France, with its strategic location and robust economy, continues to attract foreign investors seeking to establish or expand their business presence in Europe. This comprehensive guide outlines the essential aspects of French corporate law that foreign investors need to understand for successful business operations.
Understanding the French Business Environment
The French business environment combines traditional European values with modern international business practices. For foreign investors, understanding this unique ecosystem is crucial for successful market entry and sustainable operations.
Types of Business Entities in France
France offers foreign investors a range of legal structures tailored to their specific needs. These entities vary in terms of responsibility, management, taxation and flexibility, offering solutions tailored to small businesses, large corporations and international projects.
1. SARL (Société à Responsabilité Limitée)
The SARL (Société à Responsabilité Limitée) is the most popular legal structure in France, particularly among small and medium-sized enterprises. Its administrative simplicity and legal protection make it a preferred choice for entrepreneurs. For instance, as of May 22, 2023, 1,601,873 SARLs were registered in France.
- Limited liability company structure : Partners are only liable to the extent of their contributions. Their personal wealth is protected from the company’s creditors, which secures their investment.
- Minimum capital requirement : There is no longer a mandatory minimum capital so that a SARL can be constituted with a capital of only €1. It makes this form accessible even to entrepreneurs with limited resources.
- Suitable for small to medium-sized businesses : It minimizes administrative formalities, reduces financial risks, and operates with simplicity.
- Maximum of 100 shareholders
For who ? The SARL is ideal for entrepreneurs wishing to create a limited liability company with simplified management, especially in the handicraft, commercial or service sectors.
Legal basis : Articles L.223-1 to L.223-43 and R.223-1 to R.223-36 of Commercial Code
2. SA (Société Anonyme)
The SA (Société Anonyme) is a structure designed for large companies and those wishing to raise funds on the financial markets. It is particularly suited to listed companies or projects requiring significant capital. In 2023, there were 30,667 SA in France.
- Public limited company structure : Shareholders have limited liability to their contributions so they cannot be held liable for the debts of the company beyond the amount of their initial investment.
- Minimum capital : The minimum capital is set at €37,000 but some regulated activities (such as banks or portfolio managers) may require higher amounts.
- More complex management structure : The management of the SA can be organized according to two models.
- Board of Directors and CEO: This model combines the management and control roles in a single body, the Board of Directors.
- Directory and Supervisory Board : This dualistic model separates management (directory) and control (supervisory board) functions, providing greater transparency in decision-making.
- Ideal for larger operations and public trading : It is one of three legal forms in France allowed to raise funds through public offerings of shares or bonds and to list its securities on a regulated market. Its public nature makes it a preferred choice for multinationals and companies seeking to attract institutional or individual investors.
For who ? The SA is particularly suited to large companies, industrial or financial groups, and companies looking to raise funds on the financial markets or go public. It is also a preferred structure for multinational companies looking to operate in France.
Legal basis : Article L.225-1 to L.225-70, L.242-1 to L.242-31, L.24(-17 and R.225-1 to R.225-172 of Commercial Code
3. SAS (Société par Actions Simplifiée)
The SAS (Société par Actions Simplifiée) is a modern structure, introduced to meet the needs of companies seeking greater flexibility and simplified management. Today, it is the preferred form of foreign investors and large companies wishing to establish a subsidiary in France.
- Simplified joint-stock company
- Flexible management structure : It is based on the principle of contractual freedom of the partners, which is expressed in the statutes and therefore offers a very flexible structure with a strong place left to the intuition personae.
- Popular among foreign investors : It was created to meet the expectations expressed by the business community to adopt a flexible company structure with little formalism and that it could safely meet the need to set up assemblies and be 100% owned by the same company.
- No minimum capital requirement since 2019
For who ? SAS is particularly appreciated by foreign investors for its flexibility and administrative simplicity. It is ideal for subsidiaries of multinationals, innovative start-ups and structures requiring great statutory freedom.
With its flexible structure, SAS has become the first joint-stock company in France. It combines the advantages of a contractual organization with those of legal protection, perfectly meeting the needs of international companies seeking to operate safely while minimizing administrative constraints.
