Setting Up a Business in France: Choosing the Right Structure for Your Success
Setting up a company in France requires careful consideration of the tax regime associated with each structure. In this article, we will explore the main structures that can be set up in France and their tax advantages.
1. Sole Proprietorship (Entrepreneur individuel)
A sole proprietorship, or “entreprise individuelle” in French, is the simplest and most common form of business structure in France. This structure is suitable for small businesses and freelancers who want to operate their business independently. As a sole proprietor, you are responsible for all business activities, and your personal assets are at risk in case of business debts or lawsuits. However, the tax regime is advantageous to start a business since the income generated by the business is taxed at the personal income tax rate, which can be as low as 11% for small businesses. Indeed, soleproprietorship is taxed under the individual income tax scale that vary from 0% to 45% depending on your annual net profit. In addition, social security contributions must be paid by the Sole Proprietorship to the URSSAF.
Partnerships, or “sociétés de personnes” in French, are designed for small and medium-sized businesses that have two or more owners. There are two types of partnerships: general partnership (société en nom collectif) and limited partnership (société en commandite). In a general partnership, all partners are jointly and severally liable for the business’s debts and obligations. In a limited partnership, you will find two types of partners: general partners who manage the business and are liable for its debts, and limited partners who contribute to the business’s capital but have limited liability. These two structures are less and less used in France especially in reason of the associated partners liability. In addition, these structures are taxed under individual income tax so each partner is (again) responsible for the payment of tax.
3. Limited liability company
A limited liability company, or “société à responsabilité limitée” in French, is a popular choice for small and medium-sized businesses that want to limit their personal liability. In this structure, the company is a separate legal entity from its owners, and the owners’ liability is limited to their capital contributions. The tax regime for a limited liability company is advantageous since the company’s profits are subject to corporate income tax (25%), which is in general lower than the personal income tax rate. Additionally, the owners can choose to be taxed either as an individual or as a corporate entity (via a holding company) depending on their tax situation.
A corporation, or “société anonyme” in French, is a popular choice for larger businesses that want to raise capital by issuing stocks. In this structure, the company is a separate legal entity from its owners, and the owners’ liability is limited to their capital contributions. The tax regime for a corporation is advantageous since the profits are subject to corporate tax, which is lower than the personal income tax rate. Additionally, the shareholders are taxed on dividends at flat rate (25%), and the company can benefit from various tax incentives.
In conclusion, choosing the right business structure in France depends on your business needs and goals, as well as the tax implications of each structure. It is important to seek legal and tax advice before making a decision. If you have any questions and want to set up a company in France, please get in contact with our dedicated lawyers on: www.agn-avocats.com.