Founding a company in France – Establishing a company in France.
An investor who wants to found a company in France must first ask themselves what form of company will best meet their needs: SARL, EURL, SELARL, SA, SAS or SNC. French company law stipulates several forms of company that can differ greatly from one another, and each involves different consequences in terms of liability and fiscal law.
Any entrepreneur wishing to start a business in France is therefore advised to consult a specialized attorney and/or tax advisor before founding the company. While it is possible in most cases to transform a French company into a different form of company later, this involves significant financial and legal costs.
Types of company that can be formed in France:
SARL (société à responsabilité limitée)
The SARL, which corresponds to the German GmbH or the US limited liability company, is the most attractive and widespread structure for newly founded companies in France. A key advantage of this structure is the relatively simple administration and the liability limited to the joint capital of the company (Art. L. 223-1 ff. Code de Commerce). French law does not stipulate a minimum capital. However, it should be noted that the amount of capital must appear on corporate stationery, and therefore plays an important role in terms of image. At least two shareholders are required to form the company.
The SARL is managed by one or more managing directors, who may also be shareholders. The French Macron Act has further simplified the legal requirements for the SARL (e.g. sole decision by the managing director for business relocation within France if approved by at least 50% of shareholders). It is also of interest that the Cour de Cassation ruled in May 2015 that shareholders can make legally binding decisions, even if these are in clear contradiction with the statutes and the specific, formal requirements provided, as long as these decisions are unanimous (Chambre commerciale de la Cour de cassation, audience publique du 12 mai 2015, pourvoi n° 14-13744).
EURL (entreprise unipersonnelle à responsabilité limitée)
In contrast to the SARL, the EURL has only one shareholder (Art. L. 223-1, L. 223-4 ff., L. 223-31, D. 223-2 and Annexe 2-1). The legal regulations governing the EURL are largely the same as for the SARL. However, a key difference lies in taxation, because the earnings of the sole shareholder of a EURL are subject to income tax. The shareholder has the right to choose to pay business tax instead of income tax. A sole proprietor of the EURL who is not also the managing director may be an employee of the company (Cour de cassation, Chambre Sociale, audience publique du 11 juillet 2012, pourvoi n°11-12161).
SELARL (société d’exercice libéral à responsabilité limitée)
A special form of SARL, the SELARL, was created for self-employed professionals (lawyers, physicians, etc.). For this reason, regulations were adapted for a SARL with the ethical obligations which the self-employed professionals must observe (e.g. prior approval by the responsible chamber of trade). At least two shareholders are required. In the case of a single shareholder, the structure is a SELARLU. The SELARL is represented by one or more managing directors, who must also pursue a self-employed profession. At 100 shareholders or more, the SELARL becomes a SELAFA (société d’exercice libéral sous forme de société anonyme).
The French Macron Act has led to some changes, which of course also impact the profession of lawyers in France who operate in the framework of a SELARL in France. These regulations took effect on August 8, 2015. Now, 49% of the shares of a SELARL may be held by shareholders who do not pursue a self-employed profession. If shareholders practice a freelance trade in Europe outside of France, they are now also able to hold the majority of shares in France (except in the healthcare sector), as long as at least one (minority) shareholder still practices the freelance profession in France.
This is different from the second familiar company structure for freelance partners, the SCP (société civile professionnelle). In contrast to the SELARL, financial liability limited to the company capital is not possible. The business earnings of each shareholder are subject to income tax.
SA (société anonyme)
The SA most closely corresponds to the German Aktiengesellschaft or the US corporation (Art. L. 225-1 ff. Code du Commerce). It requires at least seven shareholders and total share capital of €37,000. It is run by a president and a general director. This may be the same person. A supervisory board with at least three members is also required. Upon dismissal of supervisory board members, it is important to ensure that the members knew the reason for dismissal before the shareholder decision (Cour de Cassation, Chambre commerciale, 14 mai 2013). Financial liability is limited to the corporate assets. When first establishing a company in France, this company structure is less commonly chosen due to its complexity.
SAS (société par actions simplifiée)
The simplified corporation is extremely popular in France and is also preferred by our firm for founding new companies in France (at least when founding French subsidiaries of foreign parent companies). Despite the great popularity of this structure, there are surprisingly few regulations governing it in the Code de Commerce (L227-1 to L227-20 and L.244-1 to L.244-4).
This means that both structure and management can be relatively freely and flexibly designed in the corporate statutes. No legal minimum capital requirement is defined. At least two shareholders and a president are required. If only one shareholder exists, the structure is a SASU (société par actions simplifiée unipersonnelle). Financial liability is limited to the corporate capital. Another advantage is that the president is not subject to the RSI social insurance system, but instead to the “régime des assimilé salariés,” i.e. the general social insurance system.
SNC (société en nom collectif)
The general partnership is relatively rare in France, because the partners’ financial liability is not limited to the company assets. At least two partners are required to form the company. The company is represented by one or more managing directors.
Liability: Managing director liability in France
It is also important for shareholders to know the general features of liability for employees, managing directors, and presidents in France. In France, the managing directors and presidents are liable to the company, its shareholders, and also to third parties (at least for intentional actions) for misconduct that violates legal regulations or statutory requirements. Liability risks also exist for managing directors and presidents in the case of misconduct in their own business management, which can also lead to damage claims from the company as well as directly from the shareholders (L. 223-22 (SARL), L. 225-251 (SA), L. 227-8 (SAS)).
This article has been prepared for informational purposes only. It is not a substitute for legal advice addressed to particular circumstances. You should not take or refrain from taking any legal action based upon the information contained herein without first seeking professional, individualized counsel based upon your own circumstances. The hiring of a lawyer is an important decision that should not be based solely upon advertisements.
Information by ALARIS AVOCATS
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