Legal basis : Articles L.227-1 to L.227-20 of Commercial Code
For more information on the different forms of company in France, you can refer to the French government’s entrepreneurship website and the French government’s business creation website.
Key Legal Requirements
Registration Procedures
Setting up a business in France requires a series of steps carried out by the future representatives of the company, each of these steps is crucial to ensuring legal compliance and obtaining legal personality.
Publication of a notice of constitution
The creation of a company involves the publication of a notice of constitution in a legal notice (paper or digital). This notice must include essential information relating to the company, such as its name, legal form, registered office, and purpose.
Legal basis : Article R.232-4 of the Commercial Code
Filing of the registration file
The future legal representatives are responsible for compiling a registration dossier including all the required information related to the constitution of a company and supporting documents.
You must deposit the registration file with the CFE or the electronic counter (Guichet Électronique Unique). Since 1st January 2023, you must complete all formalities exclusively via the electronic counter, which centralises the information and sends it to relevant bodies, such as commercial courts, the tax administration, and social welfare agencies.
Registration in the Register of Trade and Companies (RCS)
Once the registration has been filed, the Commercial Court Registry carries out a regularity check.
- Verification of supporting documents : Registrars ensure that the information provided meets the legal requirements specific to the type of company created and that it corresponds to the documents submitted.
- Attribution of legal personality : Registration confers on the company the legal personality, allowing it to acquire rights and obligations independently of its partners. This legal personality protects the partners by separating their personal assets from that of the company.
- Obtaining proof of legal personality : Once registered, the company receives several official documents as proof of its legal personality.
- SIREN number : It is assigned by INSEE and legally identifies the company.
- Kbis extract : This official document is proof of the company’s registration and legal existence.
Legal basis : Article 1842 of Civil Code
Registration with Tax authorities and Social security organizations
After registration, several registrations must be made with the competent authorities :
- Tax service : The company must register with the tax authorities to obtain an intra-EU VAT number and ensure that it complies with its tax obligations, such as VAT declaration, corporation tax, and territorial economic contribution (CET).
- Social security bodies : Every company has to register its employees and managers with social security bodies. This formality allows the company to pay social contributions and guarantee social protection for workers.
- URSAFF for employee social coverage, self-employed social scheme for individual entrepreneurs
Foreign Investment Regulations
France has established a framework of regulations that govern foreign investments, especially those involving strategic sectors critical to national security, economic stability, and technological sovereignty. These regulations aim to strike a balance between attracting foreign capital and protecting key industries.
Mandatory authorization for sensitive sectors
France generally permits financial transactions with foreign nations without restrictions. However, certain transactions require prior authorization from the Minister of the Economy when the target company operates in sectors deemed sensitive or the activities involved could potentially compromise public order, public security, or national defence interests.
The following sectors are subject to mandatory oversight and prior approval:
- National defense and security
- Critical technologies (such as cybersecurity, artificial intelligence, and robotics) and strategic infrastructure
- Public health and food safety
- Media and telecommunications
- Energy and transportation
Legal basis : Articles L.151-1, L.151-3 and R.151-3 of Monetary and Financial Code
National security review procedures
In France, certain foreign investments require a mandatory national security review are subject to systematic controls to prevent risks to military capabilities or other critical national security interests :
- Defense and armaments
- Critical infrastructure and advanced technologies, such as cybersecurity and telecommunications
Foreign investments in these sectors are subject to prior authorization from the Ministry of the Economy. The Ministry will assess whether the investment could potentially jeopardize national security, particularly in defense and strategic industries.
Legal basis : Article L. 2339-2 of the Defense Code and Articles L.151-1 and L.151-3 of the Monetary and Financial Code
Investment threshold requirements
Investors from outside the European Economic Area (EEA) are subject to acquisition limits. Indeed, when the investment exceeds 25% of the voting rights in a company deemed sensitive, a prior approval from the Ministry of the Economy is required.
This rule ensures that foreign investments do not compromise national interests, particularly in sectors critical to public security, defense, and strategic infrastructure.
