The nature of the activity practiced: Some activities require a particular legal form. It is therefore useful to check with the chosen activity's professional organizations (for example, running a tobacco retail business is mandatorily performed as a sole proprietorship or partnership). The status may also differ depending on whether the activity is commercial, artisanal or liberal.
The willingness to work alone or rather to enter into a partnership. The rules and functioning of the company will be different depending on whether the director is the only decision-maker or not.
The desire to protect one's holdings: It is sometimes better to move towards a legal status that allows limiting of one's liability.
The financial needs of the business and, therefore, the need or not to encourage investors in the capital.
The company's tax system: Based on the legal form, the company's profits will be subject to income tax or to corporate income tax.
The director's social system (The scheme for self-employed persons (TNS) for individual businesses and majority owners or the general social security system in other cases).
Flexibility in working methods.
Here are the various possibilities for starting out alone, without creating a company:
The sole proprietorship
The sole proprietorship is relatively easy to create and manage. The individual entrepreneur has greater freedom of action.
With a sole proprietorship, the entrepreneur and his company are one and the same.
Since professional and personal assets are not legally separated, the company director is responsible for the debts of his company. However, it remains possible for him to protect his main residence and his real estate assets by making a declaration of exemption from seizure with a notary.
Two further specific types of individual enterprise have been created:
The auto-entrepreneur (or micro-entrepreneur)
The auto-entrepreneur scheme creates an individual company with simplified formalities for constitution and functioning.
Being an auto-entrepreneur or micro-entrepreneur entitles you to benefit from a simplified system and reduced charges, on the principle of a levy proportionate to turnover.
Anyone can become an auto-entrepreneur, for either a main or complementary activity. To qualify for this status, registration on the commercial register or the trades directory is necessary. This system is only open to those with an annual turnover in 2017:
- of less than 82,800 euros for a sales or lodging activity;
- of less than 33,200 euros for a service activity.
The limited liability sole proprietorship (EIRL)
The entrepreneur may also opt for the limited liability sole proprietorship that allows him to protect his personal assets, creating holdings dedicated to his professional activity by distinguishing them from his private assets - without the creation of a company. It is, therefore, necessary to open a professional bank account.
This form of business has been largely hampered by the difficulty of obtaining credit due to the reduction in the assets offered as collateral. Banks have also circumvented this constraint by requiring additional sureties (personal guarantee or guarantee on the holdings making up the personal assets). In response, Bpifrance and Siagi have implemented wider guarantee mechanisms to try to facilitate EIRL's access to credit.
Here are the various possibilities for starting out (alone or with others), by creating a company:
There are more legal and accounting obligations in a company than in a sole proprietorship, but more advantages: : tax optimization, capital raising, leverage, etc.
A company can also be created after a first "test" phase in the form of a sole proprietorship. For this purpose, the Sapin II Act made the contribution conditions for changing from a sole proprietorship to a single-member company (single owner limited liability company or simplified single shareholder company) more flexible by removing the obligation to appoint a contributions auditor as of 11 December 2016. A simplification measure involving real savings, appreciated by entrepreneurs.
Finally, the status of company is essential for bringing other people into the project.
Two forms of companies: Limited Liability Company (SARL) and simplified joint stock company (SAS) are widely popular, and now in direct competition, among micro-businesses and small and medium-sized businesses. Among commercial companies, we also find the Privately-held company (SA) and the Partnership (SNC) that meet specific criteria. Uncommon in France, the private company limited by shares (SCA) is a relatively original form with an interesting hybrid status for large companies who want to open their capital to the public while retaining control and ownership of the business.
Below, we present the 4 main forms of companies: SARL, SAS, SA and SNC.
The Limited Liability Company (SARL)
The SARL is made up of a minimum of 1 partner (single-member SARL, also referred to as a EURL) and of a maximum of 100.
