How can I create a sole proprietorship in France?
To work for yourself in France, you can either set up a micro-entreprise to become freelancer or create a sole proprietorship (Entreprise individuelle au réel or EI). How does a sole proprietorship in France (EI) work? What are the pros and cons of this business entity? That’s what we’ll investigate in this article.
A sole proprietorship (Entreprise individuelle au réel or EI in French), also known as an enterprise operated under the owner’s name (Entreprise en nom propre in French) is the oldest sole proprietorship status. Most artisans, shopkeepers and liberal professionals working alone fall under this regime. It has the main advantage of keeping the process simple, but it also come with some complications.
Note: there are two types of sole proprietorships in France. The one we examine here is subject to income tax (impôt sur le revenu). The second type is subject to corporate tax (impôt sur les sociétés) but is less common.
What are the characteristics of a sole proprietorship in France?
Here is a list of the important things to know about a sole proprietorship in France (EI):
- In a sole proprietorship in France, the company and his owner are legally the same person. That means the company is registered under its owner’s name (that is why it’s called “enterprise operated under the owner’s name”).
- As a result, personal and professional assets are confounded. However, it is possible to choose limited liability. In that case, you will create a limited liability sole proprietorship (entreprise individuelle à responsabilité limitée). If you decide to do that, you will have to provide a list of assets attribution (liste d’affectation du patrimoine). This list’s goal is to identify your personal goods from your professional goods.
- Unlike the freelance (micro-entreprise) status, a sole proprietorship has no maximum turnover.
- You can hire people.
- If your turnover exceeds 33100€ for sale of services and 82800€ for sale of goods, you have to register for VAT.
- A sole proprietorship in France must keep accounting records clear and complete.
- The business owner is considered a self-employed person (travailleur indépendant non salarié or TNS). In most cases, he will contribute to self-employed social security (Sécurité sociale des indépendants). The rates are calculated using your annual profits: it’s either 32% of the gross result or 47% of the net result.
Advantages of a Sole Proprietorship in France
There are two main advantages to the sole proprietorship status :
First, contrary to the freelancer status, with a sole proprietorship in France (Entreprise individuelle au réel) you have real accounting records, a financial statement and annual profit and loss account. For banks or even suppliers, it gives you and your project much more credibility. As a matter of fact, you will need to appoint an accountant in order to create these documents… unless you feel able to do your accounting yourself, but this is risky, in particular if you have a tax inspection.
Second, compared to companies there are very few legal formalities with a sole proprietorship in France (Entreprise individuelle): no articles of association, no minutes for ordinary or extraordinary general meetings, no court register and no annual accounts to register. That means your accountant will cost you less than in other types of companies like limited liability (SARL) or simplified joint-stock company (SAS).
Disadvantages of a Sole Proprietorship in France
There are three major drawbacks with a sole proprietorship in France (Entreprise individuelle).
Let’s start with the most inconvenient one: the calculation method for social charges. The contributions are withdrawn on the basis of the year’s actual profit (the net result). It’s different in a company because it’s calculated on the salary the CEO decides to allow himself. It can make a big difference, especially if you have a profitable year.
Then, if you are unemployed with unemployment compensation (allocation chômage) and you ask for the maintenance of your allowance (maintien des droits or ARE) at the time of creation of your sole proprietorship in France (entreprise individuelle), the national employment agency (Pôle Emploi) will ask you to send the net result of your business as soon as you know it. With this information, they can recalculate your allowance and ask you to give back the surplus. It can be painful! In a company subject to corporate tax, you can set the CEO’s income to zero to avoid this.
Finally, it is impossible to sell a sole proprietorship in France, contrary to the shares or stocks of a company. With a sole proprietorship, you can only sell your goodwill and most of the time it’s way cheaper than what your business is worth.
Expert Advice on Sole Proprietorship in France
A French expert on business creation would tell you to avoid this business status and go for a simplified joint-stock company (Société par actions simplifiée or SAS) if you want to do business alone.
But the only way to really know is by putting together your very own business plan. If you need a little help to start, we have a free Excel financial and business plan template to download!
You may also want to know more about other French business entities and that’s a good thing because we also have this:
Don’t forget to check our overview of legal statuses in France.
You may also want to know what a simplified joint-stock company (SAS) is…