Setting up a company

Updated on Tuesday 29 November 2022

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Whichever legal form they choose for their operation, whether a one-person business, EURL [one-person limited company], SARL [private limited company], SA [public limited company], or some other form, entrepreneurs have many questions.

Setting up a company (or a business take over) is an exciting adventure!

First of all, it is necessary to define your project in order to ensure that it is feasible (know-how, resources, constraints, etc.). Following which, it is important to carry out a market study to verify the viability of the project (customers, competition, etc.) and establish a forecast turnover. Market research makes it possible to analyze the supply and demand on a given market in order to set up a commercial strategy.

At this stage, it is recommended to draft a business plan to establish the financing requirement, the profitability potential of the project and the choice of the legal structure. The business plan is a summary document which allows you to simply present the ins and outs of your project.

As for the legal status, it is the legal context of the company, but depending on the desired activity and the protection of the heritage that is sought, certain legal forms are more or less adopted. Once the choice has been made, the business creation process can begin.

Which legal form will be most appropriate?

The choice of legal form will depend upon the entrepreneur's marital situation and assets, and also, obviously, upon the project (is the entrepreneur setting up a business alone? does the business need substantial investment?) and the business activity envisaged.

These aspects must be considered with great care, as the various options have different legal, tax and social consequences. It is better to be assisted by a legal professional.

If the entrepreneur intends to set up a small business (for example in addition to working as an employee), auto-entrepreneur [self-employed] status is appropriate. This will mean they are classified as an individual entrepreneur, with less onerous administrative constraints and a simplified operation. With the sole proprietorship, the entrepreneur and the company are one person. This solution offers great freedom, however, the professional and personal assets of the entrepreneur are legally combined. The entrepreneur is responsible for the debts of his business on all of his property. Fortunately, his primary residence is unavailable. It is also possible to use the status of Individual Entrepreneur with Limited Liability (EIRL) in order to limit the liability of the entrepreneur by separating personal assets from the professional ones.

It is also possible to create a company directly (EURL, SARL, SA or SAS [simplified limited company]). which means, a legal person who is separate from the entrepreneur. The creation of a company is mandatory in the presence of two partners. This option is suitable, for example, for those who wish to create a large structure at the outset, and who need an appropriate tax and employment regime.

There are two main families of companies: civil companies and commercial companies, depending on the activity carried out by the company.

An entrepreneur who wishes to exercise a real estate, liberal or agricultural activity will have to turn to a non-trading company:

  • real estate company (SCI),
  • professional partnership (SCP),
  • non-trading company
  • civil society of construction sales (SCCV),
  • portfolio civil society,
  • etc

Conversely, an entrepreneur who wishes to carry out a purchase/resale, rental, transport, etc. activity shall opt for a commercial company:

  • public limited company (SA),
  • simplified joint-stock company (SAS) or simplified single-member joint-stock company (SASU),
  • limited liability company (SARL) or one-person limited liability company (EURL),
  • general partnership (SNC),

 

Careful

Creating a non-trading company implies unlimited liability of the partners. Their personal heritage is involved.

​​​​Other elements must be taken into consideration while choosing the legal status: limited number of partners or access to new partners, operation of the company (human resources, financial resources, etc.), the manager's social status, the regime company tax ...

The notaire is a preferred adviser on the best legal form to adopt in the light of the entrepreneur's situation and plans.

Once your choice has been made, certain procedures must be carried out, mainly the filing of the registration file with theCompany Formality Center (CFE).

What financial assistance is available when a business is first set up?

While setting up a business, if the project requires funding, various aids are at the disposal of business creators. They can take on different forms: payment of a sum of money, tax relief, exemption from social contributions, help with procedures, etc.

