The choice of legal structure (forme juridique) most suited to the business project should be made when the business plan (see Chapter 4) has been completed as it is important to have at least a medium-term view of the business’ development. Personal and financial responsibilities, day-to-day functioning of the business, social security cover for you, and possibly your spouse (see Employing husbands or wives in Chapter 12) and taxation liability are all factors that can come into play. The conception of the business project should of course not be influenced by the choices of structure available.

Companies outside France seeking to increase or possibly start a business in France should note that:

• branch-status businesses in France (succursales) which are part of a foreign-registered company do not require to be registered as a legal entity in France; they are, however, subject to French business taxation;
• subsidiary-status businesses (filiales) of a foreign-registered company must be incorporated under French law and will therefore be subject to company liability and taxation in France. Subsidiaries may apply for state aid (see Chapter 5) when setting up, whereas branches may not;
• a market-research office can be set up without any French registration providing no trading is conducted.

Apart from the most well-known legal structures, some of the lesser known ones are described in this chapter, including those particularly suitable for certain types of businesses. Bear in mind that it may be complicated and costly to change to another forme juridique if you plan to expand the business later on and bring in associates or partners. Strike up a good relationship with the local tax authorities from the outset by going to see them, rather than trying to obtain advice and information over the phone or by post. As a rule, foreigners who are new to the French business taxation systems are well received.

WHAT FORMES JURIDIQUES ARE AVAILABLE?

The table opposite sets out the categories of businesses and professional activities that exist and the choice of structures for them.

Commerçant covers all business activities, notably shops, that buy for selling on at a profit and also the sale of certain services.

Artisan covers the manufacture, modification, transformation and repair of goods or provision of services (prestations de services); new artisan businesses are limited to employing 10 people, excluding apprentices. Completion of a basic business management course (stage de gestion) lasting about a week is obligatory for all future artisans unless directly relevant previous experience can be shown. Experienced foreign artisans with similar, but not identical experience, gained outside France are advised to still take this course.

The professions	Sole entrepreneur	Two or more entrepreneurs
Licence/diploma required and ruling body	Entreprise individuelle (El) or Société d’exercice libéral uni-personelle (SELU)	Société civile professionnelle (SCP) Société d‘exercice libéral (SELARL)
No ruling body, and no licence/diploma required	Entreprise individuelle (El) or EURL	SA, SARL, SAS, SNC
COMMERCANT ARTISAN INDUSTRY	Entreprise individuelle or an EURL	Société de personnes: SNC, SCOP
		Société en commandité simple (limited partnerships), Société en participation (joint venture company), Société de capitaux: SA, SAS, SARL

Industrial businesses are those which process or transform raw materials using production machinery and manual labour.

All future entrepreneurs, whether they have already managed a business as a salaried employee in France or set up their own business previously outside France are advised to take some form of business start-up training course. The website www.boutiques-de-gestion.com shows where, when and what type of courses are available through their organisation, throughout France. The national business start-up agency’s website www.apce.com is always available and provides step-by-step advice in English throughout all stages of setting up a business. If you are not yet living in France ask the National Centre for Distance Learning (centre nationale d’enseignement à distance) to send you details with prices of their business creation (créer une entreprise) courses. Their international call centre number is (0033) 5 49 49 94 94 and their website, with an English link is www.cned.fr.

Partners in commerçant, artisan and industrial sociétés de per-sonnes pay income tax (IR) on their proportion of the profits, whereas sociétés de capitaux pay corporation tax (IS) on the company’s profits. Please see the Taxation section in this chapter.

An important choice for someone setting up on their own is whether to opt for entreprise individuelle, roughly equivalent to sole trader, or for limited company status as the sole person (société d’exercice liberal uni-personnelle or an EURL).

Entreprise individuelle (El)

This is the simplest choice and around 60 per cent of new businesses choose it. No minimum capital is required. The business is set up in the name of the entrepreneur as a natural person (per-sonne physique) at the appropriate business registration centre (Centre de formalités des enterprises (CFE)). A trading name (dénomination commerciale) may be added. Profits are declared on a personal income tax return form along with any other personal income.

