DOING BUSINESS IN FRANCE
TYPES OF BUSINESS ORGANISATION
Principal forms of doing business
The company form most frequently used by large companies in France is the joint-stock company (sociÃÂ©tÃÂ© anonymeÃ¢â¬âSA); indeed, it is compulsory for companies in finance or insurance. Smaller firms, particularly sales subsidiaries, often use the limited-liability form (sociÃÂ©tÃÂ© ÃÂ responsabilitÃÂ© limitÃÂ©eÃ¢â¬âSARL). An SARL with a sole shareholder is known as an entreprise unipersonnelle ÃÂ responsabilitÃÂ© limitÃÂ©e (EURL). A subsidiary SA or an SARL is the usual form of business organisation for a foreign investment. There is no minimum capital requirement for an SARL or EURL.
Requirements of a joint-stock company (sociÃÂ©tÃÂ© anonymeÃ¢â¬âSA)
Capital. Minimum Ã¢âÂ¬225,000 if publicly owned; otherwise, Ã¢âÂ¬37,000. Only 50% needs to be fully paid up. If capital falls below the minimum, the company must restore it to that level within one year. Otherwise, it may be placed in liquidation. Capital must be fully paid up within five years. Companies must set aside 5% of annual distributable profits in a legal reserve until the reserve equals 10% of capital.
Contributions in kind (tangible or intangible assets) must be valuated by a court-appointed assessor and approved by a foundersÃ¢â¬â¢ assembly for a publicly listed firm; for non-public firms, each founder must approve the valuation of the court-appointed assessor. Contributions in kind do not carry voting rights in listed companies but can in other companies.
The formalities of creating a privately owned company have been eased since January 2003. In particular, it is no longer necessary to deposit the byelaws with the commercial court or to publish them, but they must be deposited with the tax office, and publication of the fact of setting up the company is mandatory.
Founders, shareholders. Minimum seven. No restrictions on nationality or residence.
Board of directors, management. There are two approaches: a conventional board to which management reports; or a two-tiered structure of a supervisory board and a management committee. The board must have a minimum of three and a maximum of 18 members. At least three of the board members must be shareholders. There are no restrictions on nationality or residence. No more than one-third of the board may be older than age 70. No person may be a member of more than five boards. This does not apply (except for the chairman) to the boards of group companies not listed on the stock exchange.
For a conventional board structure, the board must elect a chairman and a general manager. It may also elect up to five general-manager delegates. A single general manager is sufficient if the companyÃ¢â¬â¢s capital is less than Ã¢âÂ¬150,000. No one person may be the general manager of more than one company. The general manager has full powers to run day-to-day business and to represent the company.
Where there is a supervisory board and a management committee, the supervisory board appoints the members of the management committee. They may not be members of the supervisory board and do not need to be shareholders. A non-European Economic Area (EEA) or OECD national who serves as the board chairman or general manager of an SA needs recognition of this status by the local prefect.
The personnel are entitled to board representation (of up to two members) where they hold more than 3% of the companyÃ¢â¬â¢s shares either directly or indirectly (for example, through the pension fund). The company has the option to include up to four board members representing staff (five for a listed company). The byelaws should specify whether this is planned. They have non-voting status and are in addition to the board membership. Their number may not exceed one-third of the membership of the board. Where there are two or more staff representatives, one must represent managers. Apart from these representatives, no more than one-third of the board may be company employees.
Labour representation in management. In companies with more than 50 employees, workers elect a works council, which has comprehensive rights to be kept up to date on company operations. Companies may choose to allow staff representation on the board.
Disclosure. All SAs must publish annual financial data and deposit two copies of the approved balance sheet and profit-and-loss (P&L) statement with the local commercial court within seven months of the end of the financial year and within one month of approval of the accounts. The cost of the deposit is Ã¢âÂ¬37.92. The accounts are accessible online for third parties to consult within two to three weeks.
A listed SA must publish its annual balance sheet, P&L statement, quarterly sales figures for each branch of activity and semi-annual provisional balance sheet. Subsidiaries of these companies with assets of Ã¢âÂ¬3m or more, or portfolios of Ã¢âÂ¬300,000 or more, are also individually subject to these disclosure requirements.
All SAs must have at least one statutory auditor registered in France. Two statutory auditors are required for a company (listed or unlisted) with consolidated accounts or a company that solicits funds from the public. The auditor is appointed for a six-year term at a general shareholdersÃ¢â¬â¢ meeting and may be reappointed. An auditor who is not put forward for reappointment has the right to be heard by the shareholdersÃ¢â¬â¢ meeting. The local commercial court may appoint a special auditor to prepare reports on specific transactions (for example, non-cash contributions to a capital company or acquisition of a shareholderÃ¢â¬â¢s assets).
Taxes and fees. Contributions to start-up capital and capital increases may be taxable. They will not be taxed if they come from an entity subject to French corporate income tax that receives shares exactly corresponding to the value of the contribution. However, if the contributor is not subject to French corporate income tax (and regardless of whether it pays French personal tax), a registration tax is levied at 4.8% on amounts exceeding Ã¢âÂ¬23,000 unless the contributor commits to holding the shares for three years. If the contributor receives remuneration or a fee for the contribution, then a tax of 4.8% is due on contributions in the form of property or property rights. If the contribution takes the form of leasehold rights, business premises or customers, then the tax of 4.8% is levied on amounts exceeding Ã¢âÂ¬23,000. Notary fees based on the amount of capital are also payable.