The amount of social capital is, in principle, fixed freely by the partners (except for a few regulated activities). 20% of the capital must be paid at the creation of the company and the rest within the next five years (however, the partial release of social capital prevents benefiting from a reduced CT rate, in the event of a profit).
Partner liability is limited to the amount of their contribution.
The statutes of the SARL must be established in writing. Their content and the working of the company are regulated and made public (little flexibility).
The company may have 1 or more managers, who must be physical persons, paid or unpaid. In the case of co-management, it is the total of the shares held by the co-managers which determines the nature of stewardship (majority or not) then applicable to each owner, regardless of his individual holding.
The SARL is, in principle, subject to corporate income tax - except in the case of the family SARL for which it is possible to opt for income tax, while the single-member SARL will be subject to income tax by default (unless opting for CT).
The manager or managers who are majority stakeholders in the social capital fall under the social security scheme for liberal professionals (RSI - general social security system). Since 2013, the payment of dividends is generally no longer fiscally interesting for the majority stakeholder who, in practice, advocates a remuneration logic, perhaps exceptional bonuses, rather than dividends. An agreement with a partner or investor based on the payment of dividends will often incite the choice of an SAS rather than a SARL.
The minority stakeholder or stakeholders (or equals) fall under the general social security system.
The SARL is only required to appoint an auditor in the event of threshold overruns set by decree.
The simplified joint stock company (SAS)
The SAS is made up of a minimum of 1 partner (single-member SAS) with no limit set.
The constitution of social capital is necessary, in principle, its amount is set freely by the partners (except for a few regulated activities). 50% of the capital must be paid at the creation of the company and the rest within the next five years (the partial release of the social capital preventing benefiting from the reduced CT rate, in the event of a profit).
Partner liability is limited to the amount of their contribution.
The statutes of the SAS must be established in writing, but the rules are extremely flexible. The SAS allows "customization". Only one part of its system refers to the SA system.
The SAS has at least 1 officer (the President), but can create up to 7 directorships (President, General Director, and up to 5 Delegate General Director positions), paid or unpaid.
The director or directors come under the general social security regime.
The SAS is required to appoint an auditor in the event of passing thresholds set by decree, but beware, the texts have maintained the obligation to appoint an auditor regardless of the thresholds, if the company is a situation of control towards another company (either controlling or controlled). A provision that may limit the use of the SAS in parent-subsidiary type structures.
Particularly simple, flexible and scalable, the SAS offers great benefits in forecasting investment from new investors (development of operating rules, issuing of warrants (BSA), provision of unequal distribution of dividends, etc.).
The assignment of shares also benefits from great flexibility and low registration fees (0.1% versus 3% with a system of abatement within the limit of 23 K€ for SARL) appreciated by the purchaser in the event of resale of securities (resale of the company or assignment of a portion of the securities) on the basis of a high valuation. For companies whose main activity is real estate, whatever their form, duties amount to 5%.
The partnership (SNC)
The SNC is comprised of a minimum of 2 partners with limit set.
Social capital is freely determined by the partners. The partial release of the capital can be organized in the statutes.
The SNC is a company in which all partners have the status of merchant. They are liable (for their personal assets) jointly and severally to each other.
The privately-held company (SA)
The SA is made up of a minimum of 2 partners (7 for listed companies), with no limitation.
It must have a minimum capital of 37,000 Euros. 50% of the capital must be paid at the creation of the company and the rest within the next five years (however, the partial release of the social capital prevents benefiting from the reduced CT rate, in the event of a profit).
Shareholder liability is limited to their contribution.
The classic SA is headed by General Director, under the control of a Board of Directors of between 3 and 18 members, which determines the direction of activity and ensures its implementation. The SA Board of Directors and Supervisory Board, for their part, are mainly used for large structures.
The SA is subject to corporate income tax.
The directors (General Director, Deputy General Director, and Members of the Board) come under the general social security system.
The working methods of the SA are more onerous, but also more structured than those of the SAS.