As the activity has unlimited responsibility there is no distinction between business assets and private estate so personal possessions and also those of spouses, depending on the type of marriage contract, or officially registered companions under the PACS (see below) system, can be seized by a bailiff (huissier) if the business fails.

Marriage or companionship contracts fall into the following categories:

• Communauté universelle.
• Séparation des biens.
• Participation aux acquêts.
• PACS.

If there is no contract accompanying a marriage which was prior to November 1996 all possessions are jointly held (communauté de meubles et acquêts), including those pre-marriage. Non-contract marriages after that date are subject to the communauté réduite aux acquêts: all post-marriage possessions are jointly held. Communauté marriages are therefore not the best solution if an El has financial problems. UK marriages are, however, considered by the French authorities to have been contracted under a séparation des biens system. The position regarding Civil Partnerships contracted in the UK or in other European countries with similar civil contracts is unclear at present. Civil partners should check for any possible clarification with a notaire (a publicly approved government official) before deciding to become an EL

An important point to note for home owners with their main residence in France is that the law has become more humane, and unsuccessful entrepreneurs are now allowed to keep their home, although they can still lose the furniture in it! A visit to a notary before starting the business is necessary so that the private residence is clearly established and protected even if it is ultimately sold, provided the proceeds are used for the purchase of the next home. This registration must be officially published by the Bureau des Hypothèques (guarantees office) so that any possible future creditors are aware.

The principal advantage of the El is the complete independence it offers. Outside advice can be solicited but doesn’t have to be taken or acted upon. The El is ideal for the one-man band who isn’t planning to expand. If the plan is also to just produce a modest annual income, the personal income tax return (the IR system) will remain more advantageous than if the business was established as a limited company and subject to corporation tax (IS). However, if the business performs very well, the El entrepreneur may find themselves in a higher income tax bracket. Becoming a limited company (EURL) and opting to pay tax under the IS system could then be considered.

If plans are ambitious, continued El status will also not encourage important customers and suppliers to deal with what they will consider to be a small business. Banks and other financial organisations that need to be approached for development finance (see Chapter 6) will not be impressed either.

Sociétés (companies)

This covers all other business structures. Unlike Els they are set up as a legal entity (personne morale) – distinct from the founder or founders – with their own name (dénomination sociale) and registered head office (siège social). The registration procedure for sociétés involves notably drafting company articles and recording them with the tax authorities and publishing an official announcement of the new company’s existence.

The société’s assets are quite separate from the personal estate of its directors if the business fails, except if failure to keep the accounts correctly or deliberate mismanagement (faute grave de gestion) has occurred. Dipping into the company’s treasury or using assets for personal gain (abus de biens sociaux) is a serious offence. Appointed managing directors (personnes physiques) act on behalf of the legal entity and submit regular management reports to the associate directors.

Exceptionally, each associate in a cooperative company (société en nom collective: SNC) is jointly responsible for company debts. (In practice a SNC structure is mainly used by established individual entrepreneurs who wish to unite.)

Creating a société from the outset is a good choice if decision sharing and working support from others is required. Various structures are available to suit family businesses and partnerships with former colleagues, and also for larger developments involving several working and/or financial partners or where a large initial capital is required. Details of all these are given below. For example, a family SARL is ideal for a bed and breakfast business.

Protecting personal estate is also a classic reason for starting a business as a legal entity. Apart from fraud or deliberate mismanagement, personal estate is not protected if it guarantees a bank loan for the business and repayments cannot be met.

Entreprise uni-personelle à responsibilité limitée (EURL)

Along with an El this is the other forme juridique for entrepreneurs that wish to remain independent in deciding how to run their business. An EURL can appoint a manager (gérant) to run the business on a daily basis while the entrepreneur remains the sole partner (associé unique); and in this case some decision taking will be shared. A symbolic minimum initial capital of one euro is required to set up an EURL. If a larger initial capital is involved, only 20 per cent has to be deposited immediately with the balance paid over five years.

Unlike an El, the business’ assets are separate from the entrepreneur’s personal estate. If development of the business necessitates partners and further capital the EURL can become a SARL. It can also revert to an EURL, but not to an El unless the business is officially wound up and then recreated.