Legal basis : Articles R.151-1 to R.151-3 of the Monetary and Financial Code
Tax Considerations
Understanding the French tax system is essential to ensure the sustainability and success of your business.
Corporate Tax (IS)
The Corporate tax is a tax with a standard rate of 25% that applies to profits made by the company during the tax year.
However, small businesses can benefit from a reduced rate of 15% on the first €42,500 of profits. This reduced rate applies to companies that meet the following 2 conditions :
- Turnover less than or equal to €10,000,000 during the accounting year
- Fully released at least 75% of share capital held by natural
In addition, additional taxation can be applied if the profits are distributed to partners.
Legal basis : Articles 1A and 205 of General Tax Code
For further information on Corporate Tax, click here.
VAT Registration
VAT is an indirect tax that affects consumption by taxing the value added at each stage of the process of producing or marketing a good or service. In other words, VAT relates to the turnover made by companies. Indeed, A business must register for VAT if its turnover exceeds :
- €82,800 for the sale of goods
- €33,200 for the provision of services
In France, the VAT is subject to a different rate depending on the good or service :
- Standard rate : The standard VAT rate for most goods and services is 20%.
- Reduced rates : There is a list of sectors of activity that will be eligible for one of the reduced rates. The rate of VAT collected depends on the activity of the business.
- 10%
- 5.5%
- 2.1%
The VAT collected is returned to the State. However, the business can deduct the VAT paid on its business purchases. This VAT mechanism reduces the cost for businesses, provided they comply with the registration and declaration procedures.
Legal basis : Articles 256 et seq. of General Tax Code and EU Directive on VAT
Various tax credits and incentives available
France offers a range of tax credits and incentives to attract foreign investors and businesses. These measures aim to foster economic growth, innovation, and job creation while ensuring the country’s competitiveness on the global market.
- Research and Development (R&D) Tax Credit
- Incentives for Investment in Startups
- Regional Investment Incentives
- VAT Exemption for Exporters
Employment Law Essentials
French employment law is characterized by strong protection for employees, requiring businesses to comply with various regulations designed to ensure fair working conditions and safeguard workers’ rights.
35-hour workweek regulations : There is a standard workweek of 35 hours but employers can request employees to work beyond this limit. Any additional hours have to be requested in advance and compensated as overtime.
Legal basis : Article L.3121-11 of Labor Code
Mandatory benefits and leave policies : Employees are entitled to a minimum of five weeks of paid vacation per year, in addition to public holidays, and several paid leave.
Sick Leave : It is under certain conditions and the amount paid depends on the length of employment and specific health insurance schemes.
Maternity and Paternity Leave: Mothers are entitled to a minimum of 16 weeks of maternity leave and fathers to 25 days of paternity leave.
Legal basis : Articles L.3141-1 and L.1225-1 of Labor Code
Strong employee protection measures : French labor law offers robust protections for employees, including dismissal protection, workplace safety and health and collective bargaining and trade unions.
Legal basis : Articles L.1232-1 and L.4121-1 of Labor Code.
Compliance and Reporting
Maintaining compliance requires regular attention to:
Annual financial statements : These statements, including the balance sheet, income statement, and cash flow statement, have to be filled with the court registry of the Commercial Court every fiscal year.
Legal basis : Article L.123-12 of Commercial Code
Corporate documentation requirements : Specific corporate documents have to be accessible for review by shareholders and regulatory authorities.
Annual accounts
Management Report
Legal basis : Article L.232-1 of Commercial Code
Regulatory filings and updates : Companies are required to submit various regulatory filings and updates to ensure compliance with French law. Failure to meet these requirements can result in penalties or legal consequences.
Financial Statements
Tax Filings
Legal basis : Article L.123-12 of Commercial Code
Conclusion
Success in the French market requires thorough understanding of corporate law and careful attention to compliance requirements. While the regulatory environment may seem complex, France offers significant opportunities for foreign investors who properly navigate its legal framework.
For the most current information and specific advice, it’s recommended to consult with qualified legal professionals and relevant government authorities.
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