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Setting up a Small Business in France

Setting up a Small Business in France

The creation of a small business in France involves many choices that the creator must make at the time of incorporation. These choices are mainly at three levels:

  • Legal (company structure),
  • Fiscal,
  • Social (status of the entrepreneur).

It is very important to take the right options from the beginning because it is sometimes complicated and expensive to change during the life of the company. In addition, it should be noted that certain options in the legal field have consequences on the tax regime of the company or on the social status of the manager.

We will describe very briefly the different schemes available to the contractor. For more details please refer to other articles already published on our website (these articles will be indicated throughout this article) or contact one of our accountants.

I – Legal choices

  1. Individual business

The process of constitution of this form of business is very simple, inexpensive and very fast. Certain documents must be filed with the registry of the commercial court and one quickly gets a SIRET number and an RSI account.

The risk with this form of business, is that the operator is liable on all his personal property for all the debts of the company.

  1. E.I.R.L.

It is also a sole proprietorship, but in this case the entrepreneur files with the commercial court a list of movable or immovable properties assigned to its exploitation and these properties (necessary for the professional activity) will serve as a guarantee to the debts of the company. If the operator regularly updates this list, he will not be responsible for his personal property.

  1. Partnership (SNC)

The two formulas above are not applicable when one wants to practice with a partner. The SNC is a company that allows several people to exercise a business together by providing for legal rules between them through the statutes of the company.

The main disadvantage of this form of company is that all partners are jointly and severally liable for the debts of the company over all their personal assets.

We also note that the cost of training is significantly higher than for a sole proprietorship or an E.I.R.L.

  1. E.U.R.L. or S.A.R.L.

The formalities and the cost of setting up an E.U.R.L. (for a single partner) or an S.A.R.L. (for several partners) are substantially equivalent to the formalities and costs generated by the constitution of an SNC.

The main advantage of this type of company is that it represents a legal asset independent of that of the partners. Thus the partners will not be responsible for social debts on their personal property.

  1. S.A.S.U. or S.A.S.

S.A.S.U. (for a single partner) or S.A.S. (for several partners) are very close to the E.U.R.L. and S.A.R.L. but the law leaves more freedom for the personalization of the articles in the statutes of S.A.S. (or S.A.S.U.).

This formula is often chosen to allow the managers to benefit from the social system of employee as we will see in chapter III.

Note: Regardless of the type of company chosen, it is extremely important to write the articles correctly because the relationships between the partners and with third parties will be governed by these articles.

For further information in this area, see our article entitled: What legal forms can be adopted to do business in France?

II – Options in tax matter

  1. Income tax

In this tax category the directors of the company are taxed directly to the income tax at the progressive rate. This rate takes into account the family status of the taxed person (married or not, number of children etc …).

This tax system applies compulsorily to individual companies, E.I.R.L., E.U.R.L. and S.N.C. It applies optionally to S.A.R.L. between members of the same family and, during the first five years of activity, to all other forms of society.

  1. Corporation tax

The net profit of the company is taxed at the corporate tax rate of 15% up to € 38 120 and 28% beyond. Losses are carried forward to future profits.

Income and dividends received by executives are taxed on income tax.

This plan applies compulsorily (except options mentioned above) to all S.A.R.L. S.A.S. and S.A.S.U. The E.U.R.L. and E.I.R.L. can opt for the corporate tax.

For more information, see our article entitled: Tax Regime for the Individual Entrepreneur

III – The social regimes of managers

A study of this scheme was carried out through the article on our website entitled: Business leaders social status

This study has a chapter where the cost of each social system is compared.

  1. Self employed (T.N.S.)

This plan must apply to:

  • Individual entrepreneurs and E.I.R.L,
  • Partners of S.N.C,
  • Managing partners of E.U.R.L,
  • Shareholders of S.A.R.L. holding more than 50% of the shares.
  1. Employee status

This regime applies in other situations, where the manager is:

  • Non associated manager of E.U.R.L,
  • Manager of S.A.R.L. holding up to 50% of the shares,
  • President or director-general of S.A.S.

In conclusion, it should be noted that there is also another form of society, the Société Anonyme (S.A.), but that it is not suitable in principle for a small business.

In any case, if you are interested in creating a business in France, we can provide you with all the necessary information on this subject, help you choose the legal structure and social status appropriate to your situation and achieve for you all the legal operations necessary to start your activity. Reach us through our contact page.

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