The entrepreneur as a personne physique automatically pays personal income tax (IR) on BIC (industrial and commercial) or BNC (non-commercial) profits unless they choose, and record their intention, to pay corporation tax profits (IS). Book-keeping requirements (see Chapter 10) are more stringent than for an El. While this means more administrative work, it gives a clearer picture of how the business is doing. More EURLs survive their first year than Els.

Société anonyme à responsabilité limité (SARL)

This limited company form is the natural step up from an EURL as at least two partners are required. Once again, only an initial capital of one euro is required at the outset. In practise organisations providing aid and finance will not be impressed if the strict minimum capital amount is applied. As with EURLs if a larger capital is involved, only 20 per cent has to be deposited immediately, with the balance paid over five years. This capital can be in the form of physical possessions or established business contacts brought into the company by one of the partners. If any capital consisting of physical possessions is estimated to exceed 7,500€ or if the total value of this type of capital is thought to exceed 50 per cent of the company’s nominal capital a specialised auditor (commissaire aux apports) must be instructed for an official evaluation.

All major decisions must be taken at board meetings (conseils d’administration) with written-up meetings in special minute books. Any changes to the company’s articles must be officially published and notified to the company registrar office (registre du commerce). Accounts must be certified annually by an auditor.

The creator of an El or EURL which changes to a SARL and is the majority shareholder can still effectively control the business.

A company which is formed as a family SARL (de famille) can opt for IS taxation as a société des capitaux, like a standard SARL, or for IR taxation as a société des personnes, just like an EURL. The choice should be the right one as it will irrevocably be incorporated in the company’s articles which are sent to the tax authorities. It will depend on factors such as the entrepreneur’s family situation, anticipated profits and amount of social security contributions. As with a normal SARL there must be at least a minimum of two and a maximum of 100 partners whose individual financial responsibility is limited to their capital contribution. The partners in a family SARL must be part of the immediate family – spouse, parents, children, grandparents, brothers, sisters or their spouses.

Qualified professional people working together

The SCP (société civile professionnelle) is mainly used by the medical professions, although it can be used by other professions which require specific qualifications. The members work in the same premises on a cooperative basis, sharing capital equipment costs and profits depending on individual shareholdings. As with a SNC, each member is jointly responsible for company debts.

The SCM (société civile de moyens) is also mainly used by the medical professions to share capital equipment costs and the same building. Modern, suburban Espace Santé (Health Centre) buildings with a common reception area and secretarial service, rented or owned by one of the practitioners, are increasingly replacing old surgeries in town centre buildings. SCM members remain individual businesses solely responsible for their own activity.

The SELARL (société d’exercise libéral) enables members of the regulated professions in all spheres to work together as a SARL. Profits are subject to IS tax.

Commerçants working together

The SNC (previously mentioned) is a structure that can only be used by commerçants. It is likely to mainly be of interest to families that get on extremely well together – as everyone concerned is responsible for each other’s debts – each with their own trading speciality, and who wish to share premises and equipment. Established businesses which are performing well, with El status, are candidates. At least two partners are required and no minimum capital is required. The company has unlimited liability and shares cannot be sold unless partners are unanimously in agreement.

SARL (or SA) SCOP (société coopérative ouvrière de production)

This is a limited liability cooperative company, suitable for artisans, commerçants, industrial and service businesses. At least two partners, who are salaried, are necessary for a SARL SCOP and at least seven for a SA SCOP. Unlike a classic SARL no partner can have a majority shareholding and all partners votes are of equal importance regardless of their shareholding. A partner is elected manager and runs the company on a daily basis. SCOPs cannot be taken over by any outside financial partner(s) they may have as the salaried partners must together hold at least 51 per cent of the shares.

It is rare to find this structure used for a new business. It is often used by existing employees as a buy-out device in a SARL or SA to prevent company relocations or dissolutions.

