A person wishing to set up a business in France may choose between several different structures.
The simplest is the sole proprietorship by which the entrepreneur carries out his activity in his own name. There is no separation between his individual and professional assets and creditors may seize his personal assets as well as those jointly owned (except for his principal residence, if he has taken the appropriate legal steps to protect it).
Apart from this case, the business will generally be conducted in the framework of a company made up of at least two associates, although a “Single Shareholder” company is also available.
One generally distinguishes between commercial and civil law companies. In the “commercial” category a distinction is drawn between companies where the strong personal bond between the individuals is permanent (“sociétés de personnes”) and joint stock companies (“sociétés de capitaux”). Amongst the “Sociétés de personnes”, the “société en nom collectif” (SNC) is characterised by the fact that all the partners have a “trader” status with joint and several liability for the company’s debts.
The “société en commandite simple” (SCS) is characterised by the fact that it is made up of two categories of partners: the managing partners (“Associés commandités”) and silent partners (“Associés commanditaires”). The managing partners are like those in the SNC whereas the silent partners are not jointly and severally liable for the company’s debts and are not entitled to participate in the company’s management.
Taking into account the risks of the company encountered by the partners, the corporate activity is generally conducted in the framework of a form of company where the associates’ liability is limited to their capital contribution.
The principal “sociétés de capitaux” are: the joint stock company (“société anonyme”, SA), the “société par actions simplifiée” (SAS), the limited liability company (“société à responsabilité limitée”, SARL). We could also mention the European company.
The operation and organisation of the S.A form is subject to relatively strict rules and regulations. The simplified SA, the SAS, as the name implies, offers a much simpler and less “bureaucratic” structure and operating framework, the founders being given great latitude in the drafting of the by-laws. For this reason, the SAS form of company is enjoying considerable success at the present time.
While also subject to mandatory operating rules and regulations, the SARL offers greater operational flexibility and less “red-tape” and is often the appropriate vehicle for small start-up businesses, with no minimum capital, unlike the other joint stock forms of company. Civil companies make up the other category of legal entities; they can carry out only “civil” (as opposed to “commercial”) operations: these include real estate construction, agriculture, or the exercise of liberal professions. The partners are jointly and severally liable, without limit, for the company’s liability to the extent of their respective shareholdings.
When considering the choice of a structure, one must consequently take into account all these characteristics and constraints.
The company founder’s employment and social security status may be compared to that of a non-salaried person in the framework of a sole proprietorship, if he is the sole partner of a EURL or the associate of a SNC or a manager with a majority stake in an SARL. His status is comparable to that of a salaried employee if he is a manager with a minority stake or 50% stake in an SARL, Chairman and Managing Director or simply Managing Director of an SA, President or Manager of an SAS.
Finally, tax also plays an important role in the choice of a structure. Profits made by a sole proprietorship are subject to personal income tax (“impôt sur le revenu”, IR) in the name of the entrepreneur in the relevant category corresponding to its activity. Losses resulting from the professional activity may come in deduction of the tax basis.
The profits of “sociétés de capitaux” are, in general, subject to corporate tax (“impôt sur les sociétés”, IS), either by law (for the SA, SAS, SARL), or on election (EURL).
The profits of companies made up of individuals are taxable at the personal income tax rates in the associates’ names, either in the BIC (industrial and commercial profits) or BNC (non commercial profits) categories. Similarly, the profits of civil companies are, with some exceptions, taxable at the personal income tax rates in the names of the partners.
