for different decisions and give more or less power to certain partners, etc.
The structure thus enables easy transposition of the economic power ratios existing between the shareholders, giving more power to those who took the most risks, alongside the founders. Its operation can be very simple at the start of the company, and become much more sophisticated as it matures on to take into account the various interests of each stakeholder.
# 4 – The possibility of financing the company and building up the loyalty of its talented players
Unlike other corporate structures, the SAS makes it possible to issue financial securities as well as shares, in order to:
- Simply finance your company: issue bonds, convertible bonds etc.
- Build up the loyalty of your company’s members: issue share purchase warrants, founders’ warrants, free shares etc.
# 5 – Investors prefer this corporate structure
Although financing rounds are not necessarily the primary goal of a start-up, it is a good idea to not overlook the preferences of venture capital investors likely to invest in your project. A number of funds prefer the SAS structure for the flexibility it offers its organisation, the possibility of negotiating its shares (easy transfers) and discretion (unlike “Société à Responsibilité Limitée” or SARL, limited liability company), the names of shareholders are not indicated in the articles of association available to the general public). This is however a broad generalisation. Some investors will prefer “société anonyme” (SA, or public limited company), which is more strictly governed by law and therefore offers greater predictability and legal security, in particular as regards rules of governance. It is however much less flexible in its operation.
# Bonus Tip
It is always simpler to turn an SAS into another type of structure than the other way around, which presupposes the agreement of all partners.
Get inspired! All companies must publish their articles of association with the commercial court registry and are therefore easily accessible for a few euros online.