Feature, Setting up in Business in France

Feature, Setting up in Business in France - Structure

Written by Mike Meade/Phil Heinlein

From Reporter Issue 89

CHOICES

When setting up your business you will have to decide on a statute, in other words the way the business will be structured socially, financially and legally. Each option has its pros and cons.

The most common statutes are listed here but there are others such as Societé de Fait, S.C.I. (specific to property development) or S.N.C. A good expert-comptable is your best source of counsel but your local CCI, Chambre des Métiers or Maison des Entreprises can also offer invaluable advice.

Entreprise Individuelle (sole trader): A small flexible structure often preferred by artisans, tradesmen and small shops. Setup expenses, taxes and charges are less than those paid by limited companies but beware of one vital point – the sole trader is responsible on his personal assets for debts and misdemeanours of the business. Profits are taxed as personal income and social charges are paid on an unsalaried basis. A version of the entreprise individuelle can be a profession liberale – an entreprise individuelle structure often used by medical, architectural, financial and legal professionals.

SARL, Société a Résponsibilité Limitée (limited liability company): This is a statute often chosen by those who want to share the financial burden with others and who also want to limit shareholders’ personal liability in case of business failure. The number of shareholders can be from 2 to 50. A gérant (managing director) must be appointed and, whether or not he is a majority shareholder, he is the one legally responsible for the company’s dealings. He can also be held financially responsible if a serious managerial fault can be proved to a Tribunal de Commerce. Over-investing beyond a reasonable probability of repaying would normally be considered as a managerial fault and could result in thegérant being held responsible on his personal assets. Other shareholders are only responsible up to the value of their shares. Agérant who is also a minority shareholder is usually paid a salary. If the gérant is a majority shareholder he can be paid on a non-salaried basis much like a sole trader. A gérant, like a sole trader, does not benefit from unemployment benefits in case of bankruptcy or closure. A variance of the SARL is the EURL, a limited liability company with only one shareholder.

SA, Société Anonyme: Comparable to the British PLC, the SA is a larger structure than the SARL and often a result of its expansion. The minimum number of shareholders is 7. There is no maximum. The managing director is paid a salary and, like the gérant of an SARL, can be held personally responsible for managerial faults.

There are a couple of atypical structures that can also be considered in exceptional cases. The first is the non-profit association. At one time, some ipso facto businesses hid behind the fiscal advantages once offered by this statute. In recent years however, tax rules concerning associations have been very much tightened and are now almost identical to those of any other business. These days, non-profit does indeed mean non-profit and salaries (which bear social charges) cannot be used to disguise profit. Association members cannot be salaried by the association. An association cannot enter into direct competition with legitimate businesses in any way (a magazine tried this a while back and we had them stopped) without paying the same charges, taxes and TVA as its competitors. So, the association is only a useful structure for those whose activity is truly not commercial.

A very different statute is a branch, agency or liaison office of a foreign company. This must be declared to the RCS; the person responsible for branch or liaison offices may be paid by the foreign parent company but must register and pay into French national health and retirement funds. The profits tax (IS) applies to profits generated in France and any French resident employed by a branch office pays income tax here as well. French law considers that a person is fiscally domiciled in France if the centre of his personal or business life is here or if he spends more than 182 days a year in France. If any one criterion is met he will be expected to pay income tax in France on his worldwide income. In principle any business trading here is liable for French tax on profits generated by their activities in France even if these activities are the accomplishment of a foreign company. International tax agreements can sometimes be invoked to prevent double taxation.

© Riviera Reporter

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