Starting a business with a partner: joint ownership, SARL or SAS

Launching a venture with one partner means the first real question is not the legal form, but the day you no longer agree. The choice between joint ownership (indivision), SARL and SAS shapes your governance, your social security status and your ability to exit the capital without damage. Here is how we frame this decision in two-founder files.

Quick answer. To start with two founders, joint ownership suits a simple asset-holding arrangement with no lasting commercial activity. For a genuine business, the SARL secures a duo that wants a protective legal framework, while the SAS suits a duo that wants statutory flexibility and a director treated as an employee for social security. In every case, it is the shareholders agreement and the anti-deadlock clauses that make the difference, not the form alone.

Joint ownership (indivision) describes a situation where several people hold the same asset together without their shares being embodied in a company. It often arises from a joint purchase or an inheritance. It can serve to hold an asset with another person, but it adapts poorly to an ongoing economic activity.

The regime is set out in articles 815 and following of the French Civil Code. Its logic is unfavourable to a business for three concrete reasons.

• Acts of disposal in principle require the agreement of all co-owners, which turns every major decision into a negotiation.
• Each co-owner can request partition at any time, under the principle that no one can be forced to remain in joint ownership (article 815 of the Civil Code), which deprives the project of stability.
• Joint ownership has no legal personality: it does not protect your personal assets from the debts of the activity.

Our view: joint ownership can do the job to hold an asset jointly for a single operation, but as soon as there is a regular activity, clients, employees or risk, a company becomes necessary. Most duos who consult us to start a business with two founders are in fact looking for a company, not joint ownership.

The SARL and the SAS are the two most common multi-member forms for starting a business as a pair. Both limit the shareholders' liability to the amount of their contributions and allow share capital from one euro. The useful amount depends on the actual financing needs and the credibility sought with banks and partners, to be calibrated to the project.

The difference lies elsewhere: in the director's social security status and in the freedom of organisation.

The director's social security status#

In a SARL, a manager who holds more than half of the shares is a majority manager and falls under the self-employed regime (TNS), generally with lower contributions but lighter social protection. The share count includes those held by the manager's spouse, civil partner and minor children. A manager holding half or less is a minority or equal manager and, if paid, falls under the general regime (treated as an employee).

In a SAS, the president is treated as an employee under the general regime as soon as they receive remuneration, whatever their shareholding percentage. Social protection is more complete and the cost of contributions higher for the same net pay.

Statutory freedom#

The SARL is governed by law: majority rules, the manager's powers and the conditions for transferring shares are largely fixed by the Commercial Code. That is reassuring for a duo that wants a ready-made framework.

The SAS offers great freedom: the bylaws organise the governance, the management bodies, the voting rules and the exit clauses almost to measure. That is powerful, but it presupposes well-drafted bylaws, failing which the flexibility turns against you.

A point of vigilance on the statutory clauses of the SAS. Article L227-19 of the Commercial Code, in the wording resulting from law no. 2019-744 of 19 July 2019, reserves the unanimity of shareholders only for the adoption or amendment of inalienability clauses (article L227-13) and change-of-control clauses (article L227-17). Approval clauses (article L227-14) and exclusion clauses (article L227-16) are, since that reform, adopted or amended by a collective decision taken in the conditions and forms provided by the bylaws, and no longer by unanimity. This is an essential distinction when preparing a two-founder SAS: the majority rule to write into the bylaws so as to be able, later, to exclude a shareholder or organise an approval mechanism is no longer unanimity.

The capital split is the most emotional issue of a two-founder creation, and the most underestimated. Two equal partners often start from the idea that 50/50 is fair. It is equitable on paper, but it is also the configuration most exposed to deadlock.

The underestimated risk: with a 50/50 split, no decision requiring a majority can be taken if the two partners disagree. The company becomes paralysed, with no majority to appoint a director, approve the accounts or settle a strategic direction. Lawyers call this deadlock, the leading cause of judicial dissolution between equal partners.

Trade-off between three classic configurations.

• The strict 50/50: reserve it for duos that accept deciding everything together and that set up a deadlock-breaking mechanism from the outset. Without an anti-deadlock clause, it is a risky bet.
• The 51/49: one partner controls ordinary decisions. More stable, but the minority partner must be reassured by written protective rights.
• A third tie-breaking voice: a trusted third party or an arbitrating body holds a symbolic share to settle disagreements. A rarer solution, to handle with care and to formalise.

Our view: there is no universally good split. The right instinct is not to look for the perfect allocation key, but to plan how you decide when you disagree. That is the role of the shareholders agreement.

The bylaws organise the company; the shareholders agreement organises the relationship between you. It is a confidential contract, separate from the bylaws, that anticipates sensitive situations before they become conflicts. For a duo, it is at least as important as the choice of form.

The clauses we systematically recommend in a two-founder agreement.

1. Tag-along and pre-emption clause: frame who can sell, to whom and on what conditions, to avoid the arrival of an unwanted third party.
2. Buy or sell clause (alternative offer): one partner proposes a price, the other chooses to buy or sell at that price, a radical deadlock-breaking mechanism in case of deep disagreement.
3. Non-compete clause: protect the business if a partner leaves.
4. Governance clause: define the decisions requiring the agreement of both, and those the director can take alone.
5. Split-review clause in case of unequal work contribution over time.

In practice, the agreement is drafted at the same time as the bylaws, never after a first crisis. When a duo calls us because things are no longer working, the absence of an agreement turns a simple divergence into a costly battle.

A few situations that change the analysis.

• Contribution in kind: if one of you contributes an asset (equipment, a business, a patent), the appointment of a contributions auditor (commissaire aux apports) may be required. In a SARL, article L223-9 of the Commercial Code requires it when a contribution in kind exceeds 30,000 euros or when the total value of contributions in kind exceeds half the share capital. In a SAS, the reference to the SA regime allows a possible exemption under the same conditions, to be checked case by case. To go further, read our article on the role of the contributions auditor.
• Friends or a couple as partners: trust does not remove the need for formality. On the contrary, the agreement protects the friendship and the couple by preventing money from spoiling the relationship.
• An investor joining later: if you plan a fundraising round, the SAS is often preferred for the flexibility of its share classes, to be anticipated from the creation.

• Joint ownership does the job to hold an asset with a partner, but it suits a lasting economic activity poorly, lacking legal personality and stability.
• The SARL secures a duo that wants a protective legal framework and, for the majority manager, a TNS regime often cheaper in contributions.
• The SAS offers great statutory freedom and a president treated as an employee, at the price of bylaws that must be drafted with care.
• In a SAS, since the law of 19 July 2019, only inalienability and change-of-control clauses require unanimity; approval and exclusion fall under the majority set by the bylaws.
• The strict 50/50 is the configuration most exposed to deadlock: plan a deadlock-breaking mechanism from creation.
• The shareholders agreement, drafted at the same time as the bylaws, is your real protection between co-founders.