For example:

  • Jobseekers in receipt of benefits may either receive a capital sum at the start of operations (45% of the remainder of unemployment insurance rights), or are allowed to keep drawing their unemployment benefit. The Active Solidarity Income (RSA) and the Specific Solidarity Allowance (ASS) are also maintained
  • Job seekers, beneficiaries of ASS or RSA, young people under 26, self-employed workers, etc. benefit from a partial exemption from social charges (Acre) for one year.
  • Young innovative companies benefit from tax relief or exemptions from social charges.
  • Job seekers, young people and other project leaders can apply for a solidarity loan under certain conditions.
  • Depending upon the area in which the business is located—a zone franche urbaine [urban area with a high level of social deprivation] for example—it may be allowed reduced tax and social security liabilities.
  • While creating a business, the NACRE device, a zero-rate loan in three phases (start-up assistance, financing assistance, support) helps the business creator during the 3 years following the creation of the business.
  • Finally, many local authorities and other organisations assist business start-ups by providing grants or more often interest free loans (information is available from chambers of commerce and industry and from France Initiative).

Other aid exists: bank guarantees, support, grants, investment funds, etc.

How can entrepreneurs protect their personal wealth?

70% of business start-ups are registered as one-person businesses (and the owners of three quarters of those are classified as auto-entrepreneurs, called micro-enterprise), while 30% of start-ups are registered as companies (most often as SARLs or private limited companies). In these circumstances the issue of how to protect one's personal assets is of great importance. Entrepreneurs who carry on their activity as a one-person business have a single set of assets which includes their professional and their personal assets without distinction.

In the event of poor business or bankruptcy, auto-entrepreneurs, members of the accredited professions, artisans, traders and farmers have to meet their professional commitments out of all their assets (both professional and personal).

It may be possible to get round this by signing a declaration of exemption from attachment, drafted by a notaire. With such a declaration, built and undeveloped land that is owned by the contractor but not used for its professional use (whether it is property, common property or even undivided property) becomes unseizable; That is to say they can no longer be seized (real estate, land, etc.). This exemption applies, however, only to professional creditors and only to debts arising after the publication of the declaration.

Individual entrepreneurs can opt for EIRL in order to create a professional heritage. In which case, they allocate assets to their professional activity and only these assets are incurred in the case of difficulties.

It is also possible to choose a limited liability company: SARL, EURL, SAS, SAS, etc. In fact, the company, a legal person, has its own assets. The creditors of the company cannot act on the personal assets of the partners. The responsibility of the business creator is thus limited to his contribution to society.

Warning

This limitation has some limits, especially when the manager stands guarantee for the company, if he makes management errors or commits fraudulent maneuvers.

How can the entrepreneur's spouse be protected?

Most couples hold their matrimonial assets under the French scheme known as the community of property ("communauté réduite aux acquêts). This statutory scheme is allocated by default to couples who do not sign any marriage contract. It is perfectly suitable for young couples who marry before they have built up any assets. However, in order to take account of changes in their situation, the law authorises them to change their matrimonial property regime after two years of marriage (which should be repealed in the first half of 2017), when the regime that they chose initially is no longer suitable. This will apply, for example, if one of them sets up a company.

A property regime in which all the property is owned separately is often preferable in order to protect the family assets, facilitate the management of the company and ensure the continued existence of the means of production in the event of the couple separating. In the case of difficulties, creditors cannot seize the property of the spouse of the business creator. Moreover, in the event of divorce, the company does not enter into the mass of the common goods, so the spouse cannot claim half of the company. It is the same principle in the case of death, the company does not enter into its estate. However, it may also appear to be a source of imbalance and injustice. The spouse who does not have a professional activity may be totally deprived of all assets in the event of separation or the death of the entrepreneur.

You should discuss this question with your notaire in order to understand the impact of your choices and assess the appropriateness of changing your matrimonial regime. 

When the spouse participates in the activity of the company, it must be declared. There are three statuses: associate spouse, employee spouse and collaborator spouse. In order to choose the right status, it is recommended to turn to your notary and analyze the role of the spouse, their matrimonial regime and the advantages/ disadvantages of each status, especially in the case of separation.

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Find the details in the Directory of Notaires of France.
Your notaire is at your disposal to help you.