the right choice for a start-up in monaco: sole trader or sarl?

23 November 2020

The right choice for a start-up in Monaco: sole trader or SARL?
In most places in the world, there are several forms of business, although it is always very common to find the main two super known: sole proprietorship (also called sole trader, individual company, one-person company) and the private limited liability company.
In Monaco, the same applies with sole trader and SARL (société à responsabilité limitée).
If you are a start-up and are looking for an advice on the matter, meeting local professional experts might confuse you a little more.
What are the needs of a start-up?
Flexibility, quick processes, little admin, keeping expenditures as low as possible, getting financing, building trustful relationships with partners and suppliers, etc.
The needs are many and according to the sector of activity, some might be more relevant than others.
What is a ST and when to choose a ST?
It is the fastest, easiest, simplest and cheapest way to set up a business in Monaco. It is the preferred form of entrepreneurs when starting up a new venture. It is also considered as the riskiest way to conduct business, since liability if unlimited and the entrepreneur’s personal assets are at risk as well.
The “sole trader” is the best form to start a business when you are on your own or have a very few expenses (such as service providers for instance).
What is a SARL and when to go for this one?
It is the most common type of form in the world, a private limited liability company, with a minimum capital of 15,000€ and at least two partners involved. Whereas the immediate financial liability is clearly limited to the amount of capital, the managing partner incurs their civil and/or criminal liability in case of negligence.
This form is chosen especially for its limited liability, which makes people feel safer when they know they will have a lot of expenses to incur (i.e. developing and buying products). Thus, commercial activities tend to choose the SARL.
However, limited liability does not mean freedom of causing debts and living happily with it. We remind you that the managing partner still holds a certain risk of being caught by justice in case of negligence or mismanagement.
It is of no surprise, in such a conservative ecosystem like Monaco, to see that both forms represent a third of all companies each (the main third form being the SAM, defined by the Government as a joint stock company).
What about financing?
The easiest form for getting financing is the SAM, since this is the only form in which new shareholders do not have to apply for a business permit, allowing them to acquire shares without having to go through a heavy administrative process to do so.
Nevertheless, the SAM is not a cheap and flexible structure. Capital requirements, together with compliance and banking regulations have made this form a more complicated structure, chosen by international and/or financial corporations only.
What do we recommend?
We recommend that you have a look at your business plan and especially the supply side. If you have a lot of expenses to incur, going largely over the minimum capital of 15,000€, you better play safe and start an SARL, although the initial costs (set-up and office space mostly) will tend to be higher than a sole trader.
However, if you are buying for 50,000€ of products from a supplier each month, be advised that this supplier will not deal with you unless you show a bigger capital, which would in turn increase your liability and thus your overall financial risk. A company that is not liable might not sound reliable to suppliers, who generally look forward to building a safe and sane relationship with you.
Service providers should seriously consider a sole trader, knowing that in Monaco a big number of companies are established as such though dealing with big business, having employees (hiring is possible as a sole trader too) and making hundreds of thousands of turnover each year.
Perhaps, one last suggestion is to look at MonacoTech for technology-related start-ups. This state-owned incubator/accelerator was founded in 2017 and now hosts close to 20 start-ups, providing them with premises and services that could be extremely useful for an early stage company.