Types of shares. Shares may take the form of registered or bearer shares, but ownership of bearer shares must be recorded. Non-residents may hold shares through nominee accounts. Shares must be registered if required in the companyÃ¢â¬â¢s byelaws or if shares are not fully paid in or are held in reserve in exchange for convertible bonds. Non-voting shares are prohibited (except for preferred shares, which are subject to certain legal limits). But registered shares that are entirely paid up and have been held for more than two years may be granted double voting rights and limited to shareholders of EU nationality. There is no minimum nominal value. No par value shares are permitted.
Control. Shareholders representing 5% of the capital may sue in a commercial court for the removal of contested auditors, obtain written replies to their questions and propose board resolutions. The trigger threshold is lower for larger companies: 4% for companies with share capital of Ã¢âÂ¬750,000Ã¢â¬â4.5m; 3% for companies with share capital of Ã¢âÂ¬4.5mÃ¢â¬â7.5m; 2% for companies with share capital of Ã¢âÂ¬7.5mÃ¢â¬â15m; and 1% for companies with share capital exceeding Ã¢âÂ¬15m.
Requirements of a European Company (Societas EuropaeaÃ¢â¬âSE)
Since October 8th 2004 companies across the EU have been able to set up a European company or Societas Europaea (SE). This facilitates crossborder mergers, formation of holding companies by companies from more than one EU member state, creation of joint crossborder subsidiaries and transfer of a corporate head office. Existing companies can convert to the new statute. The empowering legislation takes the form of a regulation; it does not need transposition into national law, although France has provided clarification on tax rules through national legislation. Moreover, accompanying rules on worker consultation do need transposition, and France had yet to implement these as at June 2005.
An SE is automatically equated with a public limited-liability company in the member state in which it has its head office. An SE is subject to the tax laws of the country in which it is registered.
Capital. The minimum capital for an SE is Ã¢âÂ¬120,000 (or its equivalent in national currency) or any higher amount required by a member state for other types of company under its own company law. SE shareholders must be companies.
Registration. An SE must register in the country where it is set up and publicise registration through the Official Journal of the European Communities. An SE can move its registered office from one EU state to another without winding up the first company and setting up the second. An SE must be wound up only if the registered office is transferred outside the EU.
Management form. An SE may choose a single-tier or two-tier board system. In the two-tier system, board members may be part of the management or supervisory boards, but not both. Board approval is needed for major investment and disinvestment decisions, major lending and borrowing operations, and conclusion of large supply and performance contracts. The threshold to determine the size of transaction requiring a board decision is set by the company statutes. It may not be less than 5% of subscribed capital (or of turnover for supply and performance contracts) or more than 25%.
Disclosure. An SE must draw up annual accounts in accordance with the laws of the member state in which it has its registered office.
Employee participation. Employee participation is compulsory, but several approaches are possible. Agreement must be reached before the company statutes are approved by the first shareholdersÃ¢â¬â¢ meeting. Special provisions apply to mergers.
Establishing a branch
Foreign companies sometimes use the branch form for headquarters operations or for start-up operations when they are not sure how business in France will develop. A branch is unlikely to be eligible for state aid and tax breaks, however, and the parent company has unlimited liability for the debts of the branch office. Branches are taxed on their French income even if their income is also taxed as part of the parentÃ¢â¬â¢s worldwide corporate income.
To form a branch in France, two copies of the articles of association (byelaws) and the statutes of the parent company must be submitted to the commercial court in whose jurisdiction the branch will be located, together with proof of their having been published in an official gazette or equivalent publication in the home country. The manager of the branch must certify that these are the actual byelaws. Translations of the documents must be attached and the branch manager must certify their accuracy. The branch manager may not have been resident in France for more than three months at the time the branch is set up. A copy of the office lease must also be attached.
These documents are filed with the Enterprise Formalities Centre (Centre de FormalitÃÂ©s des Entreprises), along with the other documents required for company formation. This agency then handles the formalities, including notifying the tax authorities. All documents must be filed within 15 days of the branchÃ¢â¬â¢s opening. A foreignerÃ¢â¬â¢s business permit is required for most non-OECD nationals. The registration charge varies slightly from region to region. In Paris it is Ã¢âÂ¬76.19.
Another means of testing the business environment is through a liaison office. It may hire staff but may not engage in commercial activity. The parent company must issue and pay all invoices. It is not liable for tax since it has no income, but it must pay payroll taxes (social security) for local staff. A declaration of existence must be filed with the Enterprise Formalities Centre.
Setting up a company
A sociÃÂ©tÃÂ© anonyme (SA) must have at least seven shareholders; there is no maximum. A sociÃÂ©tÃÂ© ÃÂ responsabilitÃÂ© limitÃÂ©e (SARL) must have at least two shareholders but not more than 100. An SARL may not issue securities to the public but can issue bearer bonds. Transfers of their shares are limited.
A new company form is the Societas Europaea (SE), or European Company, introduced in EU Regulation 2157/2001 of October 2001 and effective from October 8th 2004. Companies from two or more EU member states will be able to merge to form an SE or to create an SE holding company or branch. A company can convert an existing firm to SE status without liquidating. One advantage of the form is that an SE makes it possible to move headquarters to another EU member country with a minimum of formalities.
The sociÃÂ©tÃÂ© par actions simplifiÃÂ©e (SAS) form combines the legal status of a corporation with the flexibility of a partnership. Even one person may form an SAS (with capital of at least Ã¢âÂ¬37,000), but there is no limit on the total number of shareholders. As with an SA, the maximum life of an SAS is 99 years. An SAS may not issue debt or equity to the public. The basic registration procedures are essentially the same as for an SA.
France introduced new rules to make it easier for business Ã¢â¬ÅangelsÃ¢â¬