Which legal status should you choose for your business?

  • The nature of the activity

Certain activities – they are rare – impose the choice of the legal structure. This is the case, for example, of tobacconists which must be operated as a sole proprietorship or as a general partnership. It is therefore prudent to obtain information beforehand from the professional bodies concerned, the consular chambers or by obtaining information sheets or books on the chosen activity.
You can also :
– consult the article of the encyclopedia: “Check the nature of its activity”,

– you obtain the projectors file corresponding to your activity.

  • The desire to join

One may be tempted to create a company of two or more for various reasons: heritage, economic, tax or social.
But if you don’t have, at the start, the real desire to join forces, to pool your skills, knowledge, address book, etc., “for better or for worse”, as for a marriage, the chances of success will be determined reduced.
If you want to be “sole master on board” and if you can’t stand being accountable… it’s better then to remain independent, in a sole proprietorship, in EURL or even in a single-person simplified joint-stock company (Sasu), leave to associate with others to share only certain expenses and thus save money: this is the case of the civil society of means (SCM) or the economic interest grouping (GIE) for example, in each partner remains independent in the exercise of his professional activity.

  • The heritage organization

If you have personal assets to protect and/or pass on by donation, the choice of legal structure takes on all its importance.

– Since May 15, 2022, the individual entrepreneur has benefited from an automatic separation of his personal and professional assets. Consequently, professional creditors will only be able to seize professional assets made up of assets “useful for the business”. The law in favor of independent professional activity promotes the transition from a sole proprietorship to a company by allowing a universal transfer of professional assets without proceeding to the liquidation of said assets.

In terms of transmission, the sole proprietorship can be donated but only in its entirety.

– The legal rampart, which constitutes a company, will be different from one structure to another. Indeed, in a general partnership (SNC), for example, each partner is jointly and severally liable with the company. In the event of financial difficulties, if the assets of the company are not sufficient to satisfy the creditors, the latter could seize the assets directly of one or more partners, with the latter being responsible for obtaining reimbursement in part from their co-partners.

– Regardless of the type of company chosen, the manager(s) (legal or de facto) are responsible for the proper management of the company with regard to their partners and third parties. If the latter are able to prove that they have committed management faults proving to be at the origin of the financial difficulties of the company, they could seek their responsibility and try to meet an action in filling of liabilities.

– Finally, as soon as the company asks for bank assistance, it will be likely that the warning of certain managers or partners will be required.

– The social rights of a company have the advantage of being able to be transmitted gradually.

You have normally determined the financial needs of your company when establishing the provisional accounts.
When they are significant, the creation of a company may be necessary in order to be able to accommodate investors in the capital.
Be careful, however, not to confuse “minimum capital” and “financial needs of the company”. Indeed, some companies impose a minimum share capital, which naturally has no relation to the real financial needs of the company.

Here you will find direct access to creating your account in order to use our free business plan tool.

  • The operation of the company

Depending on the structure you choose, the operating rules will be more or less restrictive.
In the sole proprietorship, the manager is alone. As a result, the operating rules are reduced to a minimum. He takes all the decisions and assumes his responsibility in return.
In companies, the manager does not act for his own account, but “in the name and on behalf” of the company. He must therefore observe a certain formalism, and in particular the participation of the partners in general meetings in order to obtain their authorization for all the important acts which affect the life of the company.

  • The social system of the entrepreneur

This criterion has long been decisive in the choice of legal structure. Indeed, some creators did not hesitate to set up fictitious companies to be attached, as managers, to the general scheme for employees.
Legislation has now largely evolved towards a harmonization of statutes. Find out more about the manager’s social status

  • The tax regime of the entrepreneur and the company

Depending on the structure and choice of tax regime, the profits of the business will be subject to income tax or corporate tax. Again, this criterion will rarely be decisive in the creation phase. Indeed, it is difficult to precisely calculate the forecast turnover of the future company and thus to carry out a realistic tax optimization.
However, if you can benefit from a tax exemption measure on profits, it may be advantageous to choose a structure that will allow you to place yourself under the income tax system. The exemption will then cover all of the profits, including the part corresponding to your remuneration, etc.
Be careful, however, micro-entrepreneurs (ex auto-entrepreneurs) are excluded from certain schemes.

  • Claims vis-à-vis partners (bankers, customers, suppliers, etc.)

It is undeniable that to approach certain markets, the creation of the company in the form of a company with a substantial capital will be recommended.

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