5. Business Structures in France
5.3. Limited Liability Company in France
The vast majority of expatriate small business owners manage quite satisfactorily as a sole trader, using the business tax status of micro-entrepreneur.
It is a status has been made more attractive of late with a new law that grants automatic protection of the family home against business creditors.
Nevertheless, for a number of different reasons a limited company may be necessary or preferred due to:
- The turnover limitations of micro-entrepreneur status;
- A business with a high cost base (including VAT purchased goods) is likely to be better off having company status;
- A business that is likely to incur material losses in the first year or two might be better off run as a company, as losses cannot be reported through micro-entrepreneur status;
- If you are planning to run a business with one or more persons from outside of your family a company structure is likely to be indispensable.
- Company status is likely to offer a more professional and secure image, particularly important in cross-border trading.
Limited liability has its attractions, but if you are going to need loan finance to fund the business there is the risk that the bank will demand collateral against the loan. In which case, you may need to pledge your home or other personal assets, and thereby lose the key benefit of limited liability!
There are two types of limited company status in France; one for single proprietorship, and one for two or more owners.
5.3.1. Entreprise Unipersonelle à Responsibilité Limitée - EURL
A EURL is a limited company in the ownership of one person.
Under an EURL the business is wholly owned by a sole trader and managed through a separate limited company.
The company can be established with as little capital as €1, after which the owner's liability for debts is limited to the value of their investment, unless other personal guarantees are given.
Capital can be entered by way of cash or assets and for a small business there is no need for an independent valuation of assets entered as capital.
In relation to taxation, an EURL can choose whether to be taxed through the personal income tax system (so no distinction between profits of business and income of owner), or to pay company tax on profits.
If the latter, your remuneration is a deductible expense from company profits.
You can also choose to have some of your remuneration paid as dividends, which has some fiscal advantages, as will be seen later.
Whichever basis on which you choose to be taxed, you will pay social security contributions as a self-employed person under the régime des non salariés (TNS).
The company is obliged to appoint a gérant who has formal legal responsibility for the running of the company. In effect, it is the managing director, although they have what may be regarded as traditional company secretary responsibilities. The person is normally the business owner but it may also be a third party.
If the gérant is to not also be the owner the appointment needs to be carefully considered as it has important legal, fiscal, social security and employment law implications.
If you employ a third party as the gérant then they are considered to be a salaried employee, and both employer and employee social contributions are payable.
It is possible to engage someone in a non salaried basis as gérant non rémunéré, in which case minimal social security contributions are payable by (or on behalf of) the gérant. This can be a family member, provided it is not your spouse.
The French Government have provided a model set of Articles that could be used by anyone proposing to set up an EURL, although we would recommend you took professional advice on it before you adopted it automatically.
5.3.2. Société à Responsibilité Limitée - SARL
If the business has more than one owner then it becomes a SARL, where the same basic rules apply as those for a EURL discussed above, but in a slightly more complicated way, as more than one person is involved!
The minimum amount of capital required to set up the company is €1 and there is no maximum. Capital be entered in the same way as an EURL, that is, by way of cash or assets.
The profits of the SARL will be assessed for income tax through the system of company taxation.
However, the option of being taxed under the system of personal income tax (l’impôt sur le revenu (IR) is available to all small to medium sized SARLs under 5 years old, whether or not it is constituted of family members. Whether it would necessarily be in your interests to be taxed in this way you would need to discuss with your accountant.
There is also a particular kind of family business where owners can elect for a form of partnership taxation, called le régime des sociétés de personnes, effectively the system of personal income tax. In this case the legal structure for the company will need to be that of SARL de famille.
Directors of a SARL taxed through the system of company taxation will be liable for personal income tax on the salary paid to them by the company. The salary is a deductible expense from company profits. You can also choose to have some of your remuneration paid as dividends, which has some fiscal advantages, as will be seen later.
As with an EURL, there continues to be a need to appoint a gérant to have legal responsibility for the running of the company. If you wish, you can appoint more than one gérant, such as may be desired for a husband and wife team.
The gérant will be considered a majority shareholder if they (with their spouse and/or children) hold more than 50% of the capital of the company.
Your social security contributions will depend on whether or not you hold a majority stake in the company. If you are the majority shareholder then you are treated as a self-employed person under the régime des non salariés (TNS); if you are a minority (or equal) shareholder, then you are treated as a salaried employee, under the régime des salariés (TS).
Those other directors who are minority shareholders will be also treated as salaried employees of the company for the purposes of social security contributions.
5.3.3. Other Incorporated Structures
There are a number of other company structures that can be established, such as SAS, SASU, which we do not consider it, but may be useful for those seeking to only be remunerated via dividends. This may be of particular use to non-residents, as there are no social charges. However, the administrative costs are not insubstantial.
5.3.4. Setting Up a Company
In order to create a company and obtain admission to the national business register in France (Registre du Commerce et des Sociétés/Répertoire des Métiers) there are a number of formalities to accomplish.
Without a competency in the French language and existing business experience in France it would be imprudent to try and accomplish them without some support.
