Status of Spouse in a Family Business
Tuesday 03 June 2014
A spouse who works regularly in a family business is required to choose a legal business status, but with three to choose from, which one to adopt?
Since 2007 it has been obligatory for a spouse (or civil partner) who works regularly in the family business to choose a legal business 'statut '.
At one level the objective of this requirement is to provide some legal protection for the spouse, who might otherwise be left in a difficult situation following a divorce, death or invalidity of their partner.
Without any particular business status the spouse is a 'dependant' of the business owner. Although this does ensure they have health cover, it only entitles them to the most basic pension rights, a factor which is growing in importance to international owners of French property, due to the number of younger families relocating to France.
At another level the obligation to have a statut is also about controlling undeclared labour, for where the spouse works regularly for the business, but their role is not declared, the business can be subject to a fine and penalties. Indeed, it is possible for the authorities to re-qualify their status as salaried.
Whether the participation in the business is 'regular' does not depend entirely on the number of hours/days worked by the spouse, but whether they play a direct, tangible part on a professional, habitual basis.
Choice of 'Statut'
If the choice of the status of the business owner is relatively easy to determine, since it depends largely on the legal form of the business, the choice of status of a spouse is not always so obvious.
This is because there are three different 'statuts' for a spouse, as follows:
- Collaborating partner - conjoint collaborateur
- Salaried employee - conjoint salarié
- Shareholder - conjoint associé
The fourth option, which is to have no legal business status at all, is only possible if the spouse does not take part 'on a regular basis' in the running of the business.
Neither is the choice of statut entirely at the discretion of the spouse. While the status of conjoint salarié is open to all businesses, the conjoint associé is reserved for limited companies, and a conjoint collaborateur is only possible in a sole trader business, or in limited companies with less than 20 employees.
This is by far the most widely used form of business status for spouses, primarily because it enables them to obtain pension and maternity rights without the need for a remuneration to be paid. Indeed, it is condition of the status that the spouse receives no remuneration, despite participating regularly in the work of the company.
The rate of the pension contribution is around 25%, based on either one-third of a notional figure (€37,548 in 2014), called the plafond annuel de la sécurité sociale, or a percentage of the business profits.
These contributions need not necessarily increase the total sum payable by the couple in respect of pension contributions, as the contributions of the business owner (but also their pension rights) can be reduced. The contributions are a deductible business expense.
Insofar as health cover is concerned, as a conjoint collaborateur the spouse would be covered as a dependant (ayant-droit) of the business owner, meaning they would pay no affiliation fee to the health system.
If the business owner is an auto-entrepreneur/micro-entreprise, it is possible to register their spouse as conjoint collaborateur at the time of business registration. However, the social security contributions they will pay are not deductible, so if the spouse does play a regular part in the business, a different business tax status is really necessary, eg, limited company.
In the event of the death of the business owner, the status grants the spouse enhanced rights concerning the business, as occurs in the event of divorce.
However, it comes at a price, for there are substantial social security contributions to pay, by both the business and the employee. As a result ii is not a status that is frequently used.
In addition, in the event of the death of the business owner there are fewer rights in relation to the business, which may rely more on the marriage contract and inheritance planning by the couple.
There may also be difficulties with the deductibility of the salary against the business, which may well be capped. It is a matter you would need to discuss with your accountant.
It is possible to be both salaried employee and shareholder.
Where the business is run through a company structure then of course it is possible for the spouse to be a shareholder, provided the company was not a Entreprise Unipersonnelle à Responsabilité Limitée (EURL), where the only shareholder is the business owner.
To justify status as conjoint associé the spouse need only demonstrate participation in the share capital of the company, on whatever basis.
They do not have to justify an activity within the company, but if they do wish to participate this may either be on a salaried basis or as a business owner.
As a shareholder in the business the spouse is not affiliated to the social security system as a dependant of their partner, but on their own terms, and on the same basis as their partner, as a business owner. It is possible for them to receive a salary, but their main remuneration would normally arise from the profits of the business, through dividends.
If they hold shares, but do not participate in the running of the company, and receive no remuneration other than dividends, then they would not be affiliated to the social security system, although they retain health cover as a dependant of their partner.