SARL, SARL-S or sole trader: which legal form to choose

In short

A sole trader needs no capital, but is liable for debts with their personal assets.

The SARL-S lets you start with 1 euro of capital and no notary, but it has limits: natural persons only, and one SARL-S per person.

The SARL requires 12,000 euros of capital and a notarial deed, and it is the most common form and the one best recognised by banks and clients.

“Which legal form should I choose?” is one of the first questions people ask when they are about to open a business in Luxembourg. The short answer: it depends on how risky the activity is, how much money you can tie up, how much you expect to turn over and who you are going to work with.

In this article we compare the three options most used by small business owners: sole trader (entreprise individuelle), SARL-S and SARL. At the end there is a comparison table and a list of typical situations.

Sole trader (entreprise individuelle)

You trade in your own name. No separate legal entity is created, and there is no minimum capital.

Advantages

Minimal formalities: no articles of association and no notary.
Quick start, as soon as you have the business permit (where the activity requires one).
Simpler accounting.

Disadvantages

Unlimited liability: your personal and business assets are one and the same. If the business runs up debts, your personal belongings are liable for them.
Profits are taxed directly under your personal income tax, which is progressive. If the activity is commercial, municipal business tax may also apply.
Less flexibility to bring in a partner or sell the business.

If you are a trader, you must register with the RCS and state, among other details, your business permit number.

SARL-S (société à responsabilité limitée simplifiée)

It was created to make it easier for new entrepreneurs to get started. It is a company, so the partners’ liability is limited to the capital invested.

What sets it apart

Capital between 1 euro and 12,000 euros, fully subscribed and paid up on incorporation.
Can be incorporated by private deed, without a notary.
Can only have partners who are natural persons; a company can never be a partner in an SARL-S.
Each person can only be a partner in one SARL-S at a time (except through inheritance). They can, however, be a partner in an SARL-S and an SARL at the same time.
Management can only be entrusted to natural persons.
The corporate purpose is limited to craft, commercial and industrial activities and some liberal professions.
If the capital exceeds 12,000 euros, the company must change its legal form.

Who it suits

Those who want the protection of a company but do not have 12,000 euros available to tie up, and whose activity carries moderate risk. Bear in mind that very low capital may convey little financial strength to banks, landlords or suppliers, who may ask for personal guarantees.

SARL (société à responsabilité limitée)

This is the most common form in Luxembourg: around two thirds of existing companies are SARLs.

What sets it apart

Minimum capital of 12,000 euros, fully subscribed and paid up on incorporation, in cash or in kind.
Incorporation must take place before a notary.
From 1 to 100 partners, who may be natural persons or companies.
The manager may or may not be a partner, and may even be a legal entity.
Partners’ liability limited to their contributions.
Shares cannot be freely transferred to third parties: the agreement of partners representing at least three quarters of the capital is required (the articles of association can lower this to one half).

Incorporation costs

In addition to the capital, allow for notary fees, RCS publication costs and any permit costs. Fees vary, so ask for a quote before you proceed. The capital is not a cost: it still belongs to the company and can be used in the business after incorporation.

Tax in broad terms

This is the part that weighs most heavily in the decision over the medium term.

Sole trader: profit is added to your other income and taxed under personal income tax at progressive rates. The more you earn, the higher the marginal rate.

SARL and SARL-S: the company pays corporate income tax (IRC). Since the 2025 tax year:

14% where taxable income does not exceed 175,000 euros;
16% above 200,000 euros (with a transitional formula between the two amounts).

On top of this come a contribution to the employment fund (7% of the IRC) and municipal business tax, which depends on the municipality. For a company in Luxembourg City with income above 200,000 euros, the overall nominal tax rate is currently 23.87%. The Government has announced a further one percentage point reduction in IRC from the 2027 tax year.

Companies also pay net wealth tax, with a minimum amount that depends on the balance sheet total. And whatever the managing partner receives as salary or dividends is then taxed personally.

In practice: with low profits, the difference between a sole trader and a company may be small, or even work against the company because of fixed costs (accounting, annual accounts, minimum tax). As profit grows and part of it stays in the company for investment, the company tends to become more attractive. This simulation should be done with real figures, with an accountant.

Comparison table

	Sole trader	SARL-S	SARL
Minimum capital	None	€1 (max. €12,000)	€12,000
Incorporation	No articles of association	Private deed	Notarial deed
Notary	No	Not mandatory	Mandatory
Partners	Owner only	1 to 100 natural persons	1 to 100, natural persons or companies
Liability	Unlimited, personal assets	Limited to capital	Limited to capital
Tax on profit	Progressive personal income tax	IRC (14% / 16% in 2026) + ICC	IRC (14% / 16% in 2026) + ICC
Annual accounts filed with the RCS	Not published	Yes	Yes
Credibility with banks	Medium	Medium, depends on capital	High
New partners / sale	Difficult	Possible, with limits	Simpler

When to choose each one

Starting as a sole trader makes sense if:

you are going to test a low-risk activity, on your own, with few expenses;
your expected turnover is modest;
you want minimal red tape in the first year.

An SARL-S makes sense if:

you want to separate personal and business assets from the outset;
you do not have 12,000 euros available;
you are the sole partner, or all the partners are natural persons and none of them already has another SARL-S.

An SARL makes sense if:

you will have partners that are companies, or investors;
the activity carries risk (building work, large contracts, stock, employees);
you need bank credit or credibility with business clients;
you expect profits that you want to reinvest in the company.

Three questions before you decide

What is the worst-case scenario? If a client does not pay or a job goes wrong, how much could you lose? The greater the risk, the more limited liability matters.
Where will you be in three years’ time? Changing legal form is possible, but it has costs. Sometimes it pays to start in the right form straight away.
Who will be with you? Partners, investors and family members change everything: the SARL-S, for example, does not accept companies as partners.

Next step

Before the legal form comes the business model. Our free Business Model Canvas framework helps you clarify customers, revenue and costs, which are exactly the figures you need for this choice. You can also order it already filled in by an In Digi consultant (AI-assisted) for €49.

Once your model is clearer, book a one-hour consultation (€100 + VAT, deducted if you hire us within 90 days). Together with our partner chartered accountant (expert-comptable), we run the simulation for your case and take care of setting up the company. See also our guide How to open a company in Luxembourg in 2026.

Sources

General information only; it does not replace professional advice. Always check your situation with an accountant or lawyer.