However, the process itself is not complicated and so there is no need to spend a fortune on it. You should also find that the business registration centres will be able to take a great deal of the heavy lifting for you.
If you are proposing to engage an accountant to do your accounts they should be able to assist, although do some due diligence on their experience and competence in business creation and tax advice.
There is rarely the need to engage an avocat or notaire.
The following notes are not meant as a DIY kit, but to be of assistance in your discussions with advisors and officials.
Type of Company
The first thing you need to decide is the type of company you want to create.
We have outlined above the Société à Responsibilité Limitée (SARL) and the Entreprise Unipersonelle à Responsibilité Limitée (EURL).
There is a slight variation in the nomenclature for those in one of the regulated professions libérales, but the structure generally used (SESARL) amounts to the same thing.
Only if you were seeking a public listing, additional equity investors, or a company for property management, might it be sensible to consider other types of company.
There are also different company types for agricultural activities.
Status of Spouse
If a spouse or civil partner works regularly in the business it is obligatory for them to choose a legal business statut
Their association with the company can take different forms - partner, employee or shareholder - but in each case, to some degree or another, they are obliged to pay social security contributions.
The level of the shareholding held by the spouse also has significant fiscal implications, so needs careful consideration. It normally makes sense for the shareholding to be unequal.
If the spouse/civil partner does not participate in the business they obtain no pension rights, although they are covered for health as a family member.
You can read more about the options for a spouse in our section Status of Spouse in Family Business.
As part of, or prior to, the process of business registration it will be necessary to prepare the articles of association, rules that set out how the company is organised and how it will operate.
In French the articles are known as the statuts.
They will state the name of the company, purpose, head office, name of the bank, the decision-making process, the capital structure and the shareholders, etc.
A great deal of time and money can be spent in the preparation of the articles, but in the case if a family business the cheapest and quickest solution is to adapt an existing template readily available on-line.
Perhaps the most suitable are those provided via the French government at Modèle de statuts d'une SARL.
The use of these templates does require that you fill in the blanks, so it is a process that still needs due care and consideration.
You need to ensure that the name is not already registered, which you can do by checking with Infogreffe , the commercial court.
If you seek intellectual copyright (including brand name) then you need to register it with the Institut national de la propriété industrielle (INPI).
As we stated above, there is no minimum capital requirement for a company, which can be started with €1. However, you need to consider the funding requirements of the business and the impact of the capital structure on clients and your bank.
In addition, there is an income tax break equivalent to 18% of the capital subscribed to a company, so for this reason alone you may want to start the company with a reasonable level of capital.
If the company is not to be based at your home you will need to provide evidence of your right of occupation, such as letting agreement. If you need to sign a letting agreement, but you have yet to start your business, you can get preliminary business registration in order to allow the agreement to be completed. A second later registration process is then necessary.
You will need to publish a legal notice of creation in a newspaper, the formalities of which can be easily and cheaply accomplished on-line in the Journal Annonce Legale.
You will need to open a bank account in the name of the company and deposit initial funds. The sum deposited will be blocked until formal registration of the company has been completed.
Business Registration Centre
In theory registration can be accomplished on-line, but it is not a practical proposition. You would be best advised to make a personal visit to your business registration centre.
Although the quality of service provided by these centres does vary, as does the range of services they offer. An English language speaking service may not be available, and they are likely to be unable or unwilling to offer personal tax advice.
Some make a small charge for the registration process, but it is not significant. Ideally, ring and make an appointment before you visit.
The register and the registration centre (Centres de Formalités des Entreprises - CFE) depends on the nature of your activity, as follows:
|Artisan||Répertoire des Métiers (RM)||Chambre de Métiers et de l’Artisanat (CMA)|
|Commercial Sales||Registre du Commerce et des Sociétés (RCS)||Chambre du Commerce et de l'Industrie (CCI)|
|Agriculture||Registre du Commerce et des Sociétés (RCS)||Chambre d'agriculture|
|Sales Agent||Registre Spécial des Agents Commerciaux (RSAC)||Tribunal de Commerce (Greffe)|
If you are to be in one of the professions libérales you need to apply to URSSAF, the social security collections agency.
If you are in one of the artistic professions (painter, sculptor etc) then you will to contact with La Maison Des Artistes, whilst authors will need to make contact with AGESSA, although both need to also register as a business with URSSAF. We wrote an article in our Newsletter concerning affiliation to one of these insurance regimes, which you can read at Becoming An Artist or Author in France.
As part of the registration process you will need to complete a variety of forms and provide a range of supporting documentation.
The main forms to complete are:
Declaration of company creation; Affiliation to the social security system; Declaration of relevant experience/qualifications; Declaration that you are not criminally barred from exercising the activity; Declaration on the domain name of the website that will be used.
You can find examples of the paperwork at Formulaires & Modèles
You will also need to provide a range of documents, such as passport, marriage certificate, birth certificate, proof of address, and visa if applicable.
The costs of the business creation and registration process are going to depend largely on the nature and amount of professional support you engage.
For the basic costs of registration you need to budget a few hundred euros, but for a professional advisor (avocat, accountant, notaire) then you should budget upwards of €1,500 for a basic service.
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