Introduction
Choosing the limited liability corporation (LLC) structure in forming your company in France will save you money. It is important for the future of your business. You need to understand the differences.
In other articles, we explored the differences between France’s original limited liability corporate structures – the SARL and the SAS. Here, we focus on the one-owner LLC forms.
The one-owner SARL is the sole proprietorship limited liability EURL. The one-owner SAS LLC is the (“single-member”) joint stock limited liability company, the SASU.
As a single individual looking to form a French company, you can choose between the SASU or the EURL. Do not confuse these with France’s classic sole proprietorship (EI) or the “Micro-entrepreneur“.
EURL Characteristics
A legal person (another company) cannot manage the EURL. A natural person must manage it. The EURL’s owner/partner can designate a third party as the manager.
Like the SARL, France considers EURL owners as non-salaried workers (TNS). It attaches them to the social security regime for the self-employed (SSI).
EURL profits get taxed as personal income (IR). In this case, compensation is not deductible. EURL owners can also choose the corporate tax system (IS). This deducts their salary from profits. Depending on the circumstances, this can help to reduce their taxes.
Other LLCs can choose a different tax system with a five-year limit. However, the EURL can’t revoke its decision to choose corporate taxes. It is forever.
For EURLs under the corporate tax system, their social security taxes exclude 10% of their dividends.
EURL owners pay less payroll and social security taxes and receive fewer benefits than SASU owners.
France’s Commercial Code dictates the EURL’s organization and operating rules. This includes the framework for the articles of incorporation, which are fixed by law.
SASU Advantages
The SASU is a one-owner (“single member”) limited liability company – a SAS formed by one individual. “Single-member” is different from “sole proprietorship” (EURL) in many areas.
SASU’s owners/presidents are natural or legal (a company) persons. If they receive a salary, France considers them “assimilated employees” (as opposed to TNS). It attaches them to the general social security regime.
They benefit from better social protection, much like regular employees, but they get no unemployment coverage. So they must buy private unemployment insurance.
The SASU pays corporate tax, IS, but may initially choose the personal income tax system, IR. The owner’s social security contributions exclude the SASU’s dividends.
Most important, unlike the SARL and EURL, France’s Commercial Code does not dictate the rules of the SAS or SASU’s operations. As a result, the SASU’s main advantage is its freedom and flexibility of operations.
This makes the SASU, by far, the top choice for start-up founders and dynamic entrepreneurs in France (67% of new business creations in France in 2020).
SASU – Disadvantages
One drawback of the SASU is the level of social security charges. They are higher than for EURLs, in exchange for more social protection.
Another drawback is the company formation process. This SASU’s freedom and flexibility include statutory freedom to draft its articles of incorporation. This, though, can be tricky.
Freedom does not mean fast and loose. Entrepreneurs must take the setup formalities seriously. France’s Commercial Tribunal carefully examines SASU applications, rejecting many for errors, lacking clarity, substance, or form.
For this reason, if you’re creating a SASU limited liability company in France, it is important to have experts like Europe Incorporations manage the process.
Differences in Social Security Affiliations
One of the main differences between the EURL and the SASU is the social security regime, which treats the sole proprietor/manager of a EURL differently from the owner/ president of a SAS.
EURL
In the case of the EURL, the social security regime considers sole proprietor managers as non-salaried workers (TNS). It attaches them to the social security system for independent workers, SSI. Consequences of this include the following:
- 45% social security tax on sole proprietors’ monthly salary. Year N-2 is the basis for Year N social security contributions – a two-year cash flow deferral.
- 45% social security taxes on the dividends they pay themselves.
- Even those who don’t pay themselves and those who take a minimum salary must still pay minimum contributions to the SSI.
- For those who don’t expect to earn any money immediately or in the near future, the EURL is not the best option.
- The SSI offers less social security coverage to EURL managers than the general social security system provides to regular employees.
SASU
The social security system considers the single owners/presidents of a SASU as assimilated employees and attaches them to the general social security regime. This results in the following:
- Social security contributions are up to 82% of their monthly salary.
- Year N social security contributions are calculated off the salary paid in year N – meaning no cash flow deferral as with the EURL’s non-salaried employees (TNS).
- Social security contributions of 15.5% of dividends they pay themselves.
- Social contributions are proportional to compensation: If they pay themselves little or no salary, they pay little or no contributions.
