Principle, advantages and disadvantages of a family LLC

Starting an entrepreneurial venture with your spouse, children or siblings is a real challenge. This is a long-term project. This famous “family business” is governed by a very specific regulation, that of the family limited company.

It is important to note that such a company is primarily a variation of the classic LLC. It has the same legal structure but with some particularities that we detail here.

Conditions for forming a family LLC

The creation of a family LLC follows the same steps as the creation of a traditional LLC. The only difference is that the partners must be from the same family.

This notion of family is perfectly defined by the law:

• Direct relationship (parent-child, sibling)
• Civil relationship: marriage certificate or Civil Solidarity Pact (PACS)

Family ties such as uncles or aunts and nephews or nieces, first cousins, brother-in-law and sister-in-law… are therefore not allowed to form a family LLC.

Advantages of the family LLC

The partners benefit from the same protection as in the case of a classic SARL. Their liability is limited to the amount of the contributions if the company has financial problems.

The specific advantages of the family limited liability company lie in the area of taxation and the transfer of shares.

Taxation of the family LLC

The family SARL has the possibility to opt for the Income Tax (IR) without time limit (the classic SARL can benefit from the IR only during the first five years).

If the IR is often much more advantageous for the partners, it is important to note that it is an option, not an obligation. The family limited liability company can decide at any time to switch to corporate tax (IS).

The disadvantages of the family LLC

The family LLC has “the disadvantages of its advantages”, which it is necessary to know.

Restriction on the entry of new partners

In order to continue to benefit from the status of a family LLC, the company can only accept new partners who are directly related to the current partners. This prevents the entry of people from outside the family, but it can also create problems at the time of the transfer of shares.

Example:

Two brothers who have formed a family LLC wish to pass it on to their children. This is not possible because the new partners are cousins, which is not considered a direct relationship.

The only possible alternative is to give up the family LLC status and take the classic LLC status, which does not impose any restrictions on the relationship between the partners.

Non-deduction of the managing partner’s remuneration

The family limited liability company that has opted for the IR cannot deduct the remuneration paid to the managing partner from the company’s result. This is considered part of the taxable profit.

There are therefore situations in which the corporate income tax system may be more profitable for the family limited liability company. Each family business must be considered on a case-by-case basis.

Limitation of possible activities

The restrictions on the type of activity carried out are not very restrictive, but should be known:

• A family limited liability company can have an industrial, commercial or craft activity.
• A family LLC cannot have a liberal or civil activity

⚠️ Point of attention:

A priori, the family limited liability company cannot replace an SCI (Société Civile Immobilière) for the management of a property portfolio. However, the LMNP (Location en Meublé Non Professionnel) and the LMP (Location en Meublé Professionnel) are considered as commercial activities. Also a SARL of family can prove to be a legal structure completely adapted to the condition to realize only furnished hirings with this structure.

In this case, the family limited liability company (SARL) under the IR regime allows you to benefit from the LMNP regime (subject to conditions). This system is also advantageous in terms of taxation on capital gains from the sale of property (progressive deduction according to the length of time the property is held).

Is a family LLC a good solution for your business?

Although the family limited liability company has obvious tax advantages for the partners, it is not always the most suitable structure depending on the situation. particularly because of the restrictions it imposes on the links between partners and the status of the remuneration of the managing partner.

Classic SARL, family SARL, SCI ?

All these structures have their disadvantages and advantages, depending on the nature of the company and its activity. The Altermès team is ready to assist you in your project, whether it involves setting up a company or changing its status.

🔍 Altermès can help you analyze your exact situation and study in detail the different possibilities available to you.

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