SCS (société en commandité simple)

The principle advantage of this company form for artisans, commerçants and industrial entrepreneurs is the provision of capital from a financial partner (the commanditaire) for development of an excellent project – which should be backed by a sound business plan – where the entrepreneur has limited funds available or difficulty in raising them. The entrepreneur (the commandité) also has a relatively free hand to go about their business while their financial partner limits their involvement to checking over the accounts. A SCS has no minimum capital and must have at least two partners: one commandité and one commanditaire.

While commanditaires’ risks are limited to their financial contribution, each commandité has unlimited joint liability for the company’s debts. In this instance, beggars can be choosy, as it is vital that an entrepreneur chooses a financial partner who has confidence in their business ability and will not block development if more finance is required.

Société civile immobilière (SCI)

This is basically a non-trading property holding company set up by several people to jointly buy a property and should not be used as a business structure if they want to let out furnished accommodation. Registration, for renting furnished accommodation, is required under the business category of LMP: loueur en meublé professionnel with El, SNC or family SARL legal structures the most appropriate.

Société anonyme (SA)

This is the structure chosen by businesses that plan to expand considerably, possibly via public flotation, becoming roughly equivalent to a Public Limited Company. There must be at least seven shareholders and a minimum starting share capital of 38,000€ of which 50 per cent, if it is cash capital, has to be deposited at the outset with the balance payable over five years. Similar to SARLs, a specialised auditor must be used to evaluate physical assets, which must be entirely paid up at the start, if they constitute the capital. Shares can be bought and sold easily depending on the company’s financial requirements.

A board of directors of between three and 18 members, including a président-directeur général (pdg) and perhaps a directeur général have to be appointed by a general meeting of the shareholders. Partners and shareholders can only be liable for company debts corresponding to the value of their shares, although directors’ personal property can be seized if mismanagement is proved. The pdg and directeur général are employed as salaried staff regardless of their shareholdings, and, like all salaries, their salaries are deducted before the net profits of the company are declared. Profits are of course subject to IS (corporation) tax.

Articles incorporating a SA are complex and a corporate lawyer (juriste or avocat) should be instructed to draw them up. The accounts must be checked by a Chartered Accountant (expert comptable).

Société par actions simplifies (SAS)

This limited liability company structure is much more flexible than that of a SA and can be used by just one person, as a SASU (company with a single shareholder). The SASU provides an alternative to an EURL. As the minimum starting capital is 38,000€, it is more likely to interest banks and organisations providing finance. 50 per cent of this capital must be deposited at the outset with the balance payable over five years. Transfer from a SASU to a SAS, i.e. with more than one shareholder, is achieved simply by selling shares. However, it is not possible to open shares to public subscription. A SAS would have to become a SA to do that.

The articles of incorporation for a SAS have inexhaustible possibilities depending on the precise agreement required by the associate shareholders. It is strongly recommended therefore to instruct a corporate lawyer to draw them up in a clear, unequivocal manner. Certain decisions must be unanimously agreed, such as approval of the accounts which must be audited annually; distribution of profits; modification of the capital; company merger, de-merger or dissolution. The company must also have a salaried chairman (président) who is usually, but not necessarily, a shareholder.

ABBREVIATIONS AND USEFUL VOCABULARY

SOCIAL SECURITY AND UNEMPLOYMENT BENEFIT

Would-be creators or partners in new businesses were in the past often discouraged by the lack of unemployment benefit cover available for them if they were unsuccessful. Private assurance is now available at reasonable rates to provide unemployment benefit.

Classification as salaried or non-salaried depends on the business structure chosen and in companies it also depends on the shareholding and/or management position held. Whether salaried or not, all entrepreneurs in France (unlike the UK) must make payments into either a basic scheme or basic and complementary scheme to provide minimum social security cover. The président directeur général and directeur général of SAs, minority or egalitarian shareholders in a SARL, and manager (with an employment contract) in a SNC are salaried. An El entrepreneur, sole partner in an EURL, majority shareholder in a SARL, and director of a SNC are not salaried.

Non-salaried entrepreneurs can now ask for social security payments for their initial year’s activity, to be deferred for 12 months and then paid in equal instalments over the following five years. The set minimum rates, which are not the same for commerçants, artisans, and other service and professional activities, are applied during this first year.