- The social security coverage for members of the general social security system is better than the coverage the SSI provides non-salaried employees.
EURL – Impact of Tax Options
The EURL pays taxes on personal income by default. This makes it transparent because its owners pay direct taxes on profits.
Taxable profit includes owner-managers salaries, but ordinary taxable wages exclude them to avoid double taxation.
Owners pay taxes on all of the EURL’s profits. If they pay themselves dividends, they pay taxes on “dividends-profits” and other income at the personal income tax rate.
The EURL can choose the corporate system – 25%, with a reduced rate of 15% applied to profits between €0 and €38,120, and the 25% rate on any excess.
As mentioned above, for the EURL, this choice is not reversible. This option reduces the tax burden if profits are not distributed. It also avoids social security contributions when managers don’t pay themselves a salary.
EURL – Other Things to Consider
In addition to social and fiscal impacts, choosing the proper corporate form for your company in France will depend on your ambitions.
The EURL is a modest company, with most of its organizational and operational rules defined by law. Because it is a form of the SARL, it is flexible to transition from a one-owner company to a multi-owner SARL and vice versa.
A partner only needs to transfer shares or increase the capital of a third party for the EURL to become a multi-owner partnership (SARL). However, the cap on the number of partners for the SARL limits its prospects for evolution.
A EURL can be converted into a SASU later on, but this is difficult and costly. France designed its limited liability company structures for vertical conversions but not horizontal. For this reason, educating yourself and having experts like Europe Incorporations guide you in choosing the best formation option to fit your intended business needs is vital.
The EURL is less attractive to new investors for many reasons. It is difficult to issue private bonds. The EURL cannot offer securities to the public. There is also no possibility of benefitting from warrants for business creators (BSCPEs). Finally, like the SARL, the EURL lacks flexibility.
However, if you intend to create something other than a high-growth business in France with unlimited partners/shareholders, the structured/tailor-made nature of the EURL might benefit you because of its more straightforward operation.
SASU
The SASU is very popular with tech startups and growth e-Commerce entrepreneurs doing business in France. As already mentioned, this corporate form benefits from statutory freedom. This means that the French Commercial Codes give the owner/president a lot of freedom and flexibility to define the organization and functioning of the company.
Owners can freely associate with third parties, such as inventors or investors, in their decision-making process.
Owners can issue bonds, offer securities to restricted circles of investors, and issue warrants for business creators – BSCPEs. All of this makes the SASU a springboard for ambitious start-ups and high-growth business activities in France.
The anti-corruption “Sapin 2” law of December 11, 2016, simplified the requirements for in-kind share contributions to the EURL and the SASU. The law requires using contribution auditors to evaluate in-kind contributions (made in place of cash infusion) only where meeting the following two conditions:
- In-kind contributions don’t exceed 30,000 euros.
- The total value of the in-kind contributions isn’t more than half of the share capital.
Summary
The adage in the real estate industry, “location, location, and location,” can be appropriated to describe forming a company and doing business in France: “Corporate form! Corporate form! and Corporate form!”
Choosing the right corporate form is both ground zero and the top floor. It affects your costs and may limit your business ambitions.
As a non-resident single entrepreneur or investor looking to form a one-owner limited liability company (LLC) in France, you can choose between the sole-proprietorship EURL or the “single-member” SASU.
Some payroll taxes and social charges might not directly apply to you, but some tax effects, such as taxes on dividends, remain. Hiring a local manager to run your company also leaves you on the hook to navigate the complex and costly social security system. For your local managers, payroll taxes and social charges are significant factors to consider.
I encourage you to visit our articles on the differences in the status of assimilated employees vs. non-salaried employees (TNS) for a more in-depth look at the differences in social costs for the company, depending on these owner/employee classifications.
Other considerations may include taking on investors later on. The SASU allows you to take on partners/investors anytime freely. This differs from the EURL, which requires a more detailed conversion to a SARL.
Your preference in approach is also important. Do you want the freedom and flexibility to define and organize the functioning of your operations (SASU), or do you prefer a more structured, predefined, and regulated framework that will guide your company’s operations (EURL)?
These are crucial points to consider before choosing the corporate structure to form your company in France.
Europe Incorporation stands ready to advise you on the best corporate structure for your needs and form your company in France.