Both salaried and non-salaried classifications are reimbursed at the same rate by the health service – which everyone must contribute to – for visits to doctors and dentists. Top-up medical cover with a mutuelle (see also Chapter 11) is recommended, although premiums for non-salaried people are higher than those for salaried people.

Retirement pension is composed of the basic pension, a complementary pension and a supplementary pension. Everyone must pay into the basic pension scheme. This pension has an upper limit of around 1,200€ a month which will only be attained by those who have paid contributions into the French system for 160 quarterly periods and have sufficiently high previous average annual earnings. UK male entrepreneurs will still have to wait until they are 65 to ensure they get the best possible basic pension from the British and French systems. A complementary pension scheme is obligatory for all salaried people and contributions are made to the ARRCO organisation, and executives (cadres), which will be the case with salaried company directors, shareholders – other than majority ones – and managers, also pay into the special AGIRC pension scheme. Artisans must contribute to the CAN-VACA organisation and other non-salaried professional groups contribute to the CNAVPL organisation. A complementary pension scheme is not obligatory for commerçants. Supplementary pension schemes are optional, through savings plans or insurance policies.

Unemployment benefit may be accorded by the ASSEDIC organisation if businesses fail and only to the following:

• a manager, without any shares, with an employment contract in an EURL;
• a minority shareholding manager or a partner in a SARL, with an employment contract;
• a salaried pdg or directeur général of a SA, with an employment contract.

The contract should be approved by the ASSEDIC before making unemployment benefit contributions for the people concerned. In the case of ‘refusal’ by the ASSEDIC, and for all other entrepreneurs, private unemployment benefit assurance should be considered with either the GCS or APPI organisations. You should apply for insurance from the start – don’t wait until it may be refused if the accounts show that the business is struggling. An entrepreneur who left salaried employment to start a business or who was previously registered as unemployed is also entitled to unemployment benefit from the ASSEDIC if their business fails within three years.

ABBREVIATIONS AND USEFUL ADDRESSES

APPI (association pour la protection des patrons indépendants), 25, boulevard de Courcelles, 75008 Paris.

GSC (garantie sociale des chefs d’entreprise), 42, avenue de la grande Armée, 75017 Paris.

www.gsc.asso.fr

AGIRC (associations générates des institutions de retraites de cadres)

Special additional complementary pension funds organisation for executive staff only.

ARRCO (associations des régimes de retraite complémentaire)

Complementary pension funds organisation for executive and non-executive staff.

www.agirc.fr – joint website for AGIRC and ARRCO – the website is in French only. AGIRC ARRCO, 16–18, rue Jules Cesar, 75592 Paris cedex 12. Tel: 01 71 72 12 00.

CANAM (caisse nationale d’assurance maladie et maternité des professions indépendants)

National fund for sickness and maternity benefit payments for the self-employed who provide a service, as opposed to manufacturing, or trading, goods.

Visit www.canam.fr for examples of social security contributions.

CANCAVA (caisse autonome nationale de compensation de l’assurance vieillesse des artisans):

www.cancava.fr

National pension fund for self-employed artisans/craftsman.

CNAVPL (caisse nationale d’assurance vieillesse des professions libérates):

www.cnavpl.fr

National pension fund for self-employed who provide a service, as opposed to manufacturing, or trading, goods.

ORGANIC (organisation autonome nationale d’assurance vieil lesse de Tindustrie et du commerce):

www.organic.fr

National life insurance, retirement and pension fund for non-salaried workers in industry and commerce.

In January 2006 the RSI organisation was created, merging the CANAM, CANCAVA and ORGANIC organisations. Artisans and commerçants now pay their social security contributions for pensions, disability and life cover (vieillesse, invalidité, décès) into the RSI which administers funds and dispenses benefits.

Social security registration offices for writers, artists and composers:

AGESSA (association pour la gestion de la sécurité sociale des auteurs) 21 bis, rue de Bruxelles, 75009 Paris.

www.agessa.org

Maison des artistes, 90, avenue de Flandre, 75019 Paris.

www.maisondesartistes.org